<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
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 Number 0-22173]
_______________
TOTAL CONTROL PRODUCTS, INC.
(Exact name of Registrant as specified in its charter)
Illinois 36-3209178
(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
2001 North Janice Avenue
Melrose Park, Illinois 60160
(Address of principal executive offices) (Zip Code)
(708) 345-5500
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
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 of Common Stock outstanding on
February 12, 1998: 7,922,532 Shares
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TOTAL CONTROL PRODUCTS, INC. AND SUBSIDIARIES
---------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE>
<CAPTION>
A S S E T S March 31, December 31,
----------------- 1997 1997
----------- ------------
<S> <C> <C>
CURRENT ASSETS: (unaudited)
Cash and cash equivalents $ 221,967 $ 354,635
Trade receivables, net of allowances of $118,000 and $420,000 at March 31 and December 31,
1997, respectively 7,804,823 10,545,326
Raw materials inventory 2,674,668 6,850,033
Work in process and finished goods inventory 5,309,373 7,803,480
Prepaid and deferred expenses-
Taxes 1,273,696 465,490
Other 281,280 802,978
----------- ------------
Total current assets 17,565,807 26,821,942
----------- ------------
PROPERTY AND EQUIPMENT, net 2,393,137 3,343,780
OTHER ASSETS:
Asset held for sale 5,037,139 -
Goodwill, net 5,118,212 24,776,615
Investment in foreign joint venture 277,243 333,579
Receivables from officers 191,547 2,233,739
Other long-term assets 879,282 1,591,498
----------- ------------
Total other assets 11,503,423 28,935,431
----------- ------------
$31,462,367 $59,101,153
=========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
2
<PAGE>
TOTAL CONTROL PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
(Continued)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY March 31, December 31,
------------------------------------ 1997 1997
---- ----
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt $ 129,272 $ 56,765
Notes payable-
Related parties 228,716 -
Other 183,577 -
Accounts payable 1,962,762 3,235,902
Accrued expenses-
Income taxes 79,483 2,345,168
Commissions 716,302 828,114
Payroll 735,271 847,837
Other 1,797,938 2,994,616
Deferred revenue 1,110,402 860,310
----------- -----------
Total current liabilities 6,943,723 11,168,712
----------- -----------
LONG-TERM LIABILITIES:
Notes payable to bank 2,215,229 12,408,323
Long-term debt, net of current maturities 47,711 4,925
Other 827,838 580,880
----------- -----------
Total long-term liabilities 3,090,778 12,994,128
----------- -----------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST IN SUBSIDIARY 1,521,289 1,256,699
SHAREHOLDERS' EQUITY:
Common stock, no par value; 22,500,000 shares authorized; 6,916,465 and 7,922,532 shares
issued and outstanding at March 31 and December 31, 1997, respectively 24,613,624 35,073,765
Class C Exchangeable common stock of subsidiary, no par value; unlimited shares
authorized; 737,112 shares issued and outstanding at March 31 and December 31, 1997 4,641,110 4,641,110
Accumulated deficit (9,295,658) (6,017,707)
Foreign currency translation adjustment (52,499) (15,554)
----------- -----------
Total shareholders' equity 19,906,577 33,681,614
----------- -----------
$31,462,367 $59,101,153
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
3
<PAGE>
TOTAL CONTROL PRODUCTS, INC. AND SUBSIDIARIES
---------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1997
-----------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
NET SALES $11,518,822 $17,703,624
COST OF GOODS SOLD 5,398,929 8,656,397
----------- -----------
Gross profit 6,119,893 9,047,227
----------- -----------
OPERATING EXPENSES:
Sales and marketing 2,736,248 3,297,385
Research and development 1,131,335 1,436,219
General and administrative 1,101,825 1,275,741
Amortization of goodwill 123,044 530,029
Charge for purchased research and development - 200,000
----------- -----------
Income from operations 1,027,441 2,307,853
----------- -----------
OTHER INCOME (EXPENSES):
Interest, net (138,934) (205,510)
Earnings in foreign joint venture 10,000 8,230
Other income (expense), net (26,848) 12,268
----------- -----------
Income before income taxes and minority interest 871,659 2,122,841
PROVISION FOR INCOME TAXES 407,000 912,000
----------- -----------
Income before minority interest 464,659 1,210,841
MINORITY INTEREST IN LOSS OF SUBSIDIARY 16,333 130,691
----------- -----------
Net income 480,992 1,341,532
ACCRETION TO REDEMPTION VALUE OF COMMON
STOCK (4,162,689) -
----------- -----------
Net income (loss) available to common
shareholders $(3,681,697) $ 1,341,532
=========== ===========
Basic earnings (loss) per share $(0.65) $0.16
=========== ===========
Diluted earnings (loss) per share $(0.65) $0.15
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING:
Basic shares 5,694,000 8,544,000
Plus dilutive effect of stock options - 254,000
----------- -----------
Diluted shares 5,694,000 8,798,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
TOTAL CONTROL PRODUCTS, INC. AND SUBSIDIARIES
---------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
FOR THE NINE MONTHS ENDED DECEMBER 31, 1996 AND 1997
----------------------------------------------------
<TABLE>
<CAPTION>
1996 1997
------------ ------------
(Unaudited)
<S> <C> <C>
NET SALES $ 28,813,616 $ 42,614,482
COST OF GOODS SOLD 15,198,783 19,567,156
------------ ------------
Gross profit 13,614,833 23,047,326
------------ ------------
OPERATING EXPENSES:
Sales and marketing 6,183,674 9,307,180
Research and development 2,591,167 3,914,744
General and administrative 2,721,133 3,316,948
Amortization of goodwill 190,714 810,829
Charge for purchased research and development 4,893,000 200,000
------------ ------------
Income (loss) from operations (2,964,855) 5,497,625
------------ ------------
OTHER INCOME (EXPENSES):
Interest, net (435,683) (271,750)
Earnings in foreign joint venture 78,907 53,519
Other income (expense), net (30,168) 17,968
------------ ------------
Income (loss) before income taxes and minority interest (3,351,799) 5,297,362
PROVISION FOR INCOME TAXES 599,000 2,284,000
------------ ------------
Income (loss) before minority interest (3,950,799) 3,013,362
MINORITY INTEREST IN LOSS OF SUBSIDIARY 1,851,467 264,590
------------ ------------
Net income (loss) (2,099,332) 3,277,952
ACCRETION TO REDEMPTION VALUE OF COMMON STOCK
(9,061,037) -
------------ ------------
Net income (loss) available to common shareholders $(11,160,369) $ 3,277,952
============ ============
Basic earnings (loss) per share $(1.97) $0.41
============ ============
Diluted earnings (loss) per share $(1.97) $0.40
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES
OUTSTANDING:
Basic shares 5,672,000 7,951,000
Plus dilutive effect of stock options - 211,000
------------ ------------
Diluted shares 5,672,000 8,162,000
============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
5
<PAGE>
TOTAL CONTROL PRODUCTS, INC. AND SUBSIDIARIES
---------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE NINE MONTHS ENDED DECEMBER 31, 1996 AND 1997
----------------------------------------------------
<TABLE>
<CAPTION>
1996 1997
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES: (Unaudited)
<S> <C> <C>
Net income (loss) for the period $(2,099,332) $ 3,277,952
Adjustments to reconcile net income (loss) to net cash (used in) provided
by operating activities-
Minority interest in loss of subsidiary (1,851,467) (264,590)
Charge for purchased research and development 4,893,000 200,000
Depreciation and amortization 631,041 1,460,010
Earnings in foreign joint venture (78,907) (53,519)
Changes in operating assets and liabilities-
Trade receivables (594,590) (1,214,924)
Inventory (2,910,828) (944,006)
Prepaid expenses and other assets (379,148) 2,627
Accounts payable, accrued expenses and other liabilities 1,388,527 1,957,674
Deferred revenue 24,375 (35,990)
----------- ------------
Net cash (used in) provided by operating activities (977,329) 4,385,234
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for businesses acquired, net and other acquisition costs (5,725,788) (14,328,581)
Purchases of property and equipment (397,181) (936,949)
Proceeds from disposal of asset held for sale and other assets 23,866 2,147,499
Purchases of other assets (14,000) (466,780)
Increase in receivable from officer (10,262) (42,192)
----------- ------------
Net cash used in investing activities (6,123,365) (13,627,003)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in notes payable to bank 1,414,753 6,193,094
Payments on long-term debt and notes payable (630,305) (527,586)
Proceeds from issuance of debt 3,000,000 4,000,000
Proceeds from sale of common stock 4,000,000 137,954
Payment of offering costs - (429,025)
----------- ------------
Net cash provided by financing activities 7,784,448 9,374,437
----------- ------------
INCREASE IN CASH AND CASH EQUIVALENTS 683,754 132,668
CASH AND CASH EQUIVALENTS, beginning of period 19,058 221,967
----------- ------------
CASH AND CASH EQUIVALENTS, end of period $ 702,812 $ 354,635
=========== ============
SUPPLEMENTAL DISCLOSURE:
Cash paid during the period for-
Income taxes $ 570,000 $ 355,000
Interest 523,000 360,000
=========== ============
NONCASH INVESTING AND FINANCING ACTIVITIES:
Conversion of subordinated debentures into 67,873 shares of common stock $ 50,000 $ -
Issuance of 767,112 shares of Class C Exchangeable common stock of
subsidiary and $2.2 million note in connection with the acquisition of Taylor $ 6,850,000 $ -
Note receivable from shareholder in connection with disposal of asset held
for sale (Note 2) $ - $ 2,000,000
Issuance of 932,039 shares of common stock and 100,000 common stock
warrants and 41,667 shares of common stock in connection with the
acquisitions of CDI and SensorPulse, respectively (Notes 4 and 5) $ - $ 10,322,000
=========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
TOTAL CONTROL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(Unaudited)
Note 1
- ------
The consolidated financial information herein is unaudited, other than
Consolidated Balance Sheet information as of March 31, 1997 and Consolidated
Statements of Operations and Cash Flows information for the nine months ended
December 31, 1996, which is derived from audited financial statements.
In the opinion of the Company, the accompanying interim consolidated financial
statements contain all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the Company's financial position as of
December 31, 1997, the results of operations for the three months ended December
31, 1997 and 1996 and the nine months ended December 31, 1997 and changes in
cash flows for the nine months ended December 31, 1997.
While the Company believes that the disclosures presented are adequate to make
the information not misleading, it is suggested that these consolidated
financial statements be read in conjunction with the consolidated financial
statements and notes included in the Company's 1997 annual report on Form 10-K
filed with the Securities and Exchange Commission.
The results for the quarter and the nine months ended December 31, 1997, are not
necessarily indicative of the results to be expected for the entire year.
Note 2
- ------
On September 26, 1997, the Company's majority-owned subsidiary, Taylor
Industrial Software, Inc. (Taylor), completed the sale of its TESS software
product line operation (which had previously been classified as "asset held for
sale") to an entity principally owned by Neil R. Taylor ("Mr. Taylor"). Mr.
Taylor, the former principal shareholder of Taylor, is an officer and a member
of the Company's board of directors. The sale price was approximately $4
million.
In connection with the transaction, the Company loaned Mr. Taylor $2 million
pursuant to a promissory note dated September 25, 1997. The note bears interest
at 8% per annum, due annually, and is payable in five equal annual installments
beginning on September 25, 1999 and ending on September 25, 2003. The note is
secured by 250,000 shares of Class C exchangeable common stock of Taylor
currently held by Mr. Taylor. As a result of this transaction, the purchase
price associated with the Taylor acquisition was re-allocated. The carrying
value of the goodwill previously recorded by the Company related to the Taylor
acquisition increased by approximately $2.5 million, which related to the after
tax difference between the
7
<PAGE>
estimated sales price of the TESS product line and the actual sales price. This
additional goodwill will be amortized over the remaining useful life of the
goodwill of six years.
Note 3
- ------
Under the terms of the Taylor acquisition, the Company may become obligated to
make payments of contingent consideration. The first contingent payment period
ended on September 30, 1997, for which the Company paid contingent consideration
of approximately $1.1 million. In connection with the payment of contingent
consideration, the Company's ownership interest in Taylor increased from 61% to
61.5%. The Company recorded this contingent consideration obligation as
additional goodwill at September 30, 1997 and this goodwill is being amortized
over the remaining useful life of the goodwill of six years from the date
recorded.
Note 4
- ------
On October 5, 1997, the Company acquired substantially all of the assets of
Computer Dynamics, Inc. ("CDI"), a South Carolina corporation, and certain other
related entities pursuant to the terms of an Asset Purchase Agreement (the
"Agreement") dated October 5, 1997 (the "Transaction"). The consideration paid
by the Company in connection with the Transaction, which was accounted for as a
purchase, consisted of approximately $12.3 million in cash, 932,039 shares of
common stock of the Company and a warrant (the "Warrant") to purchase 100,000
shares of common stock of the Company. The Warrant is immediately exercisable at
a price of $12.875 per share and shall remain outstanding for a period of ten
years. The excess of purchase price over the estimated fair value of identified
net assets acquired of approximately $15.6 million has been recorded as goodwill
and is being amortized over seventeen years from the date of acquisition. These
estimates are preliminary and may be changed based on actual results.
Additionally, subject to certain adjustments, for five years after the closing,
the Company shall pay CDI an annual payment ranging from $0 to $3.0 million for
each year in which the year over year earnings of the acquired company exceed
110% to 125% of the base earnings for each period (each an "Earn Out Period").
Each such payment shall be made 50% in cash and 50% in common stock of the
Company; provided however, that not more than 347,961 shares may be issued in
connection with the payment of such consideration, and once such number of
shares have been issued, all remaining payments shall be made in cash. Each of
the common shares shall be valued based on their then fair market value at the
end of each Earn Out Period. Future payments of contingent consideration, if
any, will be recorded as additional goodwill and will be amortized over the
remaining goodwill amortization period.
8
<PAGE>
Furthermore, the Company entered into a Registration Rights Agreement with CDI
and the former principal shareholder pursuant to which the portion of the shares
of common stock of the Company issued to the former principal shareholder and
CDI in connection with the Transaction or issued pursuant to the Warrant are
subject to certain piggy-back registration rights.
In addition, in connection with the consummation of the Transaction, the Company
entered into an employment agreement with the former principal shareholder.
As part of the Transaction, the Company created two additional wholly-owned
subsidiaries, Computer Dynamics, Inc. and Computer Dynamics Holding Company.
To finance the Transaction, the Company amended its line of credit agreement
with its bank. The amended line of credit agreement allows for borrowings of up
to $18.0 million, subject to borrowing base restrictions consistent with the
previous agreement, with interest varying based on certain financial ratios from
LIBOR plus 1.5% to LIBOR plus 2%, payable monthly. Additionally, the Company
entered into a $4.0 million term note with its bank. Interest is calculated at
the bank's prime rate and is payable monthly. Principal of $250,000 is paid
quarterly beginning March 31, 1998, and commencing September 30, 1998, all cash
flow in excess of the debt service coverage, as defined, shall be applied to pay
down the outstanding principal balance on the note. The note is secured by
substantially all of the Company's assets. The amended line of credit agreement
expires July 31, 1999.
Results of operations of CDI are included in the consolidated financial
statements subsequent to October 5, 1997. The following unaudited pro forma
results of operations data for the nine months ended December 31, 1996 and 1997,
assume the CDI acquisition occurred as of April 1, 1996 (in thousands except per
share amounts):
<TABLE>
<CAPTION>
Nine Months Ended December 31,
1996 1997
---- ----
(Unaudited)
<S> <C> <C>
Net sales $43,615 $51,672
Net income 1,921 3,687
Net income (loss) available to
common shareholders (7,140) 3,687
Basic earnings (loss) per share $ (1.08) $ 0.43
Diluted earnings (loss) per share $ (1.08) $ 0.42
=========== ==========
</TABLE>
Note 5
- ------
On December 31, 1997, the Company acquired substantially all of the assets of
SensorPulse, Corp. ("SensorPulse"), a designer and developer of industrial
signal conditioning products and networked
9
<PAGE>
input/output (I/O) devices located in South Easton, Massachusetts, for 41,667
shares of common stock of the Company and $1.25 million in cash (subject to
certain downward adjustments) in a transaction that was accounted for as a
purchase. At the date of acquisition, the Company recorded a charge related to
the purchase of incomplete research and development of $200,000 ($120,000 net of
related tax benefit). The amount allocated to the purchased incomplete research
and development projects represents the estimated fair value related to those
projects determined by independent appraisal. Proven valuation procedures and
techniques were utilized in determining the fair market value of each intangible
asset. The purchased research and development projects were individually
identified and were valued based on estimates of discounted future income.
Consideration was given to the stage of development, the time and resources
required for completion, as well as the market potential and associated risks.
To bring these projects to technological feasibility, high-risk developmental
and testing issues needed to be resolved, which required substantial additional
effort and testing.
Additionally, the purchase agreement provides for a four year annual earn-out
payment to SensorPulse based upon the year over year growth in SensorPulse's
earnings before taxes multiplied by: three in calendar year 1998; two and three
quarters in calendar year 1999; two in calendar year 2000; and one and one-half
in calendar year 2001, with maximum aggregate payments of $23.25 million. Such
earn-out shall be payable 50% in cash and 50% in common stock of the Company at
its then fair market value.
The excess purchase price over the estimated fair value of identified net assets
(which will increase for any future contingent consideration) of approximately
$975,000 was assigned to goodwill and is being amortized over fifteen years.
These estimates are preliminary and may be changed based on actual results.
In connection with this acquisition, the Company entered into a four year
employment agreement with a former shareholder.
As part of the SensorPulse acquisition, the Company created a wholly-owned
subsidiary, SensorPulse Corp.
Note 6
- ------
Basic earnings per share has been computed by dividing net income by the
weighted average number of common shares outstanding, including the Class C
Exchangeable shares of Taylor, as it is convertible on a one-for-one basis for
common stock of the Company at any time at the option of the holder and SAB 83
shares for periods prior to the Company's initial public offering on March 11,
1997.
Diluted earnings per share has been computed by dividing net income by the
weighted average number of common and equivalent shares outstanding. Common
stock equivalents included in the computation represent shares issuable upon
exercise of stock options or warrants which would have a dilutive effect in
periods where there are earnings. Common stock equivalents were anti-dilutive
for the three and nine months ended December 31, 1996.
10
<PAGE>
The Company adopted Statement of Financial Accounting Standards No. 128, ("SFAS
128") "Earnings per Share" during the quarter ended December 31, 1997. In
accordance with SFAS 128, all previously presented earnings per share
information has been calculated under the provisions of SFAS 128. Due to the
nature of the Company's capital structure, there was no difference between
diluted earnings per share calculated under SFAS 128 and earnings per share
previously reported.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
The Company designs, develops and markets products and technology for the
control segment of the industrial automation market. The Company's broad range
of products are used to define, monitor and maintain the operation, sequencing
and safety of industrial equipment and machinery on the factory floor. These
products range from closed architecture PLC operator interfaces to open
architecture control software and systems, and are sold primarily through an
international network of independent distributors with approximately 225 sales
locations.
The Company's net sales include revenues from sales of products, software
license fees, software maintenance and services. The Company's principal product
line, QuickPanel and similar products accounted for 62% and 53% of net sales in
the nine months ended December 31, 1996 and 1997, respectively.
A key element of the Company's strategy has been to expand the breadth of
products offered through its distributor network in order to maximize operating
leverage. In September 1996, the Company acquired a controlling interest in
Taylor, an Edmonton, Alberta-based developer of PC-control software,
client/server program management software, graphical operator interface software
and PLC configuration and support software. In October 1997, the Company
acquired substantially all of the net assets of CDI, a South Carolina-based
manufacturer of industrial computers. Also, on December 31, 1997, the Company
acquired substantially all of the net assets of SensorPulse, a Massachusetts-
based designer and developer of industrial signal conditioning products and
networked input/output (I/O) devices. These acquisitions expanded the Company's
product line, allowing it to capitalize on the growing trends towards
interoperable technology products, and gave the Company a platform from which to
develop new products incorporating these new technologies into the Company's
traditional products.
Results of the Company's operations have fluctuated from quarter to quarter in
the past, and may fluctuate significantly in the future. Such fluctuations may
result from a variety of factors, including the timing of new product
introductions by the Company, its competitors or third parties, the loss of any
of its significant distributors, currency fluctuations, disruption in the supply
of components for the Company's products, changes in product mix or capacity
utilization, the timing of orders from major customers, personnel changes,
production delays or inefficiencies, seasonality and other factors affecting
sales and results of operations, including acquisitions made by the Company.
Such quarterly fluctuations in results of operations may adversely affect the
market price of the Company's Common Stock, no par value (the "Common Stock"). A
substantial portion of the Company's sales for each quarter results from orders
received in that quarter. Furthermore, the Company has often recognized a
substantial portion of its sales in the last month of a quarter, with sales
frequently concentrated in the last weeks or days of a quarter. A substantial
portion of the Company's operating expenses are primarily related to personnel,
development of new products, marketing programs and facilities. The level of
spending for such expenses cannot be adjusted quickly, and is based, in large
part, on the Company's expectations of future
12
<PAGE>
revenues. If actual revenue levels are below management's expectations, the
Company's business, financial condition and results of operations may be
materially adversely affected. A part of the Company's business strategy is to
continue its growth through strategic acquisitions. Many business acquisitions,
such as the Company's acquisition of CDI in October 1997 or SensorPulse in
December 1997, must be accounted for as a purchase. Most of the businesses that
might become attractive acquisition candidates for the Company are likely to
have significant goodwill and intangible assets, and acquisition of these
businesses, if accounted for as a purchase, would typically result in
substantial goodwill amortization charges to the Company in the future. In
addition, such acquisitions, including the acquisitions of CDI and SensorPulse,
could involve acquisition-related charges or cause management to consider
restructuring-related charges to enhance integration which could significantly
impact the results of the Company's operations in the quarter of acquisition or
any quarter thereafter. The Company believes that period-to-period comparisons
of its results of operations are not necessarily meaningful and should not be
relied upon as indicators of future performance.
The Company cautions readers that certain important factors may affect the
Company's actual results and could cause results to differ materially from
forward-looking statements which may be deemed to have been made in this
Form 10-Q, or which are otherwise made by or on behalf of the Company. Such
factors include, but are not limited to, changing market conditions, the
availability and cost of supply materials for the Company's products, the timely
development and market acceptance of the Company's products, and other risks
detailed under the caption "Risk Factors" in Item 1 of the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1997, or otherwise
described herein or detailed from time to time in the Company's Securities and
Exchange Commission filings.
Results of Operations
Three Months Ended December 31, 1997 and December 31, 1996
Net Sales. Net sales increased 54% to $17.7 million for the three month period
ended December 31, 1997 compared to $11.5 million for the three month period
ended December 31, 1996. This increase resulted primarily from the growth in
sales of the Company's graphics-based operator interface products of
approximately $1.1 million, offset by a reduction in software revenue of
approximately $500,000. The increase also reflects the net sales of CDI for the
three months ended December 31, 1997 of approximately $5.6 million.
Gross Profit. Cost of goods sold consists primarily of expenses for components
and subassemblies, subcontracted labor, direct labor and manufacturing overhead.
Gross profit increased 48% to $9.0 million for the three months ended December
31, 1997 from $6.1 million for the three months ended December 31, 1996. Gross
margin decreased to 51.1% for the three months ended December 31, 1997 from
53.1% for the three months ended December 31, 1996. Of this decrease, three
percentage points were the result of lower margin revenue from CDI in fiscal
1998. An additional one percentage point decrease related to a reduction in
higher margin software sales as a percent of total sales for the third quarter
of fiscal 1998. These reductions were offset by a margin increase of
approximately two percentage points related to a reduction in material cost of
sales associated with the QuickPanel product line resulting from an increase in
the average dollar to yen exchange rate.
Sales and Marketing. Sales and marketing expenses consist primarily of personnel
costs, sales commissions paid to the Company's independent sales
representatives, advertising, product literature,
13
<PAGE>
trade shows, distributor promotions and depreciation on equipment used for sales
related activities. Sales and marketing expenses increased 21% to $3.3 million
for the three months ended December 31, 1997 from $2.7 million for the three
months ended December 31, 1996. Approximately $100,000 of the increase resulted
from increased commissions due to higher sales volume. Approximately $350,000 of
the increase resulted from costs associated with the operations of CDI and the
remaining increase of approximately $150,000 was due to increased salary,
benefits and related costs attributable to increased sales support personnel,
offset by reductions in advertising and promotional expenditures.
Research and Development. Research and development expenses consist primarily of
personnel costs, engineering supplies, development equipment, depreciation and
overhead costs. Research and development expenses increased 27% to $1.4 million
for the three months ended December 31, 1997 from $1.1 million for the three
months ended December 31, 1996. The increase resulted primarily from increased
costs related to CDI of approximately $200,000 and outside development costs of
approximately $100,000.
General and Administrative. General and administrative expenses consist
primarily of personnel costs related to finance, information systems, and
general management functions, as well as professional fees related to legal,
audit and tax services. General and administrative expenses increased 16% to
$1.3 million for the three months ended December 31, 1997 from $1.1 million for
the three months ended December 31, 1996. Approximately $400,000 of the increase
related primarily to additional personnel and facility costs resulting from the
three months operating results of CDI offset by reductions in salary and
facility related costs primarily related to the integration of the Company's
Cincinnati operations of approximately $200,000.
Amortization of Goodwill. Amortization of goodwill consists of the amortization
of the excess purchase price of the Cincinnati, Taylor and CDI acquisitions,
which are being amortized over seven to seventeen years from the date of
acquisition. Amortization increased to $530,000 for the three months ended
December 31, 1997 from $123,000 for the three months ended December 31, 1996 due
to a full period of amortization for CDI and increased amortization related to
the payment of contingent consideration related to the Taylor acquisition.
Charge for Purchased Research and Development. Purchased research and
development relating to the acquisition of SensorPulse totaled $200,000 and was
charged to expense at the acquisition date in December 1997. This expense
represents the estimated fair value of SensorPulse's incomplete research and
development projects as determined by independent appraisal.
Interest Expense and Other, Net. Interest expense and other, increased to
$185,000 for the three months ended December 31, 1997 from $156,000 for the
three months ended December 31, 1996. The increase primarily related to an
increase in average debt outstanding related to the Company's acquisition of
CDI.
Provision For Income Taxes. Provision for income taxes increased to $912,000 for
the three months ended December 31, 1997 from $407,000 for the three months
ended December 31, 1996. The effective tax rate for the three-month period ended
December 31, 1997 was approximately 43% as compared to the effective tax rate of
approximately 47% for the three months ended December 31, 1996. This decrease
was primarily
14
<PAGE>
due to an increase in lower taxed United States based income as a percentage of
total income, primarily related to the acquisition of CDI, a South Carolina-
based company.
Minority Interest in Loss of Subsidiary. A minority interest representing
Digital Electronic's 38.5% (39.0% prior to September 30, 1997) share of the net
income or loss of Taylor is recorded on the Company's statements of operations.
The Company's ownership of Taylor Class A Shares may increase by up to an
additional 2.0% based on the amount of contingent consideration paid by the
Company for the fiscal period ended September 30, 1998. To the extent the equity
interest of the Company in Taylor increases, the percentage applied to calculate
minority interest will be reduced by a corresponding amount. The minority
interest benefit of $131,000 recorded for the three months ended December 31,
1997 represents the minority interest share of the loss recorded by Taylor
compared to the $16,000 benefit recorded for the three months ended December 31,
1996.
Accretion to Redemption Value of Common Stock. The Company previously issued
redeemable Common Stock and Taylor issued redeemable Taylor Exchangeable shares.
The Company recorded these redeemable shares at their estimated redemption
values at the date of issuance and subsequent changes in such redemption value
in each reporting period were accreted. The redemption rights automatically
terminated upon the closing of the Company's initial public offering and as a
result, the Company is no longer required to record a non-cash charge in its
calculation of earnings per share available to common shareholders in the
future. The accretion to redemption value of Common Stock was $4.2 million for
the three months ended December 31, 1996 and was based on the increase in the
estimated fair market value of the Common Stock from $6.06 per share to $9.00
per share for such period.
Nine Months Ended December 31, 1997 and December 31, 1996
Net Sales. Net sales increased 48% to $42.6 million for the nine-month period
ended December 31, 1997 compared to $28.8 million for the nine-month period
ended December 31, 1996. This increase resulted primarily from the growth in
sales of the Company's graphics-based operator interface products of
approximately $4.9 million. Additionally, $3.3 million of the increase relates
to the inclusion of the results of Taylor for the nine months ended December 31,
1997 versus three months in the period ended December 31, 1996. Also, CDI sales
of approximately $5.6 million are included in the three months ended December
31, 1997.
Gross Profit. Gross profit increased 69% to $23.0 million for the nine months
ended December 31, 1997 from $13.6 million for the nine months ended December
31, 1996. Gross margin increased to 54.1% for the nine months ended December 31,
1997 from 47.3% for the nine months ended December 31, 1996. Approximately two
percentage points of this increase was due to a reduction in material cost of
sales associated with the QuickPanel product line resulting from an increase in
the average dollar to yen exchange rate, with another two percentage points of
this increase related to decreases in direct labor and manufacturing overhead
costs related to the integration of the Cincinnati Dynacomp acquisition.
Additionally, five percentage points of the increase is related to the inclusion
of higher margin software products as part of the results of Taylor for the
entire period in fiscal 1998 versus three months of the period during fiscal
1997. These increases were offset by two percentage points as a result of the
inclusion of lower margin revenue from Computer Dynamics in fiscal 1998 for
three months during the period.
15
<PAGE>
Sales and Marketing. Sales and marketing expenses increased 51% to $9.3 million
for the nine months ended December 31, 1997 from $6.2 million for the nine
months ended December 31, 1996. Approximately $550,000 of the increase resulted
from increased commissions due to higher sales volume, and increased advertising
and distributor promotional programs. Approximately $1.7 million of the increase
resulted from costs associated with the operations of Taylor and $350,000
resulted from costs associated with the operations of CDI. The remaining
increase was due to increased salary, benefits and related costs attributable to
increased sales support personnel, offset by reductions in advertising and
promotional expenditures.
Research and Development. Research and development expenses increased 51% to
$3.9 million for the nine months ended December 31, 1997 from $2.6 million for
the nine months ended December 31, 1996. The increase resulted primarily from
$100,000 in professional fees related to outsourced development efforts.
Approximately $1 million of the increase related to product development costs
related to Taylor and $200,000 related to product development costs related to
CDI.
General and Administrative. General and administrative expenses increased 22% to
$3.3 million for the nine months ended December 31, 1997 from $2.7 million for
the nine months ended December 31, 1996. Approximately $400,000 of the increase
related to the operations of CDI. Additionally, approximately $475,000 of the
increase related primarily to additional personnel and facility costs resulting
from the nine months operating results of Taylor versus three months in fiscal
1997, offset by a reduction in cost resulting from the integration of
Cincinnati's operations into the Company's consolidated operations.
Amortization of Goodwill. Amortization of goodwill consists of the amortization
of the excess purchase price of the Cincinnati, Taylor and CDI acquisitions,
which are being amortized over seven to seventeen years from the date of
acquisition. Amortization increased to $811,000 for the nine months ended
December 31, 1997 from $191,000 for the nine months ended December 31, 1996 due
to a full period of amortization for Taylor, including increased amortization
related to the payment of contingent consideration related to the Taylor
acquisition and the sale of the TESS product line which was previously recorded
as an asset held for sale, and the addition of goodwill amortization related to
CDI for the last three months of the period.
Charge for Purchased Research and Development. In 1997, purchased research and
development related to the estimated fair value of SensorPulse's incomplete
research and development projects at the date of acquisition in December 1997,
as determined by independent appraisal. In 1996, purchased research and
development and other acquisition expenses relating to the acquisition of Taylor
totaled approximately $4.9 million and were charged to expense at the
acquisition date in September 1996. Of this expense, $4.7 million represents the
estimated fair value of Taylor's incomplete research and development projects as
determined by independent appraisal.
Interest Expense and Other, Net. Interest expense and other, net decreased to
$200,000 for the nine months ended December 31, 1997 from $387,000 for the nine
months ended December 31, 1996. The decrease primarily related to a decrease in
average debt outstanding as debt was repaid with a portion of the proceeds from
the Company's initial public offering in March 1997 and substantially no debt
was outstanding until the Company acquired CDI in October 1997.
16
<PAGE>
Provision For Income Taxes. Provision for income taxes increased to $2.3 million
for the nine months ended December 31, 1997 from $599,000 for the nine months
ended December 31, 1996. The effective tax rate for the nine-month period ended
December 31, 1997 was 43% as compared to the effective tax rate of approximately
44% for the nine months ended December 31, 1996, after giving effect to the
impact on taxable income of the charge for purchased research and development of
approximately $4.7 million. This decrease was primarily due to an increase in
lower taxed United States based income as a percentage of total income,
primarily related to the acquisition of CDI, a South Carolina-based company.
Minority Interest in Loss of Subsidiary. The minority interest benefit of
$265,000 recorded for the nine months ended December 31, 1997 represents the
minority interest share of the loss recorded by Taylor compared to $1.9 million
benefit recorded for the nine months ended December 31, 1996, which was
primarily attributable to the minority interest share of the $4.7 million
purchased research and development write-down.
Accretion to Redemption Value of Common Stock. The accretion to redemption value
of Common Stock was $9.1 million for the nine months ended December 31, 1996 and
was based on the increase in the estimated fair market value of the Common Stock
from $2.33 per share to $9 per share for such period.
Liquidity and Capital Resources
In March 1997, the Company completed an initial public offering of its
Common Stock. Net proceeds of $11.0 million from this offering were used to
repay certain indebtedness, primarily borrowings under the Company's bank lines
of credit and certain acquisition indebtedness.
At December 31, 1997, the Company had bank lines of credit aggregating
$19.0 million. Prior to the acquisition of CDI on October 5, 1997, the Company
had bank lines of credit aggregating $10.0 million. The amount that the Company
is entitled to borrow under such lines of credit is based on 80.0% to 85.0% of
eligible trade accounts receivable and 50.0% of eligible inventory, up to $8.0
million, of its respective operations. Based on this formula, the Company would
have had approximately $7.2 million and $5.1 million of available borrowings
under its line of credit at March 31 and December 31, 1997, respectively. All
funds advanced pursuant to the lines of credit are secured by substantially all
of the assets of the Company, and such lines of credit expire in July 1999. The
interest rate on borrowings under the lines of credit varies based on certain
financial ratios from LIBOR plus 1.5% to LIBOR plus 2%, or in the case of a $1.0
million the line of credit related to Taylor, the bank's prime lending rate.
In connection with the acquisition of CDI, the Company also entered into
$4.0 million term note with its bank. Interest is calculated at the bank's prime
rate and is payable monthly. Principal of $250,000 is paid quarterly beginning
March 31, 1998, and commencing September 30, 1998, all cash flow in excess of
the debt service coverage, as defined, shall be applied to pay down the
outstanding principal balance on the note. The note is secured by substantially
all of the Company's assets.
Cash (used in) provided by operating activities was $(977,000) for the nine
months ended December 31, 1996 and $4.4 million for the nine months ended
December 31, 1997. In 1996 the Company experienced increases in receivables and
inventory as a result of increases in the Company's sales volume, which was
partially offset by increases in accounts payable and accrued expenses. In 1997
17
<PAGE>
the Company's cash flow from operations related primarily from increased income
for the period, non-cash depreciation and amortization charges, the one-time
SensorPulse acquisition related charge and growth in payables and accruals
offset by increases in accounts receivable and inventory balances during the
period.
Net cash used in investing activities totaled $6.1 million and $13.6
million for the nine months ended December 31, 1996 and 1997, respectively. In
1996, the activities consisted primarily of the purchase of Taylor for cash and
stock. Additional activities consisted primarily of purchases of property and
equipment. In 1997, cash was generated from the sale of the Company's production
scheduling software product line, TESS (discussed below), offset by the
acquisitions of CDI and SensorPulse for cash and common stock and purchases of
property and equipment and other assets.
Under the terms of the Taylor acquisition, the Company paid approximately
$1.1 million of contingent consideration for the first earn-out period ended
September 30, 1997, on January 2, 1998. The Company recorded this contingent
consideration payment as additional goodwill at September 30, 1997. As a result
of the payment of this contingent consideration, the Company's ownership
interest in Taylor increased by approximately 0.5%. See the Company's Annual
Report on Form 10-K for an additional discussion of payments of contingent
consideration under the terms of the Cincinnati and Taylor Transactions which
the Company may become obligated to pay.
If the Company were to consummate one or more significant acquisitions in
which the consideration consists of cash, a substantial portion of the Company's
available cash or borrowing availability could be used to consummate the
acquisitions. Additionally, the cost of capital for one or more significant
acquisitions could be higher than the Company's current cost of capital.
Management believes funds generated from operations and borrowings available
under the existing bank credit facilities or replacement facilities will be
sufficient to finance the Company's operations for the foreseeable future. In
the event the Company acquires one or more businesses or products, the Company's
capital requirements could increase substantially, and there can be no assurance
that additional capital will be available on terms acceptable to the Company, if
at all.
On September 26, 1997, Taylor completed the sale of its TESS software
product to an entity principally owned by Mr. Taylor. Mr. Taylor, the former
principal shareholder of Taylor, is an officer and a member of the Company's
board of directors. The sale price was approximately $4 million.
In connection with the transaction, the Company loaned Mr. Taylor $2
million pursuant to a promissory note from Mr. Taylor dated September 25, 1997.
The note bears interest at 8% per annum (due annually) and is payable in five
equal annual installments beginning on September 25, 1999 and ending on
September 25, 2003. The note is secured by 250,000 shares of Class C
exchangeable common stock of Taylor currently held by Mr. Taylor.
On October 5, 1997, the Company acquired substantially all of the assets of
CDI, and certain other related entities. Subject to certain adjustments, the
consideration paid by the Company in connection with the Transaction consisted
of approximately $12.3 million in cash, 932,039 shares of common stock of the
Company and a Warrant to purchase 100,000 shares of Common Stock. The Warrant is
immediately exercisable at a price of $12.875 per share and shall remain
outstanding for a period of ten years.
18
<PAGE>
Additionally, subject to certain adjustments, for five years after the
closing, the Company shall pay CDI an annual payment ranging from $0 to $3.0
million for each year in which the year over year earnings of the acquired
company exceed 110% to 125% of the base earnings for each Earn Out Period. Each
such payment shall be made 50% in cash and 50% in Common Stock; provided
however, that not more than 347,961 shares of Common Stock may be issued in
connection with the payment of such consideration, and once such number of
shares have been issued, all remaining payments shall be made in cash. Each
share of Common Stock shall be valued at the then fair market value of the
Common Stock at the end of each Earn Out Period.
On December 31, 1997, the Company acquired substantially all of the assets
of SensorPulse for 41,667 shares of common stock of the Company and $1.25
million in cash (subject to certain adjustments). Additionally, the purchase
agreement provides for a four year annual earn-out payment to SensorPulse based
upon the year over year growth in SensorPulse's earnings multiplied by: three in
calendar year 1998; two and three quarters in calendar year 1999; two in
calendar year 2000; and one and one-half in calendar year 2001, with a maximum
aggregate payment of $23.25 million. Such earn-out shall be payable 50% in cash
and 50% in common stock of the Company at its then fair market value.
19
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In 1996, Wesco Distribution Incorporated ("Wesco"), a former distributor of
Cincinnati, initiated litigation against one of its customers, Joslyn
Sterilizer, Inc. ("Joslyn") to collect approximately $50,000 of invoices for
computer software and equipment purchased by the customer, including equipment
supplied by Cincinnati. The customer then filed a counterclaim against Wesco
alleging that the software and equipment contained defects and seeking damages
in the amount of approximately $1.6 million. On February 14, 1997, Wesco
impleaded Tara Products, Inc. ("Tara"), the Company's wholly-owned subsidiary
which is the successor to Cincinnati, seeking indemnification from Tara for
damages suffered by Wesco resulting from any product defects. This suit (the
"Lawsuit") was filed in the New York Supreme Court for Monroe County. On May 23,
1997, the New York Supreme Court for Monroe County dismissed Wesco's third-party
complaint against Tara without prejudice on the grounds that under a
distribution agreement between Wesco and Tara's predecessor, any litigation
between the two companies must be brought in the Court of Common Pleas for
Claremont County, Ohio. Wesco may still seek indemnification from Tara in Ohio.
While the Company has not conducted any formal investigation or taken any
discovery, it believes that Tara would have a meritorious defense to such an
action.
On May 7, 1997, Joslyn filed a complaint against Tara, the Company and Tara's
predecessors, Cincinnati Electrosystems Inc., and Cincinnati Dynacomp, Inc., in
the Supreme Court for Monroe County, New York, alleging substantially the same
facts against those defendants as it did against Wesco in the counterclaim. In
response to Joslyn's complaint, the defendants filed a motion for summary
judgement which was granted in part and denied in part. With respect to such
matters that it was unsuccessful, the Company filed a response on January 19,
1998. Again, while this action is in the preliminary stages and no formal
discovery has been initiated, the Company believes that it and the other
defendants have meritorious defenses, and the Company intends to vigorously
defend this action. There can be no assurance, however, that the defendants will
prevail in this action. If the defendants do not prevail, or if they settle the
action, the Company could be required to make payments to Joslyn. The Company
does not, however, believe that any such payments, if required to be made, would
have a material adverse effect on the Company's financial condition or results
of operations.
The Company is not involved in any other material legal proceedings.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
20
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a). Exhibits
Exhibit 10.1 - First Amendment dated as of December 8, 1997 to the
Asset Purchase Agreement dated as of October 5,
1997 by and among Kurt Priester, Priester
Charitable Remainder Unitrust, Priester Foundation,
KP One, Inc. (formerly known as Computer Dynamics,
Inc.) a South Carolina corporation, KP Three, Inc.
(formerly known as Computer Dynamics Services,
Inc.) a South Carolina corporation, KP Two, Inc.
(formerly known as Computer Dynamics Mfg., Inc.) a
South Carolina corporation, Sue Priester d/b/a
Lines Unlimited, a sole proprietorship, Total
Control Products, Inc., an Illinois corporation,
Computer Dynamics of Illinois, Inc. (formerly known
as SC Acquisition #1), an Illinois corporation, and
Computer Dynamics Holdings Corp. (formerly known as
SC Acquisition #2), an Illinois corporation.
Exhibit 11 - Statement regarding computation of per share
earnings
Exhibit 27 - Financial Data Schedule (EDGAR version only)
(b). Reports on Form 8-K filed for the quarter ended December 31, 1997:
(1) The Company filed an amendment to its report on Form 8-K for
an event dated October 5, 1997, pursuant to Item 2 and Item
7, reporting certain pro forma financial information in
connection with the purchase of substantially all of the
assets of Computer Dynamics, Inc. and its related entities.
(2) The Company filed a report on Form 8-K for an event dated
December 31, 1997, pursuant to Item 5, reporting the
acquisition of substantially all of the assets of SensorPulse
Corp.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TOTAL CONTROL PRODUCTS, INC.
(Registrant)
By: /s/Nicholas T. Gihl
------------------------------------
Nicholas T. Gihl
Chairman and Chief Executive Officer
(Principal Executive Officer)
By: /s/Peter A. Nicholson
-------------------------------------
Peter A. Nicholson
Senior Vice President and Chief Financial Officer
(Principal Accounting and Financial Officer)
Date: February 13, 1998
22
<PAGE>
Exhibit 10.1
FIRST AMENDMENT
TO
ASSET PURCHASE AGREEMENT
This First Amendment (the "Amendment") dated as of December 8, 1997 to the
Asset Purchase Agreement (the "Purchase Agreement") dated as of October 5, 1997
by and among Kurt Priester ("Priester"), Priester Charitable Remainder Unitrust
("Trust I"), Priester Foundation ("Trust II"), KP One, Inc. (former known as
Computer Dynamics, Inc.), a South Carolina corporation ("CDI"), KP Three, Inc.
(formerly known as Computer Dynamics Services, Inc.), a South Carolina
corporation ("CDS"), KP Two, Inc. (formerly known as Computer Dynamics Mfg.,
Inc.), a South Carolina corporation ("CDM"), Sue Priester d/b/a Lines Unlimited,
a sole proprietorship ("Lines"), Total Control Products, Inc., an Illinois
corporation ("TCP"), Computer Dynamics of Illinois, Inc. (formerly known as SC
Acquisition #1), an Illinois corporation ("Purchaser"), and Computer Dynamics
Holdings Corp. (formerly known as SC Acquisition #2), an Illinois corporation
("TCP II"), is entered into by and among Priester, Trust I, Trust II, CDI, CDS,
CDM, Lines, TCP, Purchaser and TCP II.
RECITALS
--------
A. Priester, Trust I, Trust II, CDI, CDS, CDM, Lines, TCP, Purchaser and
TCP II have heretofore entered into the Purchase Agreement, pursuant to which
Purchaser acquired substantially all of the assets of the Selling Entities. All
capitalized terms used herein and not otherwise defined herein shall have the
meanings ascribed to them in the Purchase Agreement.
B. Priester, Trust I, Trust II, CDI, CDS, CDM, Lines, TCP, Purchaser and
TCP II wish to enter into this Amendment to fix a typographical error contained
in the Purchase Agreement.
AGREEMENTS
----------
NOW THEREFORE, in consideration of the premises and mutual agreements
herein contained, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Status of Purchase Agreement. Except as specifically set forth herein,
the Purchase Agreement shall remain in full force and effect and shall not be
waived, modified, superseded or otherwise affected by this Amendment. This
Amendment is not to be construed as a release, waiver or modification of any of
the terms, conditions, representations, warranties, covenants, rights or
remedies set forth in the Purchase Agreement, except as specifically set forth
herein.
<PAGE>
Exhibit 10.1
2. Amendment to the Purchase Agreement. Section 3.6(a)(iv) is hereby
deleted in its entirety and replaced with the following:
"(iv) "Earn Out Period" means each of the following periods: (A)
the date hereof through September 30, 1998; (B) October 1, 1998 through
September 30, 1999; (C) October 1, 1999 through September 30, 2000; (D)
October 1, 2000 through September 30, 2001; and (E) October 1, 2001 through
September 30, 2002."
3. Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
4. Governing Law. This Amendment shall be a contract made under and
governed by the laws of the State of Illinois, without regard to conflict of
laws principles.
<PAGE>
Exhibit 10.1
IN WITNESS WHEREOF, the parties have executed this Amendment and caused the
same to be duly delivered on their behalf on the day and year first written
above.
<TABLE>
<CAPTION>
SELLERS: PURCHASER:
<S> <C>
KP ONE, INC. (FORMERLY KNOWN COMPUTER DYNAMICS OF ILLINOIS
AS COMPUTER DYNAMICS, INC. (FORMERLY KNOWN AS SC
ACQUISITION #1, INC.)
By: /s/Kurt Priester By: /s/Nicholas T. Gihl
--------------------------------------------- ----------------------------------------------
Title: President Title: Chief Executive Officer
------------------------------------------ ----------------------------------------
KP THREE, INC. (FORMERLY KNOWN AS COMPUTER DYNAMICS HOLDINGS
COMPUTER DYNAMICS SERVICES, INC.) CORP. (FORMERLY KNOWN AS SC
ACQUISITION #2, INC.)
By: /s/Kurt Priester By: /s/Nicholas T. Gihl
--------------------------------------------- ----------------------------------------------
Title: President Title: Chief Executive Officer
------------------------------------------ ----------------------------------------
KP TWO, INC. (FORMERLY KNOWN AS
COMPUTER DYNAMICS MFG., INC.) TOTAL CONTROL PRODUCTS, INC.
By: /s/Kurt Priester By: /s/Nicholas T. Gihl
--------------------------------------------- ----------------------------------------------
Title: President Title: Chief Executive Officer
------------------------------------------ ----------------------------------------
SUE PRIESTER d/b/a LINES UNLIMITED PRIESTER FOUNDATION
By: /s/Susan Priester By: /s/Kurt Priester
--------------------------------------------- ----------------------------------------------
Title: as Trustee
____________________________
PRIESTER CHARITABLE REMAINDER
UNITRUST
By: /s/Kurt Priester By: /s/Kurt Priester
--------------------------------------------- ----------------------------------------------
As Trustee Kurt Priester
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Total Control Products, Inc. and Subsidiaries Exhibit 11
Compution of Earnings Per Share
Three Months Ended Nine Months Ended
December 31, December 31,
-------------------------------- --------------------------------
<S> <C> <C> <C> <C>
Computation of Net Income (Loss) per share: 1996 1997 1996 1997
---- ---- ---- ----
Net income (loss) available for common shareholders.. $ (3,681,697) $ 1,341,532 $ (11,160,369) $ 3,277,952
Interest on convertible debt, net of tax benefit..... - (a) - - (a) -
------------- ------------- -------------- -------------
Net income adjusted for "as if converted"
common stock equivalents........................... $ (3,681,697) $ 1,341,532 $ (11,160,369) $ 3,277,952
============= ============= ============== =============
Weighted average shares outstanding, excluding
SAB 83 shares issued............................... 4,689,948 8,543,943 4,668,816 7,951,445
SAB 83 shares........................................ 1,003,591 - 1,003,591 -
------------- ------------- -------------- -------------
Shares for basic earnings per share.................. 5,693,539 8,543,943 5,672,407 7,951,445
------------- ------------- -------------- -------------
Non-SAB 83 option grants............................. - (a) 253,567 - (a) 210,213
Conversion of subordinated debentures................ - (a) - - (a) -
------------- ------------- -------------- -------------
Shares for diluted earnings per share................ 5,693,539 8,797,510 5,672,407 8,161,658
============= ============= ============== =============
Basic earnings (loss) per share...................... $ (0.65) $ 0.16 $ (1.97) $ 0.41
============= ============= ============== =============
Diluted earnings (loss) per share.................... $ (0.65) $ 0.15 $ (1.97) $ 0.40
============= ============= ============== =============
</TABLE>
(a) Not considered in earnings per share calculation as effect would be
anti-dilutive.
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TOTAL
CONTROL PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AS OF
MARCH 31 AND DECEMBER 31, 1997 AND FOR EACH OF THE THREE AND NINE MONTHS ENDED
DECEMBER 31, 1996 AND 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
CONSOLIDATED FINANCIAL STATEMENTS.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
TOTAL CONTROL PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31 AND DECEMBER 31, 1997 AND FOR EACH OF THE NINE MONTHS ENDED
DECEMBER 31, 1996 AND 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 354,635
<SECURITIES> 0
<RECEIVABLES> 10,965,326
<ALLOWANCES> (420,000)
<INVENTORY> 14,653,513
<CURRENT-ASSETS> 26,821,942
<PP&E> 4,740,823
<DEPRECIATION> (1,397,043)
<TOTAL-ASSETS> 59,101,153
<CURRENT-LIABILITIES> 11,168,712
<BONDS> 4,925
0
0
<COMMON> 35,073,765
<OTHER-SE> (1,392,151)
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</TABLE>
