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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 2000
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 0-14659
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TECHDYNE, INC.
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(Exact name of registrant as specified in its charter)
FLORIDA 59-1709103
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2230 W. 77TH STREET, HIALEAH, FLORIDA 33016
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number (305) 556-9210
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Securities registered under Section 12(b) of the Act:
None
Securities registered under Section 12(g) of the Act:
Title of each class
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Common Stock, $.01 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates
of the registrant computed by reference to the closing price at which the stock
was sold on March 20, 2001 was approximately $1,391,000.
As of March 20, 2001 the company had 6,556,990 shares of its common
stock.
DOCUMENTS INCORPORATED BY REFERENCE
Registrant's Registration Statement on Form SB-2 dated July 26, 1995,
as amended August 21, 1995 and September 1, 1995, Registration No. 33-94998-A
Part II, Item 27, Exhibits.
Registrant's Registration Statement on Form S-3 dated December 11,
1996, Registration No. 333-15371, Part II, Item 16, Exhibits.
Annual Report, Form 10-K, for the years ended December 31, 1995, 1997,
and 1999 Part IV, Exhibits.
Annual Reports for Registrant's Parent, Medicore, Inc., Forms 10-K for
the years ended December 31, 1994 and 1998, Part IV, Exhibits.
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TECHDYNE, INC.
Index to Annual Report on Form 10-K
Year Ended December 31, 2000
PAGE
PART I
Item 1. Business......................................................... 1
Item 2. Properties....................................................... 11
Item 3. Legal Proceedings................................................ 12
Item 4. Submission of Matters to a Vote of Security Holders.............. 12
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.......................................................... 13
Item 6. Selected Financial Data.......................................... 13
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................ 14
Item 7A. Quantitative and Qualitative Disclosure About Market Risk........ 19
Item 8. Financial Statements and Supplementary Data...................... 20
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................. 20
PART III
Item 10. Directors and Executive Officers of the Registrant............... 21
Item 11. Executive Compensation........................................... 21
Item 12. Security Ownership of Certain Beneficial Owners and Management... 21
Item 13. Certain Relationships and Related Transactions................... 21
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.. 22
PART I
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING INFORMATION
The statements contained in this Annual Report on Form 10-K that are
not historical are forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
the 1934. The Private Securities Litigation Reform Act of 1995 contains certain
safe harbors regarding forward-looking statements. Certain forward-looking
statements include management's expectations, intentions and beliefs with
respect to the growth of Techdyne, Inc., the nature of the electronics industry
in which it is engaged as a manufacturer, our business strategies and plans for
future operations, needs for capital expenditures, capital resources, liquidity
and operating results, and similar expressions concerning matters that are not
historical facts. See Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Words such as "anticipate," "estimate,"
"expects," "projects," "intends," "plans" and "believes," and words and terms of
similar substance used in connection with any discussions of future operating or
financial performance, or the sale of control of our company, identify
forward-looking statements. Such forward-looking statements, like all statements
about expected future events, are subject to risks and uncertainties that could
cause actual results to materially differ from those expressed in the
statements, including general economic, market and business conditions,
opportunities taken or abandoned, competition and other factors discussed
periodically in our reports and filings. Many of the foregoing factors are
beyond our control.
All forward-looking statements included in this document are based on
information available to us on the date hereof. We assume no obligation to
update any such forward-looking statement to reflect events after the date made.
The following cautionary statements are being made pursuant to the provisions of
the Reform Act with the intention of Techdyne, Inc. obtaining the benefits of
the safe harbor provisions of the Reform Act. Among the factors that could cause
actual results to differ materially are the factors detailed in the risks
discussed in the "Risk Factors" section included in our Registration Statements,
as filed with the SEC, Form SB-2 (effective September 13, 1995) and Form S-3,
effective December 11, 1996. Accordingly, readers are cautioned not to place too
much reliance on such forward-looking statements, which speak only as of the
date made.
ITEM 1. BUSINESS
Techdyne, Inc. is an international contract manufacturer of electronic
and electro-mechanical products, primarily manufactured to customer
specifications and designed for original equipment manufacturers and
distributors in the data processing, telecommunications, instrumentation and
food preparation equipment industries. Custom-designed products primarily
include complex printed circuit boards, conventional and molded cables and wire
harnesses, and electro-mechanical assemblies. In addition, the company provides
original equipment manufacturers with value-added, turnkey contract
manufacturing services and total systems assembly and integration. The company
also delivers manufacturing and test engineering services and materials
management, with flexible and service-oriented manufacturing and assembly
services for its customers' high-tech and rapidly changing products.
Approximately 91% of sales are domestic, a substantial amount generated
by our domestic wholly-owned subsidiary, Lytton Incorporated, and 9% are
effected by our wholly owned subsidiary, Techdyne (Europe) Limited in the
European markets and to a limited extent in the Middle East. Techdyne (Europe)
has a wholly-owned subsidiary, Techdyne (Livingston) Limited. There have been
significant reductions in sales for our European facility. See Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Included among our customers are several Fortune 500 companies.
Services and products are marketed through an in-house sales/marketing staff of
16 persons, in conjunction with regional sales representatives.
The company was incorporated in Florida in 1976, acquired by Medicore,
Inc., our parent, in 1982, and became a public company in 1985. Medicore, a
Nasdaq SmallCap Market company, owns approximately 71.3% of our common stock.
Our executive offices are located at 2230 West 77th Street, Hialeah,
Florida 33016. The company's telephone number is (305) 556-9210 and its Internet
address is www.tcdn.com.
ELECTRONIC MANUFACTURING INDUSTRY
In recent years, the electronic contract manufacturing industry has
exhibited significant growth. We believe this growth has resulted from a vastly
increased number of OEMs adopting an external manufacturing philosophy coupled
with the growth of the electronics industry. This philosophy is motivated by the
increased capital necessary to acquire modern, highly automated manufacturing
equipment for the OEMs to access leading manufacturing technologies and
capabilities, to reduce inventory, and to realize the cost benefits of the
improved purchasing power, labor efficiency and overall cost benefits of
contract manufacturers. We believe that many OEMs view contract manufacturers as
an integral part of their manufacturing strategy. Using outsourcing for their
manufacturing of electronic assemblies also enables OEMs to focus on product
development, reduce working capital requirements, improve inventory management
and marketability. OEMs are looking more to contract manufacturers, like our
company, to provide a broader scope of value-added services, including
manufacturing, engineering and test services. OEMs rely on contract
manufacturers not only for partial component assemblies but complete turnkey
manufacturing of entire finished products. We assist our customers from initial
design and engineering through materials procurement, to manufacturing of the
complete product and testing. Greater efficiencies are obtained by OEMs through
"concurrent engineering" which gives contract manufacturers greater impact in
product design, component selection, production methods and the preparation of
assembly drawings and test schematics. This also gives the customer the ability
to draw upon our manufacturing expertise at the outset and minimize
manufacturing bottlenecks.
Another factor which leads OEMs to utilize contract manufacturers is
reduced time-to-market. Due to the intense competition in the electronics
industry, OEMs are faced with increasingly shorter product life-cycles which
pressures OEMs to reduce time constraints in bringing a product to market. This
can be accomplished by using a contract manufacturer's established manufacturing
expertise with its sophisticated, technically advanced and automated
manufacturing processes. This, coupled with the elements discussed above, such
as reduced production costs through economies of scale in materials procurement,
improved inventory management, access to our manufacturing technology,
engineering, testing and related expertise, motivates OEMs to work with
electronic contract manufacturers.
BUSINESS STRATEGY
Our objective is to become a stronger competitive force in the
electronics manufacturing services industry. In response to industry trends,
particularly in view of constantly changing and improving technology and,
therefore, shorter product life cycles, we focus on product development and
marketing, in order to become competitive provider of electronic contract
manufacturing services for OEM customers. We continue to seek to develop strong,
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long-term alliances with major-growth OEMs of complex, market leading products.
We believe that creating and maintaining long-term relationships with customers
requires providing high quality, cost-effective manufacturing services marked by
a high degree of customer responsiveness and flexibility. Therefore, our
strategy is to focus on leading manufacturers of advanced electronic products
that generally require custom-designed, more complex interconnect products and
short lead-time manufacturing services. Additionally, in 2001 we will target
other large contract manufacturers as potential customers.
We continue to build on our integrated manufacturing capabilities,
final system assemblies and testing. In addition to PCBs, our custom cable
assembly capabilities provide us with further opportunities to leverage our
vertical integration and to provide greater value added services and be more
competitive. In addition, vertical integration provides us with greater control
over quality, delivery and cost.
To further satisfy customer needs, we develop long-term customer
relationships by using our state-of-the-art technology to provide timely and
quick-turnaround manufacturing and comprehensive support for materials purchases
and inventory control. Through our electronic data interchange, the customer is
able to convey its inventory and product needs on a weekly basis based on a
rolling quantity forecast. More emphasis is placed on value-added turnkey
business for the manufacture of complete finished assemblies. This is
accomplished with extended technology, continuous improvement of our processes,
and our early involvement in the design process using our computer-aided design
system.
We believe that we can develop closer and more economically beneficial
relationships with our customers through our geographically diverse
manufacturing and assembly operations, presently located in Florida, Texas,
Massachusetts, Ohio and Scotland. Our diverse locations have multiple advantages
by helping satisfy costs, timely deliveries and local market requirements of our
customers. We continue to pursue expansion in different markets to better serve
existing customers and to obtain additional new customers. A proposed sale of
our common stock by our parent to Simclar International Limited, a United
Kingdom company engaged in similar operations as we are, is being negotiated
for approximately $10,000,000 and a percent of revenues over the next several
years. If an agreement is reached, the proposed sale by our parent would be
subject to the approval of its shareholders. An alliance with Simclar would
further our geographic diversification and expansion goals. We anticipate
experiencing faster growth and ability to increase our global presence and
competitive position. There is no assurance our parent's shareholders will
approve its proposed sale, or that the transaction will be completed.
PRODUCTS AND SERVICES
The company manufactures approximately 850 products, including complete
turnkey finished products, sub-assemblies, molded and non-molded cable
assemblies, wire harnesses, PCBs, injection molded and electronic assembly
products, for over 100 OEM customers.
Printed Circuit Boards
PCB assemblies are electronic assemblies consisting of a basic printed
circuit laminate with electronic components including diodes, resistors,
capacitors and transistors, inserted and wave soldered. PCBs may be used either
internally within the customer's products or in peripheral devices. The PCBs
produced by the company include pin-through-hole assemblies, low and medium
volume surface mount technology assemblies, and mixed technology PCBs, which
include multilayer PCBs.
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In pin-through-hole assembly production electronic components with pins
or leads are inserted through pre-drilled holes in a PCB and the pins are
soldered to the electrical surface of the PCB. In surface mount technology
production, electronic components are attached and soldered directly onto the
surface of a circuit board rather than inserted through holes. Surface mount
technology components are smaller so they can be spaced more closely together
and, unlike pin-through-hole components, surface mount technology components can
be placed on both sides of a PCB. This allows for product miniaturization, while
enhancing the electronic properties of the circuit. Surface mount technology
manufacturing requires substantial capital investment in expensive, automated
production equipment, which requires high usage. We are utilizing computerized
testing system in order to verify that all components have been installed
properly and meet certain functional standards, that the electrical circuits
have been properly completed, and that the PCB assembly will perform its
intended functions.
In 1997, we acquired Lytton, whose Ohio operations, with six automated
lines, are more focused on PCB manufacturing, primarily for the food preparation
equipment industry. We also established a 5,500 square foot manufacturing
facility in Massachusetts in 1997. These expansions resulted in PCB
manufacturing amounting to approximately 56% and 55% of our sales revenues in
2000 and 1999, respectively.
Cable and Harness Assemblies
A cable is an assembly of electrical conductors insulated from each
other, twisted around a central core and jacketed. Cables may be molded or
non-molded.
Techdyne offers a wide range of custom manufactured cable and harness
assemblies for molded and mechanical applications. These assemblies include
multiconductor, ribbon, co-axial cable, and discrete wire harness assemblies. We
use advanced manufacturing processes, in-line inspection and computerized
automated test equipment.
We maintain a large assortment of standard tooling for D-Subminiature,
DIN connectors and phono connectors. D-Subs are connectors which are over-molded
with the imprint of the customer's name and part number. DIN connectors are
circular connectors consisting of two to four pairs of wires used for computer
keyboards.
Flat ribbon cable or ribbon cable assemblies are cables with wires
(conductors) on the same plane with connectors at each end. Flat ribbon cables
are used in computer assemblies and instrumentation.
Discrete cable assemblies are wires with contacts and connectors.
Harnesses are prefabricated wiring with insulation and terminals ready to be
attached to connectors. Our cable sales comprised approximately 34% and 35% of
total sales revenue for 2000 and 1999, respectively.
Contract Manufacturing
Contract manufacturing involves the manufacture of complete finished
assemblies with all sheet metal, power supplies, fans, PCBs as well as complete
sub-assemblies for integration into an OEM's finished products, such as speaker
and lock-key assemblies and diode assemblies that consist of wire, connectors
and diodes that are over-molded, packaged and bar coded for distribution. These
products can be totally designed and manufactured by the company through our
computer-aided design system, engineering and supply procurement. We develop
manufacturing processes and tooling, and test sequences for new products of our
customers. We provide design and engineering services in the early stages of
product development thereby assuring mechanical and electrical considerations
are integrated with a total system. Alternatively, the customer may provide
specifications and we will assist in the design and engineering or manufacture
to the customer's specifications.
4
Reworking and Refurbishing
Customers provide the company with materials and sub-assemblies
acquired from other sources, which the customer has determined, require modified
design or engineering changes. We redesign, rework, refurbish and repair these
materials and sub-assemblies.
Contract manufacturing, medical product sales, reworking and
refurbishing together amounted to approximately 10% of sales for each of 2000
and 1999. We believe that PCB sales and contract manufacturing will provide us
with substantial increases in revenues over the next few years.
MANUFACTURING
We manufacture components and products that are custom designed and
developed to fit specific customer requirements and specifications. Such service
includes computer integrated manufacturing and engineering services,
quick-turnaround manufacturing and prototype development, materials procurement,
inventory management, developing customer oriented manufacturing processes ,
tooling and test sequences for new products from product designs received from
its customers or developed by Techdyne from customer requirements. Our
industrial, electrical and mechanical engineers work in close liaison with our
customers' engineering departments from inception through design, prototypes,
production and packaging. We evaluate customer designs and if appropriate,
recommend design changes to improve quality of the finished product, reduce
manufacturing costs or other necessary design modifications. Upon completion of
engineering, Techdyne produces prototype or preproduction samples. Materials
procurement includes planning, purchasing and warehousing electronic components
and materials used in the assemblies and finished products. Our engineering
staff reviews and structures the bill of materials for purchase, coordinates
manufacturing instructions and operations, and reviews inspection criteria with
the quality assurance department. The engineering staff also determines any
special capital equipment requirements, tooling and dies, which must be
acquired.
We attempt to develop a "partnership" relationship with many of our
customers by providing a responsive, flexible, total manufacturing service. We
have "supplier partnerships" with certain customers which provide for the
company to satisfy in-house manufacturing requirements of the customer that are
based on the customer's need on a weekly basis based on a rolling quarterly
forecast.
The company's PCB assembly operations are geared toward advanced
surface mount technology. Our Lytton subsidiary provides PCB production through
state-of-the-art manufacturing equipment and processes and a highly trained and
experienced engineering and manufacturing workforce. We also offer a wide range
of custom manufactured cables and harnesses for molded and mechanical
applications. We use advanced manufacturing processes, in-line inspection and
testing to focus on process efficiencies and quality. The cable and harness
assembly process is accomplished with automated and semi-automated preparation
and insertion equipment and manual assembly techniques.
Finished turnkey assemblies include the entire manufacturing process
from design and engineering to purchasing raw materials, manufacturing and
assembly of the component parts, testing, packaging and delivery of the finished
product to the customer. By contracting assembly production, OEMs are able to
keep pace with continuous and complex technological changes and improvements by
making rapid modifications to their products without costly retooling and
without any extensive capital investments for new or altered equipment.
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At all of our facilities we maintain modern state-of-the-art equipment
for crimping, stripping, terminating, soldering, sonic welding and sonic
cleaning which permits us to produce conventional and complex molded cables. We
also maintain a large assortment of standard tooling. New manufacturing jobs may
require new tooling and dies, but most presses and related equipment are
standard.
The European manufacturing facility, located in Livingston, Scotland,
focuses on the electronics industry producing primarily wire harnesses,
electro-mechanical assemblies, and molded cables, incorporating multifaceted
design and production capabilities. Significant reductions in sales of Techdyne
(Europe) have resulted in net losses for this subsidiary amounting to $328,000
for 2000, and $577,000 for 1999 and $442,000 for 1998, and we are evaluating the
future prospects for that facility. See Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
SUPPLIES AND MATERIALS MANAGEMENT
Materials used in our operations consist of metals, electronic
components such as cable, wire, resistors, capacitors, diodes, PCBs and plastic
resins. For over six months in 2000, a worldwide shortage of key electronic
components adversely impacted our sales and earnings. The shortage has
diminished during the first quarter of 2001.
The company procures components from a select group of vendors which
meet our standards for timely delivery, high quality and cost effectiveness. In
order to control inventory investment and avoid material obsolescence,
components are generally ordered when we have a purchase order or commitment
from our customer for the completed assembly. Techdyne uses ERP management
technologies and manages our material pipelines and vendor base to allow our
customers to increase or decrease volume requirements within established
frameworks. We have a Visual Manufacturing computerized software system
providing us with material requirements planning, purchasing, and sales and
marketing functions. See "Business Strategy" above and Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
We have improved our overall efficiency of manufacturing, particularly
in the area of inventory management, including purchasing which is geared more
closely to current needs resulting in reduced obsolescence problems. Except for
a worldwide shortage of key electronic components in 2000 that adversely
impacted our sales and earnings, we have not otherwise experienced any
significant disruptions from shortages of materials or delivery delays from
suppliers and we believe that our present sources and the availability of our
required materials are adequate. See Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
QUALITY AND PROCESS CONTROL
Our Florida and Texas facilities received from Underwriter's
Laboratories, an independent quality assurance organization, the ISO 9002
quality assurance designation, which is the international standard of quality
with respect to all systems of operations, including, among others, purchasing,
engineering, manufacturing, sales, inventory control and quality. Techdyne
(Europe) has a BS 5750 quality assurance designation from British Standards
Institute. Lytton holds its ISO 9002 quality designation from Eagle
Registrations, Inc. These quality assurance designations are only provided to
those manufacturers which exhibit stringent quality and process control
assurances after extensive evaluation and auditing by these independent quality
assurance organizations. Quality control is essential to the company's
operations since customers demand strict compliance with design and product
specifications, and high quality production is a primary competitive standard
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vital to our services. Our Milford, Massachusetts facility will have a final
assessment for ISO 9002 by Underwriters Laboratories during the second quarter
of 2001. See "Competition" below.
Product components, assemblies and sub-assemblies manufactured by the
company are thoroughly inspected visually and electronically to assure all
components are made to strict specifications and are functional and safe. Strict
process controls relating to the entire manufacturing process are part of our
standard operating procedure. We strive for a CPK of two, i.e., twice as
critical as customer tolerances. We believe we are one of the manufacturers of
choice for the major Fortune 500 companies, some of which are our customers,
based upon our excellent record of quality production.
Over the years our product and manufacturing quality have received
excellent ratings. Total quality, timely delivery and customer satisfaction is
our philosophy. High levels of quality in every area of Techdyne's operations
are essential. Quality standards are established for each operation, performance
tracked against those standards, and identifying workflow and implementing
necessary changes to deliver higher quality levels. We maintain regular contact
with our customers to assure adequate information exchange and other activities
necessary to assure customer satisfaction and to support our high level of
quality and on-time delivery. Any adverse change in our excellent quality and
process controls could adversely affect our relationships with customers and
ultimately our revenues and profitability.
CUSTOMERS
Techdyne serves a wide range of businesses from emerging growth
companies to multinational OEMs involved in a variety of markets including
computer networking systems, computer workstations, telecommunications, mass
data storage systems, instrumentation and food preparation equipment industries.
Our revenue is distributed over the following industry segments:
Year Ended December 31,
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2000 1999 1998
---- ---- ----
Data processing 15% 22% 29%
Telecommunications 22% 22% 20%
Instrumentation 19% 23% 17%
Food preparation equipment 22% 17% 18%
We seek to serve a sufficiently large number of customers to avoid
dependence on any one customer or industry. Nevertheless, historically a
substantial percentage of our net sales have been to multiple locations of a
small number of customers. Significant reductions or delays in sales to any of
those major customers would have a material adverse effect on our results of
operations. In the past, certain customers have terminated their manufacturing
relationship with us, or otherwise significantly reduced their product orders.
There can be no assurance that any major customer may not terminate or otherwise
significantly reduce or delay manufacturing orders, any of which such
terminations or changes in manufacturing orders could have a material adverse
effect on our results of operations. We are dependent upon the continued growth,
viability and financial stability of our customers, which are in turn
substantially dependent on the growth of the personal computer, computer
peripherals, the communications, instrumentation, data processing and food
preparation equipment industries. Most of these industries have been
characterized by rapid technological change, short product life cycles, pricing
and margin pressures. In addition, many of our customers in these industries are
affected by general economic conditions. The factors affecting these industries
in general, and/or our customers in particular, could have a material adverse
effect on our results of operations. In addition, we generate significant
accounts receivable in connection with providing manufacturing services to our
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customers. If one or more of our customers were to become insolvent or otherwise
were unable to pay us for provided manufacturing services, our operating results
and financial condition would be adversely affected. In 2000, 44% of our sales
were made to numerous locations of three major customers. See Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The table below sets forth the respective portion of sales for the
applicable period attributable to customers and related suppliers who accounted
for more than 10% of sales in any respective period.
Percentage of Sales
-------------------
2000 1999 1998
---- ---- ----
Illinois Tool Works (formerly
PMI Food Equipment Group) 19% 15% 18%
Trilithic 12% * *
Alcatel 12% * *
Motorola, Inc. * 13% 10%
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* less than 10% for that year
Techdyne sells to approximately 100 additional other companies, which
comprise the remaining 57% of sales for 2000. Lytton focuses primarily on PCB
production, and had approximately 38% of its sales for fiscal 2000 to ITW
(formerly PMI Food Equipment Group).
MARKETING AND SALES
We are pursuing expansion and diversification of our customer base. We
are seeking to develop long-term relationships by working closely with customers
starting the initial product design and development stage, and continuing
throughout the manufacturing and distribution process. Our principal sources of
new business are the expansion in the volume and scope of services provided to
existing customers, referrals from customers and suppliers, direct sales through
our sales managers and executive staff, and through independent sales
representatives. Domestic operations generate sales through four regional sales
managers covering the Northeast, Southeast, West and Southwest regions of the
United States. There are 14 in-house sales/marketing personnel in the United
States and 2 internationally. In addition to sales through sales representatives
and in-house sales personnel, sales are also generated through our website
http://www.tcdn.com, catalogues, brochures and trade shows.
The independent manufacturer sales representatives, primarily marketing
electronic and similar high-technology products, are retained under exclusive
sales representative agreements for specific territories and are paid on a
commission basis. Unless otherwise approved by Techdyne, the sales
representatives cannot represent any other person engaged in the business of
manufacturing services similar to those of the company, nor represent any person
who may be in competition with us. The agreements further prohibit the sales
representative from disclosing trade secrets or calling on our customers for a
period of six months to one year from termination of their agreement.
Techdyne (Europe) has two in-house sales personnel who market its
products, primarily ribbon, harness and cable assemblies, electro-mechanical
products, and molded cable assemblies, as well as its reworked and refurbished
8
products (see "Business - Products - Reworking and Refurbishing" above) to
customers in Scotland, England, Ireland, Germany and the Middle East.
Substantially all of our sales and reorders are effected through
competitive bidding. Most sales are accomplished through purchase orders with
specific quantity, price and delivery terms. Some productions, such as our
supplier partnerships, are accomplished under open purchase orders with
components released against customer request.
BACKLOG
At December 31, 2000, our backlog of orders amounted to approximately
$18,676,000, of which approximately 66% or $12,310,000, was represented by the
orders from Lytton operations and approximately 9%, or $1,711,000, was
represented by orders from Techdyne (Europe) operations. Last year the backlog
of orders amounted to approximately $14,643,000, of which approximately
$8,179,000 (56%) was represented by the orders from our Lytton operations and
approximately $959,000 (7%) was represented by orders from our Techdyne (Europe)
operations. Based on past experience and relationships with our customers and
knowledge of our manufacturing capabilities, we believe that most of our backlog
orders are firm and should be filled within six months. Most of the purchase
orders within which the company performs do not provide for cancellation. Over
the last several years cancellations have been minimal and management does not
believe that any significant amount of the backlog orders will be canceled.
However, based upon relationships with its customers, we occasionally allow
cancellations and frequently the rescheduling of deliveries. The variations in
the size and delivery schedules of purchase orders received by the company may
result in substantial fluctuations in backlog from period to period. Since
orders and commitments may be rescheduled or cancelled, and customers' lead
times may vary, backlog does not necessarily reflect the timing or amount of
future sales.
PATENTS AND TRADEMARKS
We do not have nor do we rely on patents or trademarks to establish or
protect our market position. Dependency is placed more on design, engineering
and manufacturing, cost containment, quality, and marketing skills to establish
or maintain market position.
COMPETITION
Techdyne is a part of highly competitive electronic manufacturing
services industry. We face competition from divisions of large electronics and
high-technology firms, as well as numerous smaller specialized companies.
Certain competitors have broader geographic coverage and competitive price
advantage based on their less expensive offshore operations, particularly in the
Far East. Many of the competitors are larger and more geographically diverse and
have greater financial, manufacturing and marketability resources. Our main
competitors in PCB area include ACT Manufacturing, Inc., Vickers Electronics
Systems, Diversified Systems, Inc., Epic Technologies, Inc, and others. We have
numerous competitors in the cable and harness assembly market, including Volex
Interconnect Systems, Inc., Foxconn, ACT Manufacturing, Inc., and Escod
Industries.
We believe that we are favorably positioned with regard to primary
competitive factors - price, quality of production, manufacturing capability,
prompt customer service, timely delivery, engineering expertise, and technical
support. We also believe that Techdyne (Europe), our European manufacturing and
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marketing operation, internationally enhances our competitive position. However,
recent consolidation trends in the electronic manufacturing services industry
are resulting in changes in the competitive landscape. Increased competition
could result in lower priced components and lower profit margins, or loss of
customers, which could have a material adverse effect on our business, financial
condition and result of operations. Compared to manufacturers who have greater
direct buying power with component suppliers or who have lower cost structure,
we may be operating at a cost disadvantage.
Due to the number and variety of competitors, reliable data reflective
to our competitive position in the electronic components and assembly industry
is difficult to develop and is not know.
GOVERNMENTAL REGULATION
Our operations are subject to certain federal, state and local
regulatory requirements relating to environmental waste management and health
and safety matters. We believe that we comply with applicable regulations
pertaining to health, safety and the use, storage and disposal of materials that
are considered hazardous waste under applicable law. To date our costs for
compliance and governmental permits and authorizations have not been material.
However, additional or modified requirements that may require substantial
additional expenditures may be imposed in future.
EMPLOYEES
We presently have 370 employees in domestic operations and 88 employees
in Europe, 29 of which are employed as temporary help. Of our employees,
approximately 350 are engaged in manufacturing, quality assurance, related
operations and support activities, 37 are in material handling and procurement,
15 are in sales and marketing, 29 are in engineering, and 27 are in
administrative, accounting and support activities.
We have no unions and we believe that the relationship with our
employees is good.
10
ITEM 2. PROPERTIES
The following chart summarizes the properties leased by the company.
SPACE PROPERTY TERM
- ----- -------- ----
16,000 sq. ft. 2230 W 77th St. 10 yrs. to August 31, 2010
(exec. offs., mfg.) Hialeah, FL(1)
12,000 sq. ft. 2200 W 77th St. 10 yrs. to August 31, 2010
(warehouse) Hialeah, FL(1)
15,000 sq. ft. 7110 Brittmore 5 yrs. to August 31, 2002,
(mfg., offs. & Houston, TX(2) one five year renewal
warehouse)
5,500 sq. ft. Rte. 495 Commerce Park 5 yrs. to March 31, 2002,
(mfg. & offs.) Milford, MA one five year renewal
18,225 sq. ft. 800 Paloma Dr. 5 yrs. to May 31, 2002,
(mfg., offs. & Round Rock (Austin), one five year renewal
warehouse) TX
77,800 sq. ft. 1784 Stanley Ave. 5 yrs. to July 31, 2002,
(mfg., offs. & Dayton, Ohio(3) two five year renewals
warehouse)
We also have a month-to-month lease for a warehouse space (1,000 square
feet) in Milford, Massachusetts.
- ----------
(1) The landlord is our parent. The lease is as favorable as may be
obtained from unaffiliated third parties.
(2) This facility has been closed and the property subleased for the
remainder of the term to an unaffiliated party for substantially
similar rent.
(3) The landlord is owned by the former President, now Assistant to the
President and director of Lytton and director of the company. See Item
13, "Certain Relationships and Related Transactions.". The company has
a right of first refusal and an option to purchase these premises. This
lease is guaranteed by the company.
Techdyne (Europe) owns an approximately 31,000 square foot facility in
Livingston, Scotland. The property is subject to a 15-year mortgage due July,
2009, which had a U.S. dollar equivalency of approximately $414,000 at December
31, 2000. See Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The company maintains state-of-the-art manufacturing, quality control,
testing and packaging equipment at all of its facilities in Florida, Ohio,
Massachusetts, Texas and Europe.
We believe that our equipment and facilities are adequate for our
current operations.
11
We are subject to a variety of environmental regulations relating to
our manufacturing processes and facilities. See Item 1, "Business - Government
Regulations."
ITEM 3. LEGAL PROCEEDINGS
The company is a party in a pending proceeding entitled Lemelson
Medical Education & Research Foundation, Limited Partnership v. Esco Electronics
Corporation, ET AL., initiated in August, 2000, pending in the United States
District Court for the District of Arizona. Lemelson brought a suit against 91
named defendants, including our company, for infringement of a variety of
patents owned by Lemelson, primarily relating to Lemelson's machine vision and
bar code scanning patents. Each of the defendants is involved, as is the
company, in the manufacture of electronic or semiconductor products. Lemelson
simultaneously filed similar lawsuits in the same court against approximately
another 350 defendants in different categories of electronic manufacturing. The
matter has been referred to patent counsel, who filed jointly with the majority
of the other named defendants, a motion to stay any further proceedings pending
a final, non-appealable judgment addressing the issue of the equitable defense
of "prosecution laches" in an action entitled Symbol Technologies, Inc., ET AL.
v. Lemelson. The equitable defense of prosecution laches is based on the
assertion that Lemelson filed initial patent applications with USPTO in the
1950's and continued the patent prosecution through the 1990's continually
amending his applications to include products and methods that have become
prevalent in the market. If the Federal Court of Appeals in the Symbol
Technologies case finds that prosecution laches is a viable defense to patent
infringement claims, such determination would be very favorable and could end
the patent infringement action against the company.
We assemble custom products to the specifications of our customers, and
we rely on our customers' patents, designs, know-how and other intellectual
property. At this early stage in the litigation, we are evaluating the Lemelson
litigation and our potential exposure, but are unable to project the merits of
Lemelson's claims, whether the litigation might result in material damages, or
whether, if necessary, we could obtain a license from Lemelson. Should we be
required to obtain such a license from Lemelson, there can be no assurance that
a license could be obtained on acceptable terms. Any litigation of this type may
result in substantial costs and diversion of our resources.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of our fiscal year to
a vote of security holders through the solicitation of proxies or otherwise.
Since Medicore owns approximately 71% of our equity, proxies are not solicited,
but rather we provide our shareholders with an Information Statement and an
Annual Report. The Information Statement provides similar information to
shareholders as does a proxy statement, except there is no solicitation of
proxies. Shareholders who are entitled to vote at the annual meeting scheduled
for May 23, 2001, which are those shareholders of record on April 6, 2001, will
receive an Information Statement which provides certain information relating to
"Directors and Executive Officers," "Executive Compensation," "Security
Ownership of Certain Beneficial Owners and Management," and "Certain
Relationships and Related Transactions," and which information is incorporated
by reference into this Annual Report on Form 10-K for the year ended December
31, 2000. See Part III of this Annual Report, Items 10, 11, 12 and 13.
12
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The table below reflects the high and low closing sales prices for the
common stock as reported by the Nasdaq National Market for 1999 and by the
Nasdaq SmallCap Market for 2000. On February 18, 2000, our common stock
transferred to the Nasdaq SmallCap Market, since the market value of the public
float was not equal to or greater than $5,000,000 for a 90-day period in 1999,
as required under the Nasdaq Marketplace rule 4450(a)(2), Maintenance Standard
1.
1999
HIGH LOW
1st Quarter............... $4.25 $2.13
2nd Quarter............... $4.00 $2.38
3rd Quarter............... $4.63 $2.13
4th Quarter............... $4.00 $1.75
2000
HIGH LOW
1st Quarter............... $3.63 $2.25
2nd Quarter............... $3.19 $2.00
3rd Quarter............... $2.75 $1.35
4th Quarter............... $1.88 $ .75
At March 20, 2001, the closing sales price of the common stock was
$.75.
At March 20, 2001, we had 63 shareholders of record and based upon data
obtained from our transfer agent, and we have approximately 603 beneficial
owners of our common stock.
We have not paid, nor do we have any present plans to pay cash
dividends on our common stock in the immediate future.
On September 30, 1999, our parent Medicore, converted the balance of
our unsecured demand promissory note, which amounted to $2,531,941, including
interest, into 1,446,823 shares of our common stock, at a rate of $1.75 per
share. This conversion was effected under an exemption, Sections 3(a)(9) and
4(c) from the registration requirements of the Securities Act.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction
with the consolidated financial statements, related notes and other financial
information included herein.
13
CONSOLIDATED STATEMENTS OF OPERATIONS DATA
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Years Ended December 31,
-------------------------------------------------------------
2000 1999 1998(1) 1997(1) 1996
------- ------- ------- ------- -------
Revenues $52,767 $48,383 $44,927 $33,169 $24,434
Net income 565 303 798 1,426 743
Earnings per share:
Basic $ .09 $ .05 $ .15 $ .32 $ .18
Diluted $ .09 $ .05 $ .13 $ .24 $ .14
CONSOLIDATED BALANCE SHEET DATA
(IN THOUSANDS)
December 31,
-------------------------------------------------------------
2000 1999 1998(1) 1997(1) 1996
------- ------- ------- ------- -------
Working capital $12,443 $10,986 $ 9,321 $ 9,547 $ 6,597
Total assets 27,876 26,796 23,818 24,625 13,224
Long-term debt (2) 8,582 7,962 7,581 6,926 3,842
Total liabilities 16,295 15,631 14,357 15,116 8,056
Shareholders' equity 11,581 11,165 9,461 9,509 5,168
- --------------------
(1) Reflects operations of Lytton commencing August 1, 1997. Lytton was
acquired on July 31, 1997.
(2) Includes advances from parent for years prior to 2000.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Our operations have continued to depend upon a relatively small number
of customers for a significant percentage of our net revenue. Significant
reductions in sales to any of our large customers would have a material adverse
effect on our results of operations. The level and timing of orders placed by a
customer vary due to the customer's attempts to balance its inventory, design
modifications, changes in a customer's manufacturing strategy, acquisitions of
or consolidations among customers, and variation in demand for a customer's
products due to, among other things, product life cycles, competitive conditions
and general economic conditions. Termination of manufacturing relationships or
changes, reductions or delays in orders could have an adverse effect on our
results of operations and financial condition, as has occurred in the past. Our
results also depend to a substantial extent on the success of our OEM customers
in marketing their products. We continue to seek to diversify our customer base
to reduce our reliance on our few major customers. See "Business Strategy" and
"Customers" under Item 1, "Business."
14
The industry segments we serve, and the electronics industry as a
whole, are subject to rapid technological change and product obsolescence.
Discontinuance or modification of products containing components manufactured by
the company could adversely affect our results of operations. The electronics
industry is also subject to economic cycles and has in the past experienced, and
is likely in the future to experience, recessionary periods. A general recession
in the electronics industry as we have experienced in the first quarter of 2001,
could have a material adverse effect on our business, financial condition and
results of operations. We typically do not obtain long-term volume purchase
contracts from our customers, but rather we work with our customers to
anticipate future volumes of orders. Based upon such anticipated future orders,
we will make commitments regarding the level of business we want and can
accomplish the timing of production schedules and the levels of and utilization
of facilities and personnel. Occasionally, we purchase raw materials without a
customer order or commitment. Customers may cancel, delay or reduce orders,
usually without penalty, for a variety of reasons, whether relating to the
customer or the industry in general, which orders are already made or
anticipated. Any significant cancellations, reductions or order delays could
adversely affect our results of operations.
We use ERP techniques through our Visual Manufacturing system (see Item
1, "Business - Business Strategy") in our efforts to continuously develop
accurate forecasts of customer volume requirements. We are dependent on the
timely availability of many components. Component shortages could result in
manufacturing and shipping delays or increased component prices, which could
have a material adverse effect on our results of operations. For six months of
2000 there was a worldwide shortage of key electronic components, which
adversely impacted our sales and earnings. It is important for us to efficiently
manage inventory, proper timing of expenditures and allocations of physical and
personnel resources in anticipation of future sales, the evaluation of economic
conditions in the electronics industry and the mix of products, whether PCBs,
wire harnesses, cables, or turnkey products, for manufacture. See "Electronic
Manufacturing Industry" and "Supplies and Materials Management" under Item 1,
"Business" and "Results of Operations" below.
We must continuously develop improved manufacturing procedures to
accommodate our customers' needs for increasingly complex products. To continue
to grow and be a successful competitor, we must be able to maintain and enhance
our technological capabilities, develop and market manufacturing services which
meet changing customer needs and successfully anticipate or respond to
technological changes in manufacturing processes on a cost-effective and timely
basis. Although we believe that our operations utilize the assembly and testing
technologies and equipment currently required by our customers, there can be no
assurance that our process development efforts will be successful or that the
emergence of new technologies, industry standards or customer requirements will
not render our technology, equipment or processes obsolete or uncompetitive. In
addition, to the extent that we determine that new assembly and testing
technologies and equipment are required to remain competitive, the acquisition
and implementation of such technologies and equipment are likely to require
significant capital investment.
During periods of recession in the electronics industry, as we have
experienced in the first quarter of 2001, our competitive advantages in the
areas of quick-turnaround manufacturing and responsive customer service may be
of reduced importance to electronic OEMs, who may become more price sensitive.
Our results of operations are also affected by other factors, including
price competition, the level and timing of customer orders, fluctuations in
material costs (due to availability), the overhead efficiencies achieved by
management in managing the costs of our operations, our experience in
manufacturing a particular product, the timing of expenditures in anticipation
of increased orders, selling, and general and administrative expenses.
Accordingly, gross margins and operating income margins have generally improved
during periods of high volume and high capacity utilization. We generally have
idle capacity and reduced operating margins during periods of lower-volume
production.
15
We compete with much larger electronic manufacturing entities for
expansion opportunities. Any acquisitions may result in potentially dilutive
issuance of equity securities, the incurrence of debt and amortization expenses
related to goodwill and other intangible assets, and other costs and expenses,
all of which could materially adversely affect our financial results.
Acquisition transactions also involve numerous business risks, including
difficulties in successfully integrating the acquired operations, technologies
and products or formalizing anticipated synergies, and the diversion of
management's attention from other business concerns.
RESULTS OF OPERATIONS
2000 COMPARED TO 1999
Consolidated revenues increased approximately $4,384,000 (9%) for the
year December 31, 2000 compared to the preceding year. There was an increase in
domestic sales of $3,341,000(8%), and a increase in European sales of $1,051,000
(28%) compared to the preceding year. Interest and other income decreased by
approximately $9,000 compared to the preceding year. The decrease reflects a
decrease in interest income as a result of a reduction in invested funds.
Significant reductions in sales of Techdyne (Europe) during recent
years have resulted in continuing losses. Net losses for this subsidiary
amounted to $328,000 for the year ended December 31, 2000 and $577,000 for the
preceding year. Techdyne (Europe) has continued its efforts at new business
development; however, continuing losses have resulted in management's ongoing
evaluation of the prospects for this facility.
Approximately 43% of our consolidated sales for 2000 were made to three
customers. Customers generating at least 10% of sales included ITW (formerly PMI
Food Equipment Group) (19%), Alcatel (12%) and Trilithic (12%). Approximately
$9,107,000 (34%) of Lytton's sales for 2000 were to its major customer, ITW. The
loss of, or substantially reduced sales to any major customer would have an
adverse effect on our operations if such sales are not replaced. See Item 1,
"Business-Customers."
Cost of goods sold as a percentage of sales amounted to 88% for the
year ended December 31, 2000 and for the preceding year. We experienced
increases in component costs during 2000 which had a negative effect on our
profit margins; however, changes in product mix and a diversification of our
customer base have offset this negative impact.
Selling, general and administrative expenses although increasing by
approximately $349,000 (8%) for the year ended December 31, 2000 compared to the
preceding year amounted to approximately 9% of sales for both periods. The
increase in 2000 included increases in the cost of support personnel and
increased marketing costs associated with efforts to increase sales.
Interest expense increased approximately $101,000 for the year ended
December 31, 2000 compared to the preceding year reflecting the increased
borrowings of Lytton, a portion of which were utilized to fund the remaining
$1,100,000 payment in July, 1999, on the Lytton acquisition purchase price
guarantee and increases relating to increased borrowings under our new credit
facilities. These increases were partially offset by a reduction of $112,000 for
the year ended December 31, 2000 in interest on loans from the Parent due to the
Parent's conversion on September 30, 1999 of approximately $2,532,000 of a
convertible note receivable from us. The prime rate was 9.50% at December 31,
2000 and 8.50% at December 31, 1999.
16
1999 COMPARED TO 1998
Consolidated revenues increased approximately $3,456,000 (8%) for the
year December 31, 1999 compared to the preceding year. There was an increase in
domestic sales of $4,482,000 (11%), and a decrease in European sales of $828,000
(18%) compared to the preceding year. Interest and other income decreased by
approximately $198,000 compared to the preceding year.
The decline in European-based sales was attributable to a decrease of
approximately $982,000 (82%) in sales to Compaq (Europe) by Techdyne (Europe)
which was partially offset by increased sales to other customers. Significant
reductions in sales of Techdyne (Europe) have resulted in net losses for this
subsidiary amounting to $577,000 for the year ended December 31, 1999 and
$442,000 for the preceding year. Techdyne (Europe) has continued its efforts at
new business development; however, continuing losses have resulted in
management's ongoing evaluation of the future prospects for this facility.
Approximately 41% of our consolidated sales for 1999 were made to four
customers. Customers generating at least 10% of sales included Motorola (13%)
and PMI Food Equipment Group (15%). Approximately $7,195,000 (32%) of Lytton's
sales for 1999 were to its major customer, PMI Food Equipment Group. The loss
of, or substantially reduced sales to any major customer would have an adverse
effect on our operations if such sales are not replaced. See Item 1, "Business -
Customers."
Cost of goods sold as a percentage of sales remained relatively stable
amounting to 88% for the year ended December 31, 1999 and for the preceding
year.
Selling, general and administrative expenses, although increasing by
approximately $350,000 (9%) for the year ended December 31, 1999 compared to the
preceding year, amounted to approximately 9% of sales for both periods. The
increase in 1999 included increases in the cost of support personnel and
increased marketing costs associated with efforts to increase sales.
Interest expense increased $76,000 for the year ended December 31, 1999
compared to the preceding year. The primary contributor to the increase in
interest expense was the increased borrowings of Lytton, which were utilized to
fund the remaining $1,100,000 payment in July, 1999, on the Lytton acquisition
purchase price guarantee. The prime rate was 8.50% at December 31, 1999 and
7.75% at December 31, 1998.
During the year ended December 31, 1999, we recorded an adjustment to
the valuation allowance relating to our deferred tax assets of approximately
$300,000, which was recorded in the fourth quarter of 1999, resulting in a 1999
tax provision of approximately $350,000. During the year ended December 31, 1998
we recorded an adjustment to the valuation allowance relating to our deferred
tax assets of approximately $400,000 related to domestic operations in the
fourth quarter of 1998 resulting in a 1998 tax provision of approximately
$130,000.
LIQUIDITY AND CAPITAL RESOURCES
We had working capital of $12,443,000 at December 31, 2000, an increase
of $1,457,000 (13%) during 2000. Included in the changes in components of
working capital was an increase of $316,000 in cash and cash equivalents, which
included net cash provided by operating activities of $503,000, net cash used in
investing activities of $1,330,000 (including $950,000 from additions to
property and equipment and additional consideration of $396,000 regarding the
17
Lytton acquisition) and net cash provided by financing activities of $1,122,000
(including net line of credit borrowings of $1,562,000, borrowings under
Lytton's equipment acquisition note of $150,000, and payments on long-term debt
of $562,000).
On February 9, 2000, we entered into two credit facilities with The
Provident Bank in Ohio for an aggregate borrowing of $5,500,000. This new
financing replaced a line of credit and four commercial loans which had a total
outstanding principal balance of $3,297,000 at December 31, 2000. Medicore is
not guaranteeing our financing with the Provident Bank, but one of the negative
covenants precludes loans to or the payment of loans from affiliates, other than
the pre-existing balance on the advances from parent, which includes Medicore.
The new financing includes a three-year revolving line of credit,
renewable annually at the discretion of the bank, which credit line carries an
interest rate of prime minus .25%, or at a fixed rate equal to the relevant
quoted LIBOR rate plus 2.5%, at our election. Also part of the financing is a
five-year term loan of $1,000,000 at the same interest rate as the revolving
line of credit. The financing is guaranteed by Lytton, which subsidiary has
provided the bank with a Security Agreement securing its guaranty of our
financing. The Security Agreement includes all of Lytton's property, including
accounts receivable, equipment, inventory, general intangibles, and the proceeds
of such collateral. Lytton has also provided the bank with a Conditional
Assignment of Lease, assigning all of its right, title and interest as tenant
under the lease to the bank as further security for its guaranty of our
financing. The Conditional Assignment of Lease takes effect only if Lytton
defaults in any of its obligations under the lease or any of its obligations
under its guaranty. That lease is with Stanley Avenue Properties, Ltd., a
limited liability company whose membership includes Lytton and Patricia
Crossley, the wife of Lytton Crossley, former President of Lytton and a director
of the company. Mr. Crossley also Assistant to the President of Lytton under an
employment agreement requiring 40 hours per month at an annual salary of
$30,000.
The financing, evidenced by an Asset Based Loan and Security Agreement,
provides for all the assets of the company to collateralize the financing, as
well as affirmative and negative covenants. Certain of the affirmative covenants
require maintenance of a consolidated tangible net worth at all times greater
than $7,500,000, a ratio of consolidated liabilities to consolidated tangible
net worth of not more than 2.6 to 1.0, a debt coverage ratio of at least 1.5 to
1.0. Some of the negative covenants, among others, include prohibiting sale of
any of its assets or properties except inventory in the ordinary course of
business, declaring or paying any dividends or making any other payments on our
capital stock, consolidating or merging with any other corporation or acquiring
or purchasing any equity interest in any other entity, or assuming any
obligations of any other entity the value of which exceeds $100,000, except for
notes and receivables acquired in the ordinary course of business, incur,
assume, guaranty or remain liable with respect to any indebtedness, except for
certain existing indebtedness disclosed in our financial statements, or
undertake any capital expenditures in excess of $1,000,000 in any one fiscal
year.
On July 31, 1997, we acquired Lytton, which is engaged in the
manufacture and assembly of PCBs and other electronic products for commercial
customers. The Stock Purchase Agreement provided for incentive consideration to
be paid in cash based on specific sales levels of Lytton for each of three
successive specified years, resulting in additional consideration of
approximately $396,000, $290,000 and $154,000 paid in April 2000, April 1999,
and April 1998, respectively. See Note 10 to "Notes to Consolidated Financial
Statements."
Lytton also entered into amendments to its financing agreements with
the Provident Bank. Lytton had an Asset Based Loan and Security Agreement with
that bank dated April 14, 1995, amended over the last several years, evidenced
by a $3,000,000 Revolving Credit Promissory Note, together with a Term Loan
Promissory Note in the amount of $1,400,000, and an Equipment Acquisition
18
Promissory Note in the amount of $500,000 (collectively the "Notes"). The line
of credit , which was amended to a three-year term coinciding with the term of
the Company's line of credit, had an outstanding balance of $2,786,000 at
December 31, 2000 and $2,830,000 at December 31, 1999. Lytton's term loan had an
outstanding balance of $1,028,000 at December 31, 2000 and $1,283,000 at
December 31, 1999. The equipment acquisition loan had an outstanding balance of
$150,000 at December 31, 2000 with no outstanding balance at December 31, 1999.
The Provident Bank also agreed to reduce the interest rates charged under the
Notes, and Lytton and the Provident Bank entered into modification and
amendments of the aggregate $4,900,000 loan agreements and Notes, restated at
the same interest rates, at the election of Lytton, as has been provided to the
company in its credit facilities. We are guaranteeing Lytton's financing, which
guaranty is unconditional and is secured by a Security Agreement between the
company and the Provident Bank which provides the bank with a continuing first
priority security interest on all of our property. See Note 2 to "Notes to
Consolidated Financial Statements."
Lytton has an equipment loan maturing in April, 2002, which had an
outstanding balance of $66,000 at December 31, 2000 and $113,000 at December 31,
1999. In July, 1994 Techdyne (Europe) purchased the facility in Scotland housing
its operations for approximately $730,000, obtaining a 15-year mortgage which
had a U.S. dollar equivalency of approximately $414,000 at December 31, 2000 and
approximately $489,000 at December 31, 1999, based on exchange rates in effect
at each of these dates. See Note 2 to "Notes to Consolidated Financial
Statements."
We believe that current levels of working capital and working capital
from operations will be adequate to successfully meet liquidity demands for at
least the next twelve months.
NEW ACCOUNTING PRONOUNCEMENTS
In June, 1998, the Financial Accounting Standards Board issued
Financial Accounting Standards Board Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (FAS 133). FAS 133 is effective
for fiscal years beginning after June 15, 2000. FAS 133 establishes accounting
and reporting standards for derivative instruments and for hedging activities
and requires, among other things, that all derivatives be recognized as either
assets or liabilities in the statement of financial position and that these
instruments be measured at fair value. We are in the process of determining the
impact that the adoption of FAS 133 will have on its consolidated financial
statements. Due to the Company's limited use of derivative financial
instruments, the adoption of FAS 133 is not expected to have a significant
effect on its consolidated results of operations, financial position or cash
flows.
INFLATION
Inflationary factors have not had a significant effect on our
operations. We attempt to pass on increased costs and expenses by increasing
selling prices when and where possible and by developing different and improved
products for our customers that can be sold at targeted profit margins.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The company is exposed to market risks from changes in interest rates
and foreign currency exchange rates.
19
Sensitivity of results of operations to interest rate risks on our
investments is managed by conservatively investing liquid funds in short-term
government securities and interest-bearing accounts at financial institutions in
which we had approximately $403,000 invested at December 31, 2000.
Interest rate risks on debt is managed by negotiation of appropriate
rates on new financing obligations based on current market rates. There is an
interest rate risk associated with our variable rate debt agreements which
totaled approximately $9,095,000 at December 31, 2000.
We have exposure to both rising and falling interest rates. A 1/2 %
decrease in rates on our year-end investments would result in a negative impact
of approximately $1,000 on our results of operations. A 1% increase in rates on
our year-end variable rate debt would result in a negative impact of
approximately $56,000 on our results of operations.
Our exposure to market risks from foreign currency exchange rates
relates to our European subsidiary whose results of operations when translated
into U.S. dollars are impacted by changes in foreign exchange rates. A 10%
strengthening of the U.S. dollar against the local Scottish currency, the pound,
would have negatively impacted 2000 earnings by approximately $33,000. We have
not incurred any significant realized losses on exchange transactions and does
not utilize foreign exchange contracts to hedge foreign currency fluctuations.
If realized losses on foreign transactions were to become significant, we would
evaluate appropriate strategies, including the possible use of foreign exchange
contracts, to reduce such losses.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted as a separate section to this
report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Effective August 6, 1999, the board of directors, upon the
recommendation of the audit committee, terminated Ernst & Young LLP as our
independent accountants, and engaged new independent accountants, Wiss &
Company, LLP, for the company's annual audit for our 1999 fiscal year. This
matter was previously reported on our Current Report on Form 8-K dated August
27, 1999. Our audit committee recommended Wiss & Company, LLP for our annual
audit for our 2000 fiscal year, and shareholders ratified that recommendation at
our annual meeting held on May 24, 2000.
20
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the company are appointed each year by the
board of directors at its first meeting following the annual meeting of
shareholders, to serve during the ensuing year. The following information
indicates their positions with the company and age of the executive officers at
March 20, 2001. There are no family relationships between any of the executive
officers and directors of the Company.
NAME AGE POSITION WITH THE COMPANY POSITION HELD SINCE
Thomas K. Langbein 55 Chairman of the Board and 1982
Chief Executive Officer 1990
Barry Pardon 49 President 1991
and Director 1990
Joseph Verga 49 Senior Vice President, 1988
Treasurer 1985
Director 1984
Daniel R. Ouzts 54 Vice President - Finance Controller 1986
For more detailed information about our executive officers and
directors you are referred to the caption "Information About Directors and
Executive Officers" of our Information Statement relating to the annual meeting
of shareholders anticipated to be held on May 23, 2001, which is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information on executive compensation is included under the caption
"Executive Compensation" of our Information Statement relating to the annual
meeting of shareholders anticipated to be held on May 23, 2001, incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information on beneficial ownership of our voting securities and the
voting securities of our parent, Medicore, by each director and all officers and
directors of our company as a group, and for each of the named executive
officers disclosed in the Summary Compensation Table (see "Executive
Compensation" of our Information Statement relating to the annual meeting of
shareholders anticipated to be held on May 23, 2001, incorporated herein by
reference), and by any person known to beneficially own more than 5% of any
class of our voting security, is included under the caption "Security Ownership
of Certain Beneficial Owners and Management" of our Information Statement
relating to the annual meeting of shareholders anticipated to be held on May 23,
2001, incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information on certain relationships and related transactions is
included under the caption "Certain Relationships and Related Transactions" of
our Information Statement relating to the annual meeting of shareholders
anticipated to be held on May 23, 2001, incorporated herein by reference.
21
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following is a list of documents filed as part of this report.
1. All financial statements - See Index to Consolidated Financial
Statements.
2. Financial statement schedules - See Index to Consolidated
Financial Statements.
(b) Current Reports on Form 8-K filed during the fourth quarter.
(i) Item 5, "Other Events" re: unsolicited buy-back of shares,
October 20, 2000.
(c) Exhibits
(3)(i) Articles of Incorporation (incorporated by reference to the
Company's Registration Statement on Form SB-2 dated July 26,
1995, as amended August 21, 1995 and September 1, 1995,
Registration No. 33-94998-A ("Form SB-2"), Part II, Item 27,
3(a)). *
(ii) By-Laws (incorporated by reference to the Company's Form SB-2,
Part II, Item 27, 3(b)). *
(4)(i) Form of Common Stock Certificate (incorporated by reference to
the Company's Form SB-2, Part II, Item 27, 4(a)). *
(ii) Form of 1997 Stock Option Plan (incorporated by reference to
the Company's Current Report on Form 8-K dated June 24, 1997
("June 24, 1997 Form 8-K"), Item 7(c)(4)(i)). *
(iii) Form of 1997 Incentive Stock Option (incorporated by reference
to the Company's June 24, 1997 Form 8-K, Item 7(c)(4)(ii)). *
(iv) Form of 1997 Non-Qualified Stock Option (incorporated by
reference to the Company's June 24, 1997 Form 8-K, Item
7(c)(4)(iii)). *
(10)(i) Lease Agreement between the Company and Medicore, Inc.(1)
dated August 29, 2000 (incorporated by reference to Medicore
Inc.'s(1) Current Report on Form 8-K dated September 1,
2000.)*
(ii) Form of Exclusive Sales Representative Agreement (incorporated
by reference to Medicore, Inc.'s(1) Annual Report on Form 10-K
for the year ended December 31, 1994, Part IV, Item 14 (a) 3
(10)(lxiv)). *
(iii) Employment Agreement between the Company and Barry Pardon
dated September 27, 2000.
(iv) Mortgage by Techdyne (Europe) Ltd.(2) to the Royal Bank of
Scotland dated August 8, 1994 (incorporated by reference to
Medicore, Inc.'s(1) Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994 ("Medicore June, 1994 Form 10-Q"),
Part II, Item 6(a)(28)(vi)). *
22
(v) Promissory Note to Medicore, Inc.(1) dated April 10, 1995
(incorporated by reference to the Company's Form SB-2, Part
II, Item 27, 10 (a)(a)). *
(vi) Service Agreement between the Company and Medicore, Inc.(1)
dated October 25, 1996 (incorporated by reference to the
Company's Registration Statement on Form S-3, Registration No.
333-15371, Part II, Item 16, Exhibit 10(a)).*
(vii) Service Agreement renewal letter from Medicore, Inc.(1) to the
Company dated September 30, 2000.
(viii) Lease Agreement between the Company and Route 495 Commerce
Park Limited Partnership dated March 25, 1997 (incorporated by
reference to the Company's Quarterly Report on Form 10-Q for
the first quarter of 1997, Item 6(a), Part II(10)).*
(ix) Lease Agreement between the Company and PruCrow Industrial
Properties, L.P. dated April 30, 1997 (incorporated by
reference to the Company's Current Report on Form 8-K dated
June 4, 1997 ("June, 1997 Form 8-K"), Item 7(c)(10)(i)).*
(x) Lease Agreement between the Company and EGP Houston Partners
Ltd. dated April 29, 1997 (incorporated by reference to the
Company's June, 1997 Form 8-K, Item 7(c)(10)(ii)).*
(xi) Form of Stock Option to The Investor Relations Group, Inc.
(incorporated by reference to the Company's Current Report on
Form 8-K dated May 28, 1998, Item 7(c)(10)(i)).*
(xii) Sublease between the Company and United Consulting Group dated
August 23, 1999. (incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended December 31,
1999; Part IV, Item 14(a)(10)(xiv).*
(xiii) Asset Based Loan and Security Agreement between the Company
and The Provident Bank dated February 9, 2000 (incorporated by
reference to the Company's Current Report on Form 8-K dated
March 1, 2000 ("March, 2000 Form 8-K"), Item 7(c)(10)(i)).*
(xiv) Line of Credit Promissory Note for $4,500,000 from the Company
to The Provident Bank dated February 9, 2000 (incorporated by
reference to the Company's March, 2000 Form 8-K, Item
7(c)(10)(ii)).*
(xv) Term Loan Promissory Note for $1,000,000 from the Company to
The Provident Bank dated February 9, 2000 (incorporated by
reference to the Company's March, 2000 Form 8-K, Item
7(c)(10)(iii)).*
(xvi) Guaranty of the Company for the Lytton Incorporated(2)
financing with The Provident Bank dated February 9, 2000
(incorporated by reference to the Company's March, 2000 Form
8-K, Item 7(c)(10)(iv)).*
(xvii) Security Agreement of the Company for its Guaranty of the
Lytton Incorporated(2) financing with The Provident Bank dated
February 9, 2000 (incorporated by reference to the Company's
March, 2000 Form 8-K, Item 7(c)(10)(v)).*
23
(xviii) Amendment to Asset Based Loan and Security Agreement between
Lytton Incorporated(2) and The Provident Bank dated February
9, 2000 (incorporated by reference to the Company's March,
2000 Form 8-K, Item 7(c)(10)(vi)).*
(xix) Amended and Restated Revolving Credit Promissory Note for
$3,000,000 from Lytton Incorporated(2) to The Provident Bank
dated February 9, 2000 (incorporated by reference to the
Company's March, 2000 Form 8-K, Item 7(c)(10)(vii)).*
(xx) Amended and Restated Term Loan Promissory Note for $1,400,000
from Lytton Incorporated(2) to The Provident Bank dated
February 9, 2000 (incorporated by reference to the Company's
March, 2000 Form 8-K, Item 7(c)(10)(viii)).*
(xxi) Amended and Restated Equipment Acquisition Loan Promissory
Note for $500,000 from Lytton Incorporated(2) to The Provident
Bank dated February 9, 2000 (incorporated by reference to the
Company's March, 2000 Form 8-K, Item 7(c)(10)(ix)).*
(xxii) Guaranty of Lytton Incorporated(2) for the Company's financing
with The Provident Bank dated February 9, 2000 (incorporated
by reference to the Company's March, 2000 Form 8-K, Item
7(c)(10)(x)).*
(xxiii) Security Agreement for Lytton Incorporated(2) with respect to
its Guaranty of the Company's financing with The Provident
Bank dated February 9, 2000 (incorporated by reference to the
Company's March, 2000 Form 8-K, Item 7(c)(10)(xi)).*
(xxiv) Conditional Assignment of Lease by Lytton Incorporated(2) to
The Provident Bank dated February 9, 2000 (incorporated by
reference to the Company's March, 2000 Form 8-K, Item
7(c)(10)(xii)).*(3)
(xxv) Amended Consent to Sublease between the Company, United
Consulting Group, Inc., and United Computing Group, Inc.
(21) Subsidiaries of the registrant.
(23) Consents of experts and counsel.
(i) Consent of Ernst & Young, LLP, Independent Certified
Public Accountants.
(ii) Consent of Wiss & Company, LLP, Independent Certified
Public Accountants.
(27) Financial Data Schedule (for SEC use only).
- -----------------
* Documents incorporated by reference not included in Exhibit Volume.
(1) Parent of the Company owning 71.3% of the Company's outstanding shares.
(2) Wholly-owned subsidiary.
(3) Lytton executed two identical documents, each conforming to this
exhibit, one for the guaranty and one for the indebtedness.
24
Schedule II - Valuation and Qualifying Accounts
Techdyne, Inc. and Subsidiaries
December 31, 2000
- -----------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- -----------------------------------------------------------------------------------------------------------------------------------
Additions
Balance at Additions (Deductions) Charged to Other Changes Balance
Beginning Charged (Credited)to Other Accounts Add (Deduct) at End of
Classification of Period Cost and Expenses Describe Describe Period
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 2000:
Reserves and allowances deducted
from asset accounts:
Allowance for uncollectable accounts $ 67,000 $ 25,000 $ 28,000(1) $ 120,000
Reserve for inventory obsolescence 709,000 422,000 (348,000)(2) 783,000
Valuation allowance for deferred tax asset 303,000 (303,000) --- ---
----------- ----------- ----------- ----------- -----------
$ 1,079,000 $ 144,000 $ 0 $ (320,000) $ 903,000
=========== =========== =========== =========== ===========
YEAR ENDED DECEMBER 31, 1999:
Reserves and allowances deducted
from asset accounts:
Allowance for uncollectable accounts $ 47,000 $ 2,000 $ 18,000(1) $ 67,000
Reserve for inventory obsolescence 544,000 405,000 (240,000)(2) 709,000
Valuation allowance for deferred tax asset 448,000 (145,000) -- 303,000
----------- ----------- ----------- ----------- -----------
$ 1,039,000 $ 262,000 $ 0 $ (222,000) $ 1,079,000
=========== =========== =========== =========== ===========
YEAR ENDED DECEMBER 31, 1998:
Reserves and allowances deducted
from asset accounts:
Allowance for uncollectable accounts $ 54,000 $ 2,000 $ (9,000)(1) $ 47,000
Reserve for inventory obsolescence 223,000 437,000 (116,000)(2) 544,000
Valuation allowance for deferred tax asset 850,465 (402,465) -- 448,000
----------- ----------- ----------- ----------- -----------
$ 1,127,465 $ 36,535 $ 0 $ (125,000) $ 1,039,000
=========== =========== =========== =========== ===========
(1) Uncollectable accounts written off, net of recoveries.
(2) Net write-offs against inventory reserves.
25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
TECHDYNE, INC.
By /s/ THOMAS K. LANGBEIN
-----------------------------------
THOMAS K. LANGBEIN, Chairman of the
Board of Directors and Chief Executive Officer
March 28, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
NAME TITLE DATE
Chairman of the Board
of Directors, Chief
/s/ THOMAS K. LANGBEIN Executive Officer March 28, 2001
- ---------------------------
Thomas K. Langbein
/s/ BARRY PARDON President and Director March 28, 2001
- ---------------------------
Barry Pardon
/s/ JOSEPH VERGA Senior Vice President, March 28, 2001
- --------------------------- Treasurer and Director
Joseph Verga
/s/ DANIEL R. OUZTS Vice President and Controller March 28, 2001
- ---------------------------
Daniel R. Ouzts
/s/ DAVID WATTS Chief Financial Officer March 28, 2001
- ---------------------------
David Watts
/s/ PETER D. FISCHBEIN Director March 28, 2001
- ---------------------------
Peter D. Fischbein
/s/ ANTHONY C. D'AMORE Director March 28, 2001
- ---------------------------
Anthony C. D'Amore
/s/ LYTTON CROSSLEY Director March 28, 2001
- ---------------------------
Lytton Crossley
/s/ EDWARD DIAMOND Director March 28, 2001
- ---------------------------
Edward Diamond
26
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14 (a) (1) and (2), (c) and (d)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
CERTAIN EXHIBITS
FINANCIAL STATEMENTS SCHEDULES
YEAR ENDED DECEMBER 31, 2000
TECHDYNE, INC.
HIALEAH, FLORIDA
FORM 10-K--ITEM 14(a)(1) AND (2)
TECHDYNE, INC. AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS
The following consolidated financial statements of Techdyne, Inc. and
subsidiaries are included in Item 8:
PAGE
Consolidated Balance Sheets - December 31, 2000 and 1999. F-4
Consolidated Statements of Income - Years ended December 31,
2000, 1999, and 1998. F-5
Consolidated Statements of Stockholders' Equity - Years ended
December 31, 2000, 1999 and 1998. F-6
Consolidated Statements of Cash Flows - Years ended December 31,
2000, 1999, and 1998. F-7
Notes to Consolidated Financial Statements - December 31, 2000. F-8
The following financial statement schedule of Techdyne, Inc. and subsidiaries is
included in Item 14(d):
Schedule II - Valuation and qualifying accounts.
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have been
omitted.
F-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Shareholders and Board of Directors
Techdyne, Inc.
We have audited the accompanying consolidated balance sheets of Techdyne, Inc.
and subsidiaries as of December 31, 2000 and 1999, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the two
years in the period ended December 31, 2000. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Techdyne, Inc. and subsidiaries at December 31, 2000 and 1999, and the
consolidated results of their operations and their cash flows for each of the
two years in the period ended December 31, 2000 in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ WISS & COMPANY LLP
----------------------------------
Wiss & Company LLP
March 9, 2001
Livingston, New Jersey
F-2
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Shareholders and Board of Directors
Techdyne, Inc.
We have audited the accompanying consolidated statements of income,
stockholders' equity and cash flows of Techdyne, Inc. and Subsidiaries for the
year ended December 31, 1998. Our audit also included the information related to
the year ended December 31, 1998 on the financial statement schedule listed in
the Index at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated results of operations and
cash flows of Techdyne, Inc. and Subsidiaries for the year ended December 31,
1998, in conformity with accounting principles generally accepted in the United
States. Also, in our opinion, the related financial statement schedule for the
year ended December 31, 1998, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ ERNST & YOUNG LLP
-----------------------------
Ernst & Young LLP
March 22, 1999
Miami, Florida
F-3
TECHDYNE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, DECEMBER 31,
2000 1999
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 506,824 $ 190,343
Accounts receivable, less allowances of $120,000 at December 31, 2000
and $67,000 at December 31, 1999 7,851,926 8,074,567
Inventories, less allowances for obsolescence of $783,000 at
December 31, 2000 and $709,000 at December 31, 1999 10,183,134 9,492,309
Prepaid expenses and other current assets 701,507 296,193
Deferred tax asset 498,097 440,759
------------ ------------
Total current assets 19,741,488 18,494,171
Property and equipment:
Land and improvements 178,800 193,200
Buildings and building improvements 690,431 746,036
Machinery and equipment 7,654,995 7,853,621
Tools and dies 450,583 843,202
Leasehold improvements 621,788 559,961
------------ ------------
9,596,597 10,196,020
Less accumulated depreciation and amortization 4,605,128 4,836,365
------------ ------------
4,991,469 5,359,655
Deferred expenses and other assets 41,193 94,435
Costs in excess of net tangible assets acquired, less accumulated
amortization of $459,000 at December 31, 2000
and $317,000 at December 31, 1999 3,101,635 2,848,038
------------ ------------
$ 27,875,785 $ 26,796,299
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,248,750 $ 5,049,456
Accrued expenses 1,826,546 1,679,513
Current portion of long-term debt 625,048 576,239
Income taxes payable 99,433 203,043
Advances from parent 498,900 --
------------ ------------
Total current liabilities 7,298,677 7,508,251
Deferred gain on sale of real estate 161,047 161,047
Long-term debt, less current portion 8,582,289 7,463,224
Advances from parent -- 498,315
Deferred income taxes 252,600 --
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, authorized 10,000,000 shares; issued and
outstanding 6,556,990 shares in 2000 and 6,451,990 shares in 1999 65,570 64,520
Capital in excess of par value 11,592,995 11,371,503
Retained earnings (deficit) 560,582 (4,445)
Accumulated other comprehensive loss (222,325) (102,766)
Notes receivable from options exercised (415,650) (163,350)
------------ ------------
Total stockholders' equity 11,581,172 11,165,462
------------ ------------
$ 27,875,785 $ 26,796,299
============ ============
See notes to consolidated financial statements.
F-4
TECHDYNE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31,
---------------------------------------
2000 1999 1998
----------- ----------- -----------
Revenues:
Sales $52,712,819 $48,320,096 $44,665,925
Interest and other income 53,693 62,664 260,806
----------- ----------- -----------
52,766,512 48,382,760 44,926,731
Cost and expenses:
Cost of goods sold 46,510,042 42,579,142 39,277,746
Selling, general and administrative expenses 4,761,240 4,411,685 4,061,205
Interest expense 839,660 738,794 662,856
----------- ----------- -----------
52,110,942 47,729,621 44,001,807
----------- ----------- -----------
Income before income taxes 655,570 653,139 924,924
Income tax provision 90,543 349,648 127,212
----------- ----------- -----------
Net income $ 565,027 $ 303,491 $ 797,712
=========== =========== ===========
Earnings per share:
Basic $ .09 $ .05 $ .15
=========== =========== ===========
Diluted $ .09 $ .05 $ .13
=========== =========== ===========
See notes to consolidated financial statements.
F-5
TECHDYNE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
CAPITAL IN RETAINED
COMMON EXCESS OF COMPREHENSIVE EARNINGS
STOCK PAR VALUE INCOME (DEFICIT)
------------ ------------ ------------ ------------
Balance at January 1, 1998 $ 51,351 $ 10,612,691 $ (1,105,648)
Comprehensive income:
Net income $ 797,712 797,712
Other comprehensive income:
Foreign currency translation
adjustments 17,848
------------
Comprehensive income $ 815,560
============
Exercise of stock options and
warrants 1,150 113,850
Consultant stock options 12,750
Subsidiary acquisition price
adjustment 400,000
Advance on subsidiary acquisition
price guarantee
------------ ------------ ------------ ------------
Balance at December 31, 1998 52,501 11,139,291 (307,936)
Comprehensive income:
Net income $ 303,491 303,491
Other comprehensive loss:
Foreign currency translation
adjustments (71,128)
------------
Comprehensive income 232,363
============
Note conversion by Medicore
(1,446,823 shares) 14,469 2,517,473
Exercise of stock options 500 49,500
Consultant stock options 40,000
Settlement subsidiary acquisition
price guarantee (2,950) (2,374,761)
------------ ------------ ------------
Balance at December 31, 1999 64,520 11,371,503 (4,445)
Comprehensive income:
Net income $ 565,027 565,027
Other comprehensive loss:
Foreign currency translation
adjustments (119,559)
------------
Comprehensive income $ 445,468
============
Exercise of stock options 1,450 252,300
Repurchase of 40,000 shares (400) (30,808)
------------ ------------ ------------
Balance at December 31, 2000 $ 65,570 $ 11,592,995 $ 560,582
============ ============ ============
ACCUMULATED NOTES ADVANCE
OTHER RECEIVABLE SUBSIDIARY
COMPREHENSIVE STOCK PRICE
INCOME (LOSS) OPTIONS GUARANTEE TOTAL
------------ ------------ ------------ ------------
Balance at January 1, 1998 $ (49,486) $ 9,508,908
Comprehensive income:
Net income
Other comprehensive income:
Foreign currency translation
adjustments 17,848
Comprehensive income 815,560
Exercise of stock options and
warrants (113,850) 1,150
Consultant stock options 12,750
Subsidiary acquisition price
adjustment 400,000
Advance on subsidiary acquisition
price guarantee (1,277,711) (1,277,711)
------------ ------------ ------------ ------------
Balance at December 31, 1998 (31,638) (113,850) (1,277,711) 9,460,657
Comprehensive income:
Net income
Other comprehensive loss:
Foreign currency translation
adjustments (71,128)
Comprehensive income 232,363
Note conversion by Medicore
(1,446,823 shares) 2,531,942
Exercise of stock options (49,500) 500
Consultant stock options 40,000
Settlement subsidiary acquisition
price guarantee 1,277,711 (1,100,000)
------------ ------------ ------------ ------------
Balance at December 31, 1999 (102,766) (163,350) -- 11,165,462
Comprehensive income:
Net income
Other comprehensive loss:
Foreign currency translation
adjustments (119,559)
Comprehensive income 445,468
Exercise of stock options (252,300) 1,450
Repurchase of 40,000 shares (31,208)
------------ ------------ ------------ ------------
Balance at December 31, 2000 $ (222,325) $ (415,650) $ -- $ 11,581,172
============ ============ ============ ============
F-6
TECHDYNE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
-----------------------------------------
2000 1999 1998
----------- ----------- -----------
Operating activities:
Net income $ 565,027 $ 303,491 $ 797,712
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation 1,261,455 1,192,204 996,919
Amortization 178,019 138,817 118,104
Bad debt expense 25,000 1,714 2,179
Provision for inventory obsolescence 421,888 404,762 437,095
Deferred income taxes (benefit) 14,400 40,100 (10,295)
Consultant stock option expense 23,448 16,552 12,750
Increase (decrease) relating
to operating activities from:
Accounts receivable 131,756 (2,324,576) (55,293)
Inventories (1,155,456) (2,036,063) 22,274
Prepaid expenses and other
current assets (334,999) (110,005) 410,884
Accounts payable (782,886) 1,820,943 (987,521)
Accrued expenses 183,452 152,294 (213,984)
Income taxes payable (28,239) 83,016 13,362
----------- ----------- -----------
Net cash provided by (used in) operating activities 502,865 (316,751) 1,544,186
Investing activities:
Subsidiary acquisition payments (395,806) (1,389,531) (153,818)
Advance on subsidiary acquisition price guarantee -- -- (1,277,711)
Ad