-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SZ9sdJ7768rBYDSwCerFX0rX85SZ8Fc/mc7EQ0NhfoMUd3gAE2XCCPPwlnnbRkjh jUP5EV419o+RIJDjAZdqSQ== 0000026987-97-000003.txt : 19970221 0000026987-97-000003.hdr.sgml : 19970221 ACCESSION NUMBER: 0000026987-97-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970211 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DDL ELECTRONICS INC CENTRAL INDEX KEY: 0000026987 STANDARD INDUSTRIAL CLASSIFICATION: PRINTED CIRCUIT BOARDS [3672] IRS NUMBER: 330213512 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08101 FILM NUMBER: 97523904 BUSINESS ADDRESS: STREET 1: 2151 ANCHOR COURT CITY: NEWBURY PARK STATE: CA ZIP: 91320 BUSINESS PHONE: 805-376-9415 MAIL ADDRESS: STREET 1: 2151 ANCHOR COURT CITY: NEWBURY PARK STATE: CA ZIP: 91320 FORMER COMPANY: FORMER CONFORMED NAME: DATA DESIGN LABORATORIES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: DATA DESIGN LABORATORIES DATE OF NAME CHANGE: 19880817 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended: DECEMBER 31, 1996 [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to ----------- ------------ Commission File Number: 1-8101 Exact Name of Registrant as Specified in Its Charter: DDL ELECTRONICS, INC. State or Other Jurisdiction of I.R.S. Employer Incorporation or Organization: DELAWARE Identification No.: 33-0213512 Address of Principal Executive Offices: 2151 Anchor Court Newbury Park, CA 91320 Registrant's Telephone Number: (805) 376-9415 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 [ ] The registrant had 23,066,914 shares of Common Stock outstanding as of February 5, 1997. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS DDL ELECTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Unaudited, except June 30, 1996) December 31 , June 30, 1996 1996 ------ ------ Assets Current assets: Cash and cash equivalents $ 1,052,000 $ 2,519,000 Accounts receivable 7,134,000 5,620,000 Costs and estimated earnings in excess of billings on uncompleted contracts 4,173,000 3,026,000 Inventories 3,394,000 4,014,000 Prepaid expenses and other current assets 210,000 314,000 ---------- ---------- Total current assets 15,963,000 15,493,000 ---------- ---------- Property, equipment and improvements, at cost: Buildings and improvements 6,081,000 5,604,000 Plant equipment 14,383,000 13,999,000 Office and other equipment 1,799,000 1,444,000 ---------- ---------- 22,263,000 21,047,000 Less: accumulated depreciation and amortization (15,938,000) (15,130,000) ---------- ---------- Property, equipment and improvements, net 6,325,000 5,917,000 ---------- ---------- Other assets: Goodwill, net 5,074,000 5,708,000 Debt issue costs 285,000 533,000 Deposits and other assets 578,000 436,000 ---------- ----------- 5,937,000 6,677,000 ---------- ----------- $ 28,225,000 $ 28,087,000 ========== =========== DDL ELECTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Continued) (Unaudited, except June 30, 1996) December 31, June 30, 1996 1996 ------ ------ Liabilities and Stockholders' Equity Current liabilities: Bank lines of credit payable $ 1,621,000 $ - Current portion of long-term debt 5,915,000 603,000 Accounts payable 6,999,000 7,485,000 Accrued payroll and employee benefits 671,000 777,000 Other accrued liabilities 2,649,000 3,114,000 ---------- ---------- Total current liabilities 17,855,000 11,979,000 ---------- ---------- Long-term debt: 10% Senior Secured Notes - 5,300,000 7% Convertible Subordinated Debentures, less current portion 409,000 443,000 8-1/2% Convertible Subordinated Debentures 1,580,000 1,580,000 Notes payable, capitalized lease obligations and other long-term debt, less current portion 3,958,000 3,612,000 ---------- ---------- Total long-term debt 5,947,000 10,935,000 ---------- ---------- Stockholders' equity: Common stock 231,000 230,000 Additional paid-in capital 29,408,000 29,304,000 Common stock held in escrow (1,325,000) (1,325,000) Accumulated deficit (23,256,000) (22,000,000) Foreign currency translation adjustment (635,000) (1,036,000) ---------- ---------- Total stockholders' equity 4,423,000 5,173,000 ---------- ---------- $ 28,225,000 $ 28,087,000 ========== ========== See accompanying Notes to Unaudited Consolidated Financial Statements DDL ELECTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited) Three Months Ended December 31, ---------------------- 1996 1995 ------ ------ Sales $11,185,000 $ 6,029,000 Cost of goods sold 9,762,000 5,372,000 ---------- --------- Gross profit 1,423,000 657,000 ---------- --------- Operating expenses: Administrative and selling 1,212,000 1,031,000 Goodwill amortization 317,000 - ---------- --------- 1,529,000 1,031,000 ---------- --------- Operating loss (106,000) (374,000) ---------- --------- Non-operating income (expense): Investment income 19,000 73,000 Interest expense (324,000) (114,000) Other income (expense) (120,000) 67,000 ---------- --------- (425,000) 26,000 ---------- --------- Loss before income taxes (531,000) (348,000) Income tax benefit - - ---------- --------- Net loss $ (531,000) $ (348,000) ========== ========= Net loss per share $ (0.02) $ (0.02) ==== ==== Shares used in computing net loss per share 23,048,233 16,485,249 ========== ========== See accompanying Notes to Unaudited Consolidated Financial Statements DDL ELECTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited) Six Months Ended December 31, ---------------------- 1996 1995 ------ ------ Sales $21,080,000 $12,221,000 Cost of goods sold 18,561,000 10,838,000 ---------- ---------- Gross profit 2,519,000 1,383,000 ---------- ---------- Operating expenses: Administrative and selling 2,363,000 1,895,000 Goodwill amortization 634,000 - ---------- ---------- 2,997,000 1,895,000 ---------- ---------- Operating loss (478,000) (512,000) ---------- ---------- Non-operating income (expense): Investment income 43,000 200,000 Interest expense (582,000) (229,000) Other income (expense) (239,000) 167,000 ---------- ---------- (778,000) 138,000 ---------- ---------- Loss before income taxes (1,256,000) (374,000) Income tax benefit - 1,110,000 ---------- ---------- Net income (loss) $(1,256,000) $ 736,000 ========== ========== Earnings (loss) per share $ (0.05) $ 0.04 ==== ==== Shares used in computing earnings (loss) per share 23,032,845 16,985,366 ========== ========== See accompanying Notes to Unaudited Consolidated Financial Statements DDL ELECTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) Six Months Ended December 31, ---------------------- 1996 1995 ------ ------ Cash flows from operating activities: Net income (loss) $(1,256,000) $ 736,000 Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities - Depreciation and amortization 1,556,000 382,000 Net increase in operating working capital (2,874,000) (755,000) (Increase) decrease in deposits and other assets (142,000) 7,000 Benefit of noncapital grants (119,000) (151,000) Other 61,000 (60,000) --------- --------- Net cash provided (used) by operating activities (2,774,000) 159,000 --------- --------- Cash flows from investing activities: Capital expenditures (207,000) (380,000) ---------- --------- Cash flows from financing activities: Proceeds from bank lines of credit 1,564,000 - Reductions of long-term debt (388,000) (348,000) Proceeds from exercise of stock options - 377,000 Proceeds from exercise of warrants - 21,000 Proceeds from government grants 290,000 139,000 --------- --------- Net cash provided by financing activities 1,466,000 189,000 --------- --------- Effect of exchange rate changes on cash 48,000 (57,000) --------- --------- Decrease in cash and cash equivalents (1,467,000) (89,000) Cash and cash equivalents at beginning of period 2,519,000 2,917,000 --------- --------- Cash and cash equivalents at end of period $ 1,052,000 $ 2,828,000 ========= ========= See accompanying Notes to Unaudited Consolidated Financial Statements DDL ELECTRONICS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Note 1 - DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION DDL Electronics, Inc. provides integrated design and electronic manufacturing services ("EMS") to original equipment manufacturers ("OEMs") in the computer, telecommunications, instrumentation, medical, industrial and aerospace industries. The Company also manufactures multilayer printed circuit boards ("PCBs") for use primarily in the computer, communications and instrumentation industries. The Company's EMS operations are located in Southern California and Northern Ireland. The Company's PCB facilities are located in Northern Ireland. The accompanying consolidated financial statements, which have not been audited by independent accountants (except for the balance sheet as of June 30, 1996), include the accounts of DDL Electronics, Inc. and its subsidiaries. All significant intercompany transactions and accounts have been eliminated in consolidation. In the opinion of the Company's management, the accompanying consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) necessary to present fairly the Company's financial position at December 31, 1996 and its results of operations and cash flows for the six months ended December 31, 1996 and 1995. The Company uses a 52-53 week fiscal year ending on the Friday closest to June 30. In the accompanying interim consolidated financial statements, the interim period end for both years is shown as December 31 for clarity of presentation. The actual periods ended on December 27, 1996 and December 29, 1995. Certain notes and other information are condensed or omitted from the interim financial statements presented in this Quarterly Report on Form 10-Q. Therefore, these financial statements should be read in conjunction with the Company's 1996 Annual Report to Stockholders as filed with the Securities and Exchange Commission on October 11, 1996. Certain reclassifications have been made to the interim fiscal 1996 financial statements to conform with the fiscal 1997 financial statement presentation. Such reclassifications had no effect on the Company's results of operations or stockholders' equity. Note 2 - REVENUE AND COST RECOGNITION The Company's Northern Ireland operating units recognize sales and cost of sales upon shipment of products. SMTEK, the Company's U.S. operating unit which was acquired in January 1996, has historically generated the majority of its revenue through long-term contracts with suppliers of electronic components and products to the federal government. Consequently, SMTEK uses the percentage of completion method to recognize sales and cost of sales. SMTEK determines percentage complete on the basis of costs incurred to total estimated costs. Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and depreciation costs. Selling, general and administrative costs are charged to expense as incurred. In the period in which it is determined that a loss will result from the performance of a contract, the entire amount of the estimated loss is charged to income. Other changes in contract price and estimates of costs and profits at completion are recognized prospectively. This method recognizes in the current period the cumulative effect of the changes on current and prior periods. The asset "Costs and estimated earnings in excess of billings on uncompleted contracts" represents revenues recognized in excess of amounts billed. Note 3 - ACCOUNTS RECEIVABLE The components of accounts receivable are as follows: December 31, June 30, 1996 1996 ---- ---- Trade receivables $6,900,000 $5,456,000 Other receivables 401,000 296,000 Less allowance for doubtful accounts (167,000) (132,000) --------- --------- $7,134,000 $5,620,000 ========= ========= Included in other receivables at December 31, 1996 and June 30, 1996 are grants due from the Industrial Development Board for Northern Ireland of $127,000 and $251,000, respectively. Note 4 - COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON UNCOMPLETED CONTRACTS The components of costs and estimated earnings in excess of billings on uncompleted contracts are as follows: December 31, June 30, 1996 1996 ---- ---- Costs incurred on uncompleted contracts $15,979,000 $11,181,000 Estimated earnings 1,628,000 1,544,000 ---------- ---------- 17,607,000 12,725,000 Less: Billings to date (13,302,000) (9,613,000) Customer advances and progress payments (132,000) (86,000) ---------- ---------- $ 4,173,000 $ 3,026,000 ========== ========== Costs and estimated earnings in excess of billings on uncompleted contracts consists of revenue recognized under electronics assembly contracts which amounts were not billable at the balance sheet date. Essentially all of the unbilled receivables are expected to be billed within 90 days of the balance sheet date. Note 5 - INVENTORIES Inventories consist of the following: December 31, June 30, 1996 1996 ---- ---- Raw materials $2,777,000 $2,853,000 Work in process 886,000 1,263,000 Finished goods 13,000 146,000 Less reserves (282,000) (248,000) --------- --------- $3,394,000 $4,014,000 ========= ========= Note 6 - OTHER ACCRUED LIABILITIES Other accrued liabilities consist of the following: December 31, June 30, 1996 1996 ---- ---- Environmental liabilities $ 679,000 $ 728,000 Accrued taxes payable 795,000 951,000 Other 1,175,000 1,435,000 --------- --------- $2,649,000 $3,114,000 ========= ========= Note 7 - FINANCING ARRANGEMENTS Bank Line of Credit Agreements: The Company has an accounts receivable-based working capital bank line of credit for SMTEK, its U.S. EMS operation, which provides for borrowings of up to $2,500,000 at an interest rate of prime plus 1.25%. At December 31, 1996, borrowings outstanding under this credit facility amounted to $663,000. The Company also has a credit facility agreement with Ulster Bank Markets for its Northern Ireland operations. This agreement includes a working capital line of credit of 1,150,000 pounds sterling (approximately $1,900,000), and provides for interest on borrowings at 1-1/2% over the Bank's base rate. At December 31, 1996, borrowings outstanding under this credit facility amounted to $958,000. Acquisition indebtedness: In February 1996, the Company issued 10% Senior Secured Notes due July 1, 1997 in the aggregate amount of $5,300,000 (the "10% Senior Notes") as partial financing for the acquisition of SMTEK. The 10% Senior Notes are secured by (i) 1,060,000 shares of common stock and (ii) warrants to purchase 1,060,000 shares of common stock (the "Collateral Warrants"), all of which have been placed into an escrow account. In the event the Collateral Warrants are required to redeem the 10% Senior Notes, each warrant would be exercisable into one share of common stock at a price which is 6% less than the market value of the Company's common stock at the time of exercise. If the 10% Senior Notes are repaid from sources other than the Collateral Warrants, then the Collateral Warrants expire and can no longer be exercised. Note 8 - INFORMATION RELATING TO STATEMENT OF CASH FLOWS "Net cash provided (used) by operating activities" includes cash payments for interest as follows: Six months ended December 31, --------------------- 1996 1995 ------ ------ Interest paid $ 527,000 $ 225,000 ======= ======= "Net increase in operating working capital" is comprised of the following: Six months ended December 31, --------------------- 1996 1995 ------ ------ Increase in accounts receivable $(1,192,000) $ (425,000) Increase in costs and estimated earnings in excess of billings on uncompleted contracts (1,198,000) - (Increase) decrease in inventories 926,000 (561,000) (Increase) decrease in prepaid expenses 113,000 (956,000) Decrease in accounts payable (900,000) (441,000) Decrease in accrued payroll and employee benefits (146,000) (115,000) Increase (decrease) in other liabilities (477,000) 1,743,000 --------- --------- Net increase in operating working capital $(2,874,000) $ (755,000) ========= ========= Following is the supplemental schedule of non-cash investing and financing activities: Six months ended December 31, --------------------- 1996 1995 ------ ------ Capital expenditures financed by lease obligations $ 615,000 $ 47,000 ========= ======= Conversion of debt to equity $ 105,000 $104,000 ========= ======= ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Certain statements made below are forward-looking in nature and reflect the Company's current expectations and plans. Such statements involve various risks and uncertainties that could cause actual results to differ materially from those currently expected by the Company. Meaningful factors that might cause such differences include, but are not limited to, significant historical losses, limited capital resources and a continuing need for financing, dependence on key personnel, concentration of revenues among major customers, historical dependence on government business on the part of the Company's U.S. operating unit and a recent shift into commercial business, industry conditions, competition, environmental matters, dependence on suppliers and other factors discussed in the Company's Securities and Exchange Commission filings, including other factors described as "Risk Factors" in the Company's Registration Statement on Form S-3 (No. 333-02969). DESCRIPTION OF THE BUSINESS The Company provides integrated design and electronic manufacturing services ("EMS") to original equipment manufacturers ("OEMs") in the computer, telecommunications, instrumentation, medical, industrial and aerospace industries. The Company also manufactures multilayer printed circuit boards ("PCBs") for use primarily in the computer, communications, and instrumentation industries. The Company's EMS operations are located in Southern California and Northern Ireland. Its PCB facilities are located in Northern Ireland. The Company entered the EMS business by acquiring its domestic EMS operations in 1985 and by organizing its European EMS operations in 1990. In fiscal 1995, the Company liquidated or sold all assets associated with its PCB and EMS operations in the United States. In January 1996, as the first step toward rebuilding a domestic presence in the EMS industry, the Company acquired SMTEK, Inc. ("SMTEK"), a provider of integrated design and electronic manufacturing services. RESULTS OF OPERATIONS Consolidated sales for the three and six months ended December 31, 1996 were $11,185,000 and $21,080,000, respectively, compared to $6,029,000 and $12,221,000 for the same periods in the previous fiscal year. The sales increases result primarily from the acquisition of SMTEK, which contributed revenues of $4,210,000 and $7,716,000 in the three and six months ended December 31, 1996, respectively. Because the acquisition of SMTEK was accounted for using the purchase method, SMTEK's operations are not included in the Company's results for the three and six months ended December 31, 1995. Sales of DDL Electronics, Ltd. ("DDL-E"), the Company's Northern Ireland EMS operation, increased approximately 25% in the latest quarter compared to the second quarter of last year, while sales of Irlandus Circuits, Ltd. ("Irlandus"), the Company's PCB operation, increased approximately 11% between these same two periods. For the six months ended December 31, 1996, sales of DDL-E and Irlandus increased 20% and 2%, respectively, over sales for the comparable period of the prior year. Consolidated gross profit for the six months ended December 31, 1996 was $2,519,000, compared to $1,383,000 for the comparable period of the prior year. The inclusion of SMTEK in the latest six month period accounted for $1,150,000 of the increase. Irlandus' gross profit increased $184,000 during the six months ended December 31, 1996 due primarily to an increase in higher margin quick-turn orders, while DDL-E's gross profit declined $198,000 despite higher sales. The Company's consolidated gross profit margin increased from 11.3% in the six months ended December 31, 1995 to 11.9% in the six months ended December 31, 1996, primarily due to inclusion of SMTEK in the results for the latest six month period and to improvement in Irlandus' gross profit margin. DDL-E's gross profit margin fell from 11.1% in the six months ended December 31, 1995 to 7.0% in the latest six month period. This decline was attributable to several factors, including the loss of a large, profitable assembly contract which had accounted for a significant portion of DDL-E's sales in the first six months of last fiscal year. Also contributing to the decline in gross profit margin was the fact that last year's first six months included "consignment sales". Consignment sales, in which the customer furnishes the materials and components to be assembled, typically have higher profit margins than "turnkey" sales, in which the contract assembly company procures the materials on the customer's behalf. DDL-E had no consignment sales in the first six months of fiscal 1997. DDL-E also incurred start-up training costs associated with several "box build" assembly contracts in the latest six month period, which further depressed its gross profit margins. Consolidated gross profit for the three months ended December 31, 1996 was $1,423,000, compared to $657,000 for the comparable period of the prior year. The inclusion of SMTEK in the latest three month period accounted for $650,000 of the increase. Irlandus' gross profit increased by $231,000 between these two periods, while DDL-E's gross profit declined by $115,000. The lower gross profit at DDL-E was attributable to the factors cited above for the six month periods. Despite the lower gross profit margin at DDL-E, the consolidated gross profit margin increased to 12.7% in the three months ended December 31, 1996 from 10.9% in the three months ended December 31, 1995 due to inclusion of SMTEK in the results for the latest three month period and to improvement in Irlandus' gross profit margin. Administrative and selling expenses for the three and six months ended December 31, 1996 were $1,212,000 and $2,363,000, respectively, compared to $1,031,000 and $1,895,000 for the same periods in the previous year. These increases are the result of the acquisition of SMTEK in January 1996, as the 1995 amounts consisted of administrative and selling expenses for solely the Company's Northern Ireland operations and corporate office functions. In the three and six months ended December 31, 1996, the consolidated operating losses were $106,000 and $478,000, respectively, compared to $374,000 and $512,000 for the same periods in the previous fiscal year. Increased gross profit as a result of the SMTEK acquisition is the primary reason for the lower operating losses in the latest three and six month periods. Investment income for the six months ended December 31, 1996 and 1995 was $43,000 and $200,000, respectively. The 1995 amount includes nonrecurring interest income of $106,000 received on income tax refunds. Interest expense increased from $114,000 in the three months ended December 31, 1995 to $324,000 in the three months ended December 31, 1996. In the six months ended December 31, 1996 and 1995, interest expense was $582,000 and $229,000, respectively. These increases are attributable to interest on debt issued in 1996 to finance the SMTEK acquisition. Other income (expense) for the six months ended December 31, 1996 and 1995 was ($239,000) and $167,000, respectively. The 1995 amount includes a $100,000 gain recognized upon the negotiated settlement of a facility lease commitment at less than the amount previously reserved. The 1996 amount includes debt issue cost amortization expense of $248,000 associated with the debt issued to finance the SMTEK acquisition. In fiscal year 1996, the Company recognized an income tax benefit associated with application for federal tax refunds as permitted under section 172(f) of the Internal Revenue Code. In the aggregate the Company applied for federal tax refunds of $2,175,000, net of costs associated with applying for such refunds. To date, the Company has received $1,871,000 of net refunds plus interest on such refunds of $106,000, and has recognized as an income tax benefit $1,110,000 net of certain expenses. Because of the possibility that the tax returns underlying these refunds may be subject to audit by the Internal Revenue Service and a portion of the refunds disallowed, the Company has not yet recognized a tax benefit for the remainder of the refunds received to date, or for the refunds still expected to be received. Nonetheless, the Company feels that its claim for refund and carry back of net operating losses can be substantiated and is supported by law, and that the Company will ultimately collect and retain a substantial portion of the refunds applied for. The net loss for the six months ended December 31, 1996 was $1,256,000 or $0.05 per share, compared to net income of $736,000 or $0.04 per share for the same period of fiscal 1995. Net income for the fiscal 1995 period includes the $1,110,000 income tax benefit discussed above. LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of liquidity are its cash and cash equivalents, which amounted to $1,052,000 at December 31, 1996, and its bank lines of credit. During the six months ended December 31, 1996, cash and cash equivalents decreased by $1,467,000. This decrease consisted of cash used by operating activities of $2,774,000 and capital expenditures of $207,000, partially offset by cash inflows of $1,176,000 from new borrowings net of debt repayments, proceeds from government grants of $290,000 and the effect of exchange rate changes on cash of $48,000. Components of operating working capital increased by $2,874,000 during the first six months of fiscal 1997, comprised of a $1,192,000 increase in accounts receivable, a $1,198,000 increase in costs and earnings in excess of billings on uncompleted contracts and a $1,523,000 decrease in current liabilities, partially offset by a $926,000 decrease in inventory and a $113,000 decrease in prepaid expenses and other current assets. The Company has an accounts receivable-based working capital bank line of credit for SMTEK which provides for borrowings of up to $2,500,000 at an interest rate of prime plus 1.25%. At December 31, 1996, borrowings outstanding under this credit facility amounted to $663,000. The Company also has a credit facility agreement with Ulster Bank Markets for its Northern Ireland operations. This agreement includes a working capital line of credit of 1,150,000 pounds sterling (approximately $1,900,000), and provides for interest at 1-1/2% over the Bank's base rate. At December 31, 1996, borrowings outstanding under this credit facility amounted to $958,000. In February 1996, the Company issued 10% Senior Secured Notes due July 1, 1997 in the aggregate amount of $5,300,000 (the "10% Senior Notes") as partial financing for the acquisition of SMTEK. The 10% Senior Notes are secured by (i) 1,060,000 shares of common stock and (ii) warrants to purchase 1,060,000 shares of common stock (the "Collateral Warrants"), all of which have been placed into an escrow account. In the event the Collateral Warrants are required to redeem the 10% Senior Notes, each warrant would be exercisable into one share of common stock at a price which is 6% less than the market value of the Company's common stock at the time of exercise. If the 10% Senior Notes are repaid from sources other than the Collateral Warrants, then the Collateral Warrants expire and can no longer be exercised. The Company plans to retire the 10% Senior Notes at or prior to maturity by issuing new common stock. The note holders have the option to accept common stock in lieu of cash. If the note holders do not so elect, then the Company will endeavor to issue stock to other parties to raise the payoff amount. No assurance can be given that the Company will be able to sell stock on acceptable terms or at all. Under certain circumstances, as set forth in the agreements governing the 10% Senior Notes, the Company can apply some or all of the 1,060,000 common stock shares held in escrow toward the payoff of these notes. The total number of new shares of common stock which would need to be issued to fund the retirement of these notes depends on several factors, including: (i) whether the notes are paid off prior to the maturity date; (ii) if paid prior to maturity, whether the prepayment is partial or complete; and (iii) the market price of the Company's common stock at the time of issuance. Cash and cash equivalents have declined steadily over the last six months, primarily to fund increases in working capital necessitated by higher sales and backlog levels. The cash decline is a matter of concern to management and the Board of Directors, who are considering several means of addressing the situation. The Company's financial statements are presented on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company incurred an operating loss of $478,000 and negative cash flow from operating activities of $2,774,000 during the six months ended December 31, 1996. In addition, at December 31, 1996 the Company had a working capital deficit of $1,892,000 as a result of transferring the $5,300,000 10% Senior Notes maturing July 1997 from long- term debt to current liabilities. Management anticipates that the Company will continue to incur operating losses for at least the near term future due to the goodwill amortization expense arising from the acquisition of SMTEK. Operating losses are expected to continue until such time as sales increase to a level sufficient to offset goodwill amortization. No assurance can be given as to whether or when sales increases may be achieved. Sales increases will depend in part upon strengthening the Company's sales and marketing functions for its existing operations and improving its price competitiveness in the EMS industry by achieving economies of scale in the procurement of electronic components. The achievement of sustained operating profitability is the most significant internal factor to ensure the Company's long-term viability. No assurance can be given that the Company will attain operating profitability or that cash generated from non-operating sources will be adequate to fund future cash needs. As a necessary step to ensure the Company's increased profitability, the Company is actively pursuing strategic merger and acquisition candidates that will help ensure growth of the Company in the markets and industries in which it has expertise. No assurance can be given that any such merger or acquisition will occur. Management believes that the Company's cash resources and borrowing capacity on its bank lines of credit are sufficient to fund operations at current levels for at least the next 12 months. PART II. OTHER INFORMATION Item 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits: 11 Computation of Earnings Per Share 27 Financial Data Schedule (electronic filing only) b. Reports on Form 8-K: There were no reports filed on Form 8-K during the three months ended December 31, 1996. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. February 7, 1997 /s/ Gregory L. Horton - --------------------------------- ----------------------------------- Date Gregory L. Horton Chief Executive Officer and President February 7, 1997 /s/ Richard K. Vitelle - --------------------------------- ----------------------------------- Date Richard K. Vitelle Vice President -Finance (Principal Financial Officer) EX-11 2 EXHIBIT 11 DDL ELECTRONICS, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE (Unaudited) Three Months Ended December 31, ------------------------ 1996 1995 ------ ------ PRIMARY EARNINGS PER SHARE: Net loss $ (531,000) $ (348,000) ========== ========== Weighted average number of common shares outstanding 23,048,233 16,485,249 Assumed exercise of options and warrants net of shares assumed reacquired - - ---------- ---------- Average common shares and common share equivalents 23,048,233 16,485,249 ========== ========== Earnings (loss) per share $(0.02) $(0.02) ==== ==== FULLY DILUTED EARNINGS PER SHARE: Net loss $ (531,000) $ (348,000) Add back net interest related to convertible subordinated debentures 34,000 34,000 ---------- ---------- Net loss for fully diluted computation $ (497,000) $ (314,000) ========== ========== Weighted average number of common shares outstanding 23,048,233 16,485,249 Assumed exercise of options and warrants net of shares assumed reacquired under treasury stock method using period end market price, if higher than average market price 224,219 815,175 Assumed conversion of convertible subordinated debentures 310,206 663,992 ---------- ---------- Average fully diluted shares 23,582,658 17,964,416 ========== ========== Loss per share $(0.02) $(0.02) ==== ==== EXHIBIT 11 DDL ELECTRONICS, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE (Unaudited) Six Months Ended December 31, ------------------------ 1996 1995 ------ ------ PRIMARY EARNINGS PER SHARE: Net income (loss) $(1,256,000) $ 736,000 ========== ========== Weighted average number of common shares outstanding 23,032,845 16,341,517 Assumed exercise of options and warrants net of shares assumed reacquired - 643,849 ---------- ---------- Average common shares and common share equivalents 23,032,845 16,985,366 ========== ========== Earnings (loss) per share $(0.05) $ 0.04 ==== ==== FULLY DILUTED EARNINGS PER SHARE: Net income (loss) $(1,256,000) $ 736,000 Add back net interest related to convertible subordinated debentures 67,000 67,000 ---------- ---------- Net income (loss) for fully diluted computation $(1,189,000) $ 803,000 ========== ========== Weighted average number of common shares outstanding 23,032,845 16,341,517 Assumed exercise of options and warrants net of shares assumed reacquired under treasury stock method using period end market price, if higher than average market price 266,890 704,683 Assumed conversion of convertible subordinated debentures 310,206 673,135 ---------- ---------- Average fully diluted shares 23,609,941 17,719,335 ========== ========== Earnings (loss) per share $(0.05) $ 0.05 (a) ==== ==== (a) Fully diluted earnings per share is anti-dilutive for fiscal 1996. EX-27 3
5 6-MOS JUN-30-1997 DEC-31-1996 1052000 0 6900000 (167000) 3394000 15963000 22263000 15938000 28225000 17855000 5947000 231000 0 0 4192000 28225000 21080000 21080000 18561000 18561000 0 0 582000 (1256000) 0 (1256000) 0 0 0 (1256000) (0.05) (0.05)
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