-----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, V8h9ofVym9AIXmYAUBbfMSlnnIN6Y0U4KPcqn8TPVsUyQGTN5+avfESzDCjBn1xc hwd/KNWX7E3Jb5gSiKIjwA== 0000026987-96-000019.txt : 19961113 0000026987-96-000019.hdr.sgml : 19961113 ACCESSION NUMBER: 0000026987-96-000019 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961112 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: 96658650 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: SEPTEMBER 30, 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 23,046,914 shares of Common Stock outstanding as of November 5, 1996. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS DDL ELECTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Unaudited, except June 30, 1996) September 30, June 30, 1996 1996 ------ ------ Assets Current assets: Cash and cash equivalents $ 1,333,000 $ 2,519,000 Accounts receivable 6,676,000 5,620,000 Costs and estimated earnings in excess of billings on uncompleted contracts 3,532,000 3,026,000 Inventories 3,574,000 4,014,000 Prepaid expenses and other current assets 313,000 314,000 ---------- ---------- Total current assets 15,428,000 15,493,000 ---------- ---------- Property, equipment and improvements, at cost: Buildings and improvements 5,639,000 5,604,000 Plant equipment 14,458,000 13,999,000 Office and other equipment 1,534,000 1,444,000 ---------- ---------- 21,631,000 21,047,000 Less: accumulated depreciation and amortization (15,527,000) (15,130,000) ---------- ---------- Property, equipment and improvements, net 6,104,000 5,917,000 ---------- ---------- Other assets: Goodwill, net 5,391,000 5,708,000 Debt issue costs 409,000 533,000 Deposits and other assets 438,000 436,000 ---------- ----------- 6,238,000 6,677,000 ---------- ----------- $ 27,770,000 $ 28,087,000 ========== =========== DDL ELECTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Continued) (Unaudited, except June 30, 1996) September 30, June 30, 1996 1996 ------ ------ Liabilities and Stockholders' Equity Current liabilities: Bank line of credit payable $ 952,000 $ - Current portion of long-term debt 5,915,000 603,000 Accounts payable 6,938,000 7,485,000 Accrued payroll and employee benefits 623,000 777,000 Other accrued liabilities 3,007,000 3,114,000 ---------- ---------- Total current liabilities 17,435,000 11,979,000 ---------- ---------- Long-term debt: 10% Senior Secured Notes - 5,300,000 7% Convertible Subordinated Debentures, less current portion 441,000 443,000 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 3,756,000 3,612,000 ---------- ---------- Total long-term debt 5,777,000 10,935,000 ---------- ---------- Stockholders' equity: Common stock 230,000 230,000 Additional paid-in capital 29,380,000 29,304,000 Common stock held in escrow (1,325,000) (1,325,000) Accumulated deficit (22,725,000) (22,000,000) Foreign currency translation adjustment (1,002,000) (1,036,000) ---------- ---------- Total stockholders' equity 4,558,000 5,173,000 ---------- ---------- $ 27,770,000 $ 28,087,000 ========== ========== See accompanying Notes to Unaudited Consolidated Financial Statements DDL ELECTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited) Three Months Ended September 30, ---------------------- 1996 1995 ------ ------ Sales $ 9,895,000 $ 6,192,000 Cost of goods sold 8,799,000 5,466,000 --------- --------- Gross profit 1,096,000 726,000 --------- --------- Operating expenses: Administrative and selling 1,151,000 864,000 Goodwill amortization 317,000 - --------- --------- 1,468,000 864,000 --------- --------- Operating loss (372,000) (138,000) --------- --------- Non-operating income (expense): Investment income 24,000 127,000 Interest expense (258,000) (115,000) Other income (expense) (119,000) 100,000 --------- --------- (353,000) 112,000 --------- --------- Loss before income taxes (725,000) (26,000) Income tax benefit - 1,110,000 --------- ---------- Net income (loss) $ (725,000) $ 1,084,000 ========= ========= Earnings (loss) per share $ (0.03) $ 0.06 ==== ==== Shares used in computing earnings (loss) per share 23,017,458 16,842,733 ========== ========== See accompanying Notes to Unaudited Consolidated Financial Statements DDL ELECTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) Three Months Ended September 30, ---------------------- 1996 1995 ------ ------ Cash flows from operating activities: Net income (loss) $ (725,000) $ 1,084,000 Adjustments to reconcile net income (loss) to net cash used by operating activities - Depreciation and amortization 755,000 178,000 Net increase in operating working capital (2,099,000) (1,528,000) Increase in deposits and other assets (2,000) - Benefit of noncapital grants (58,000) (16,000) Other 23,000 (61,000) --------- --------- Net cash used by operating activities (2,106,000) (343,000) --------- --------- Cash flows from investing activities: Capital expenditures (84,000) (127,000) ---------- --------- Cash flows from financing activities: Proceeds from bank line of credit 946,000 - Reductions of long-term debt (199,000) (182,000) Proceeds from exercise of stock options - 219,000 Proceeds from government grants 251,000 - --------- --------- Net cash provided by financing activities 998,000 37,000 --------- --------- Effect of exchange rate changes on cash 6,000 (20,000) --------- --------- Decrease in cash and cash equivalents (1,186,000) (453,000) Cash and cash equivalents at beginning of period 2,519,000 2,917,000 --------- --------- Cash and cash equivalents at end of period $ 1,333,000 $ 2,464,000 ========= ========= 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 customized, integrated 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 September 30, 1996 and its results of operations and cash flows for the three months ended September 30, 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 September 30 for clarity of presentation. The actual periods ended on September 27, 1996 and September 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: September 30, June 30, 1996 1996 ---- ---- Trade receivables $6,698,000 $5,456,000 Other receivables 124,000 296,000 Less allowance for doubtful accounts (146,000) (132,000) --------- --------- $6,676,000 $5,620,000 ========= ========= Included in other receivables at September 30, 1996 and June 30, 1996 are grants due from the Industrial Development Board for Northern Ireland of $59,000 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: September 30, June 30, 1996 1996 ---- ---- Costs incurred on uncompleted contracts $13,230,000 $11,181,000 Estimated earnings 1,203,000 1,544,000 ---------- ---------- 14,433,000 12,725,000 Less: Billings to date (10,856,000) (9,613,000) Customer advances and progress payments (45,000) (86,000) ---------- ---------- $ 3,532,000 $ 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: September 30, June 30, 1996 1996 ---- ---- Raw materials $2,797,000 $2,853,000 Work in process 967,000 1,263,000 Finished goods 59,000 146,000 Less reserves (249,000) (248,000) --------- --------- $3,574,000 $4,014,000 ========= ========= Note 6 - OTHER ACCRUED LIABILITIES Other accrued liabilities consist of the following: September 30, June 30, 1996 1996 ---- ---- Environmental liabilities $ 708,000 $ 728,000 Accrued taxes payable 951,000 951,000 Other 1,348,000 1,435,000 --------- --------- $3,007,000 $3,114,000 ========= ========= Note 7 - FINANCING ARRANGEMENTS Bank Credit Agreement: The Company has a credit facility agreement with Ulster Bank Markets for its Northern Ireland operations. This agreement includes a working capital line of credit of 1,250,000 pounds sterling (approximately $2,000,000), and provides for interest on borrowings at 1-1/2% over the Bank's base rate. At September 30, 1996, borrowings outstanding under this credit facility amounted to $952,000. 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. The Company also deposited $375,000 into a restricted cash account maintained by an escrow agent, such amount to be used for interest payments on the 10% Senior Notes. This restricted cash amounted to $71,000 and $201,000 at September 30, 1996 and June 30, 1996, and is included in prepaid expenses and other current assets. Note 8 - INFORMATION RELATING TO STATEMENT OF CASH FLOWS "Net cash used by operating activities" includes cash payments for interest as follows: Three months ended September 30, --------------------- 1996 1995 ------ ------ Interest paid $ 276,000 $ 115,000 ======= ======= "Net increase in operating working capital" is comprised of the following: Three months ended September 30, --------------------- 1996 1995 ------ ------ Increase in accounts receivable $(1,168,000) $(1,640,000) Increase in costs and estimated earnings in excess of billings on uncompleted contracts (556,000) - (Increase) decrease in inventories 616,000 (433,000) (Increase) decrease in prepaid expenses 3,000 (119,000) Increase (decrease) in accounts payable (728,000) 789,000 Decrease in accrued payroll and employee benefits (157,000) (170,000) Increase (decrease) in other liabilities (109,000) 45,000 --------- --------- Net increase in operating working capital $(2,099,000) $(1,528,000) ========= ========= Following is the supplemental schedule of non-cash investing and financing activities: Three months ended September 30, --------------------- 1996 1995 ------ ------ Capital expenditures financed by lease obligations $ 395,000 $ 52,000 ========= ======= Conversion of debt to equity $ 76,000 $ - ========= ======= Note 9 - EVENT SUBSEQUENT TO SEPTEMBER 30, 1996 In October 1996, the Company finalized 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% 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 customized, integrated 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 electronic manufacturing services. RESULTS OF OPERATIONS Consolidated sales for the three months ended September 30, 1996 were $9,895,000, compared to $6,192,000 for the first quarter of the previous fiscal year. The increase in sales results primarily from the acquisition of SMTEK, which contributed revenues of $3,506,000 in the latest quarter. 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 months ended September 30, 1995. Sales of DDL Electronics, Ltd. ("DDL-E"), the Company's Northern Ireland EMS operation, increased approximately 15% in the latest quarter compared to the first quarter of last year, while sales of Irlandus Circuits, Ltd. ("Irlandus"), the Company's PCB operation, declined approximately 8% between these same two periods. Consolidated gross profit for the three months ended September 30, 1996 was $1,096,000, compared to $726,000 for the comparable period of the prior year. The acquisition of SMTEK in January 1996 accounted for $500,000 of the increase, offset by a decline in gross profit of the Company's Northern Ireland operations of $130,000. Irlandus' gross profit declined $47,000 due primarily to the decline in sales, while DDL-E's gross profit declined $83,000 despite higher sales. DDL-E's gross profit margin fell from 10.6% in last year's first quarter to 7.3% in the latest quarter. This decline occurred primarily as a result of the loss of a large, profitable assembly contract which had accounted for approximately 40% of DDL-E's sales in the first quarter of last fiscal year. Also contributing to the decline in gross profit margin was the fact that last year's first quarter included "consignment sales" of approximately $150,000. Consignment sales, in which the customer furnishes the materials and components to be assembled, typically have higher profit margins that "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 quarter of fiscal 1997. The Company's consolidated gross profit margin declined from 11.7% in the three months ended September 30, 1995 to 11.1% in the three months ended September 30, primarily due to the decline in gross profit at DDL-E. Administrative and selling expenses amounted to $1,151,000 and $864,000 in the three months ended September 30, 1996 and 1995, respectively. This increase is the result of the acquisition of SMTEK in January 1996, as the 1995 amount consisted of administrative and selling expenses for solely the Company's Northern Ireland operations and corporate office functions. The operating loss for the three months ended September 30, 1996 was $372,000, compared to an operating loss of $138,000 for the three months ended September 30, 1995. The increased loss results from goodwill amortization expense of $317,000 recorded in the latest quarter. The goodwill arose from the acquisition of SMTEK. Investment income for the three months ended September 30, 1996 and 1995 was $24,000 and $127,000, respectively. The 1995 amount includes nonrecurring interest income of $106,000 received on income tax refunds. Interest expense increased from $115,000 in the three months ended September 30, 1995 to $258,000 in the three months ended September 30, 1996. This increase is attributable to interest on debt issued in 1996 to finance the SMTEK acquisition. Other income (expense) for the three months ended September 30, 1996 and 1995 was ($119,000) and $100,000, respectively. The 1995 amount consists of income 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 $124,000 associated with the debt issued to finance the SMTEK acquisition. During the nine months ended March 31, 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. Through September 30, 1996, 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 first three months of fiscal 1996 was $725,000 or $0.03 per share, compared to net income of $1,084,000 or $0.06 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 $1,333,000 at September 30, 1996, and its bank lines of credit. During the three months ended September 30, 1996, cash and cash equivalents decreased by $1,186,000. This decrease consisted of cash used by operating activities of $2,106,000 and capital expenditures of $84,000, partially offset by cash inflows of $747,000 from new borrowings net of debt repayments, proceeds from government grants of $251,000 and the effect of exchange rate changes on cash of $6,000. Cash and cash equivalents have declined steadily over the last few months. The persistence of this decline is a matter of concern to management and the Board of Directors, who are considering several means of addressing the problem. Components of operating working capital increased by $2,099,000 during the first three months of fiscal 1997, comprised of a $1,168,000 increase in accounts receivable, a $556,000 increase in costs and earnings in excess of billings on uncompleted contracts and a $994,000 decrease in current liabilities, partially offset by a $616,000 decrease in inventory and a $3,000 decrease in prepaid expenses and other current assets. The Company has a credit facility agreement with Ulster Bank Markets for its Northern Ireland operations. This agreement includes a working capital line of credit of 1,250,000 pounds sterling (approximately $2,000,000), and provides for interest on borrowings at 1.5% over the Bank's base rate. At September 30, 1996, borrowings outstanding under this credit facility amounted to $952,000. In October 1996, the Company finalized a bank line of credit for SMTEK, its U.S. EMS operation, which provides for borrowings up to the lesser of $2,500,000 or 85% of accounts receivable ($1,563,000 at November 8, 1996) at an interest rate of prime plus 1.25%. 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'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 $372,000 and negative cash flow from operating activities of $2,106,000 during the three months ended September 30, 1996. In addition, at September 30, 1996 the Company had a working capital deficit of $2,007,000 as a result of transferring the $5,300,000 10% Senior Notes maturing July 1997 from long-term debt to current liabilities. 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 will 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. 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 anticipates that the Company will continue to incur operating losses for at least the near term future due to its current level of fixed costs for manufacturing overhead relative to its current sales volume, as well as amortization expense of the goodwill arising from the acquisition of SMTEK. Operating losses are expected to continue until such time as sales increase to a level necessary to absorb fixed costs and 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. 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: 10 Business Financing Agreement between SMTEK, Inc. and Deutsche Financial Services Corporation 11 Computation of Earnings Per Share 27 Financial Data Schedule (electronic filing only) b. Reports on Form 8-K: On August 30, 1996, a Form 8-K was filed regarding a press release disclosing that the Company had terminated merger discussions with another company. On September 18, 1996, a Form 8-K was filed regarding a press release announcing the Company's financial results for the year ended June 30, 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. November 12, 1996 /s/ Gregory L. Horton - --------------------------------- ----------------------------------- Date Gregory L. Horton Chief Executive Officer and President November 12, 1996 /s/ Richard K. Vitelle - --------------------------------- ----------------------------------- Date Richard K. Vitelle Vice President -Finance (Principal Financial Officer) EX-10 2 EXHIBIT 10 BUSINESS FINANCING AGREEMENT This Business Financing Agreement ("Agreement") is made as of August 21, 1996 between Deutsche Financial Services Corporation ("DFS") and SMTEK, INC., a corporation ("Dealer"), having a principal place of business located at 2151 ANCHOR COURT, NEWBURY PARK, CA 91320. Definitions. The following terms will have the following meanings in this Agreement, Agreement for Wholesale Financing and in the Other Agreements: (a) "Accounts": all accounts, leases, contract rights, chattel paper, chooses in action and instruments, including any lien or other security interest that secures or may secure any of the foregoing, plus all books, invoices, documents and other records in any form evidencing or relating to any of the foregoing, now owned or hereafter acquired by Dealer. (b) "Accounts Receivable Facility": a credit facility extended pursuant to this Agreement. (c) "Agreement for Wholesale Financing": any Agreement for Wholesale Financing, as amended from time to time, which Dealer has executed in conjunction with inventory financing extended by DFS. (d) "Average Contract Balance:: the amount determined by dividing: (a) the sum of the Daily Contract Balances (as defined in Section 2.1.1) for a billing period; by, (b) the actual number of days in such billing period. (e) "Default": the events or occurrences enumerated in Section 6. (f) "Entity": any individual, association, firm, corporation, partnership, limited liability company, trust, governmental body, agency or instrumentality whatsoever. (g) "Guarantor": a guarantor of any of the Obligations. (h) "Inventory": all of Dealer's presently owned and hereafter acquired goods which are held for sale or lease. (i) "Obligations": all liabilities and indebtedness now or hereafter arising, owing, due or payable from Dealer to DFS (and any of its subsidiaries and affiliates), including any third party claims against Dealer satisfied or acquired by DFS, whether primary or secondary, joint or several, direct, contingent, fixed or otherwise, and whether or not evidenced by instruments or evidences of indebtedness, and all covenants, agreements (including consent to binding arbitration), warranties, duties and representations, whether such Obligations arise under this Agreement, the Other Agreements or any other agreements previously, now or hereafter executed by Dealer and delivered to DFS or by operation of law. (j) "Other Agreements": all security agreements (including the Agreement for Wholesale Financing), mortgages, leases, instruments, documents, guarantees, schedules, certificates, contracts and similar agreements heretofore, now or hereafter executed by Dealer and delivered to DFS or delivered by or on behalf of Dealer to a third party and assigned to DFS by operation of law or otherwise. (k) "Prime Rate": the rate of interest which Chase Manhattan Bank publicly announces from time to time as its prime rate or reference rate; provided, however, that for purposes of this Agreement, the interest rate charged to Dealer will at no time be computed on a Prime Rate of less than SEVEN percent (7.0%) per annum. The Prime Rate will change and take effect for purposes of this Agreement on the day that Chase Manhattan Bank announces any change in its Prime Rate or reference rate. CREDIT FACILITY/INTEREST RATES/FEES Accounts Receivable Facility. Subject to the terms of this Agreement, DFS agrees to provide to Dealer an Accounts Receivable Facility of TWO MILLION FIVE HUNDRED THOUSAND DOLLARS ($2,500,000.00). DFS' decision to advance funds will not be binding until the funds are actually advanced. 2.1.1 Interest. Dealer agrees to pay interest to DFS on the Daily Contract Balance at a rate equal to the Prime Rate plus ONE AND ONE QUARTER percent (1.25%) per annum. Such interest will: (i) be computed based on a 360 day year; (ii) be calculated each day by multiplying the Daily Rate (as defined below) by the Daily Contract Balance (as defined below); and (iii) accrue from the date that DFS makes an advance under the Accounts Receivable Facility until DFS receives the full and final payment of the principal debt which Dealer owes to DFS. The "Daily Rate" is the quotient of the applicable annual rate provided herein divided by 360. The "Daily Contract Balance" is the amount of the outstanding principal debt which Dealer owes to DFS on the Accounts Receivable Facility at the end of each day after DFS has credited the payments which it has received on the Accounts Receivable Facility, subject to the terms of Section 3.8 herein. 2.1.2 Fees. Dealer agrees to pay to DFS an advance fee equal to ZERO percent (0.0%) on each advance to Dealer under the Accounts Receivable Facility. 2.1.3 Maximum Interest. Dealer acknowledges that DFS intends to strictly conform to the applicable usury laws governing this Agreement. Regardless of any provision contained herein or in any other document executed or delivered in connection herewith or therewith, DFS shall never be deemed to have contracted for, charged or be entitled to receive, collect or apply as interest on this Agreement (whether termed interest herein or deemed to be interest by judicial determination or operation of law), any amount in excess of the maximum amount allowed by applicable law, and, if DFS ever receives, collects or applies as interest any such excess, such amount, which would be excessive interest will be applied first to the reduction of the unpaid principal balances of advances under this Agreement, and, second, any remaining excess will be paid to Dealer. In determining whether or not the interest paid or payable under any specific contingency exceeds the highest lawful rate, Dealer and DFS shall, to the maximum extent permitted under applicable law: (a) characterize any non-principal payment (other than payments which are expressly designated as interest payments hereunder) as an expense or fee rather than as interest; (b) exclude voluntary pre-payments and the effect thereof; and (c) spread the total amount of interest throughout the entire term of this Agreement so that the interest rate is uniform throughout such term. 2.2 Payments. DFS will send Dealer a monthly billing statement(s) identifying all charges due on Dealer's account with DFS. The interest and fee charges specified on each billing statement will be: (a) due and payable in full immediately on receipt, and (b) an account stated, unless DFS receives Dealer's written objection thereto within fifteen (15) days after it is mailed to Dealer. If DFS does not receive, by the 25th day of any given month, payment of all charges accrued to Dealer's account with DFS during the immediately preceding month, Dealer will (to the extent allowed by law) pay DFS a late fee ("Late Fee") equal to the greater of $5 or 5% of the amount of such finance charges (payment of the Late Fee does not waive the default caused by the late payment). Dealer will also pay DFS $100 for each of Dealer's checks returned unpaid for insufficient funds (an "NSF check") (such $100 payment repays DFS' estimated administrative costs; it does not waive the default caused by the NSF check). DFS may adjust the billing statement at any time to conform to applicable law and this Agreement. Dealer waives the right to direct the application of any payments hereafter received by DFS on account of the Obligations. DFS will have the continuing exclusive right to apply and reapply any and all such payments in such manner as DFS may deem advisable notwithstanding any entry by DFS upon its books and records. 2.3 One Loan. DFS may combine all of DFS' advances to Dealer or on Dealer's behalf, whether under this Agreement or any Other Agreements, and whether provided by one or more of DFS' branch offices, together with all finance charges, fees and expenses related thereto, to make one debt owed by Dealer. 3. ACCOUNTS RECEIVABLE FACILITY - ADDITIONAL PROVISIONS 3.1 Schedules. Dealer will, no less than weekly or as otherwise agreed to, furnish DFS with a schedule of Accounts ("Schedule") which will: (a) describe all Accounts created or acquired by Dealer since the last Schedule furnished DFS; (b) inform DFS of any rejection of goods by any obligor, delays in delivery of goods, non-performance of contracts and of any assertion of any claim, offset or counterclaim by any obligor; and (c) inform DFS of any adverse information relating to the financial condition of any obligor. 3.2 Available Credit. On receipt of each Schedule, DFS will credit Dealer with such amount as DFS may deem advisable up to EIGHTY FIVE percent (85.0%) of the net amount of the eligible Accounts listed in such Schedule. DFS will loan Dealer such amounts so credited or a part thereof as requested provided that at no time will such outstanding loans exceed Dealer's maximum Accounts Receivable Facility from time to time established by DFS. No loans need be made by DFS if the Dealer is in Default. 3.3 Ineligible Accounts. DFS will have the sole right to determine eligibility of Accounts and, without limiting DFS' discretion in that regard, the following Accounts will be deemed ineligible: (a) Accounts created from the sale of goods and services on non-standard terms and/or that allow for payment to be made more than thirty (30) days from the date of sale; (b) Accounts unpaid more than ninety (90) days from date of invoice; (c) all Accounts of any obligor with fifty percent (50%) or more of the outstanding balance unpaid for more than ninety (90) days from the date of invoice; (d) Accounts for which the obligor is an officer, director, shareholder, partner, member, owner, employee, agent, parent, subsidiary, affiliate of, or is related to Dealer or has common shareholders, officers, directors, owners, partners or members; (e) consignment sales; (f) Accounts for which the payment is or may be conditional; (g) Accounts for which the obligor is not a commercial or institutional entity or is not a resident of the United States or Canada; (h) Accounts with respect to which any warranty or representation provided in Subsection 3.4 is not true and correct; (i) Accounts which represent goods or services purchased for a personal, family or household purpose; (j) Accounts which represent goods used for demonstration purposes or loaned by the Dealer to another party; (k) Accounts which are progress payment, barter, or contra accounts; and (l) any and all other Accounts which DFS deems to be ineligible. If DFS determines that any Account is or becomes an ineligible Account, immediately upon notice thereof from DFS, Dealer will pay to DFS an amount equal to the monies loaned by DFS for such ineligible Account. 3.4 Warranties and Representations. For each Account which Dealer lists on any Schedule, Dealer warrants and represents to DFS that at all times: (a) such Account is genuine; (b) such Account is not evidenced by a judgment or promissory note or similar instrument or agreement; (c) it represents an undisputed bona fide transaction completed in accordance with the terms of the invoices and purchase orders relating thereto; (d) the goods sold or services rendered which resulted in the creation of such Account have been delivered or rendered to and accepted by the obligor; (e) the amounts shown on the Schedules, Dealer's books and records and all invoices and statements delivered to DFS with respect thereto are owing to Dealer and are not contingent; (f) no payments have been or will be made thereon except payments turned over to DFS; (g) there are no offsets, counterclaims or disputes existing or asserted with respect thereto and Dealer has not made any agreement with any obligor for any deduction or discount of the sum payable thereunder except regular discounts allowed by Dealer in the ordinary course of its business for prompt payment; (h) there are no facts or events which in any way impair the validity or enforceability thereof or reduce the amount payable thereunder from the amount shown on the Schedules, Dealer's books and records and the invoices and statements delivered to DFS with respect thereto; (i) all persons acting on behalf of obligors thereon have the authority to bind the obligor; (j) the goods sold or transferred giving rise thereto are not subject to any lien, claim, encumbrance or security interest which is superior to that of DFS; and (k) there are no proceedings or actions known to Dealer which are threatened or pending against any obligor thereon which might result in any material adverse change in such obligor's financial condition. 3.5 Notes. Loans made pursuant to this Agreement need not be evidenced by promissory notes unless otherwise required by DFS in DFS' sole discretion. 3.6 Reimbursement for Charges. Dealer will reimburse DFS for all charges made by banks for collection of checks and other items of payment and for transfer of funds to or from the Dealer. 3.7 Collections. Dealer is authorized to collect Accounts as agent for DFS and trustee of an express trust for DFS' benefit. Dealer will receive all payments on Accounts as agent and in trust for DFS and will, as DFS directs, either transmit to DFS or deposit into an account or accounts designated by DFS, on the day of receipt thereof, all original checks, drafts, acceptances, and other evidences of payment of Accounts, including all cash. Until delivery to DFS, Dealer will keep such remittances separate and apart from Dealer's own funds so that they are capable of identification as the property of DFS and will be held in trust for DFS. DFS may terminate such authorization upon Default and DFS may notify any obligor of the assignment of Accounts and collect the same. All proceeds received or collected by DFS with respect to Accounts, and reserves and other property of Dealer in possession of DFS at any time or times hereafter, may be held by DFS without interest to Dealer until all Obligations are paid in full or applied by DFS on account of the Obligations. DFS may release to Dealer such portions of such reserves and proceeds as DFS may determine. 3.8 Collection Days. All payments and all amounts received on any Account will be credited by DFS to Dealer's account (subject to final collection thereof) after allowing one (1) business days for collection of checks or other instruments. 3.9 Power of Attorney. Dealer irrevocably appoints DFS (and any person designated by it) as Dealer's true and lawful Attorney with full power to at any time, in the discretion of DFS (whether or not Default has occurred) to: (a) endorse the name of Dealer upon any of the items of payment or proceeds and deposit the same in the account of DFS for application to the Obligations; (b) sign the name of Dealer to verify the accuracy of the Accounts; (c) sign the name of Dealer on any document or instrument that DFS shall deem necessary or appropriate to perfect and maintain perfected the security interests in the Collateral under this Agreement and the Other Agreements; and (d) initiate and settle any insurance claim and endorse Dealer's name on any check, instrument or other item of payment. In the event of a Default, Dealer irrevocably appoints DFS (and any person designated by it) as Dealer's true and lawful Attorney with full power to at any time, in the discretion of DFS to: (i) demand payment, enforce payment and otherwise exercise all of Dealer's rights, and remedies with respect to the collection of any Accounts; (ii) settle, adjust, compromise, extend or renew any Accounts; (iii) settle, adjust or compromise any legal proceedings brought to collect any Accounts; (iv) sell or assign any Accounts upon such terms, for such amounts and at such time or times as DFS may deem advisable; (v) discharge and release any Accounts; (vi) prepare, file and sign Dealer's name on any Proof of Claim in Bankruptcy or similar document against any obligor; (vii) endorse the name of Dealer upon any chattel paper, document, instrument, invoice, freight bill, bill of lading or similar document or agreement relating to any Account or goods pertaining thereto; (viii) take control in any manner of any item of payments or proceeds and for such purpose to notify the Postal Authorities to change the address for delivery of mail addressed to Dealer to such address as DFS may designate. The power of attorney is for value and coupled with an interest and is irrevocable so long as any Obligations remain outstanding and by DFS exercising such right, DFS shall not waive any right against Dealer until the Obligations are paid in full. 3.10 Continuing Requirements. Dealer will: (a) if from time to time required by DFS, immediately upon their creation, deliver to DFS copies of all invoices, delivery evidences and other such documents relating to each Account; (b) not permit or agree to any extension, compromise or settlement or make any change to any Account; (c) affix appropriate endorsements or assignments upon all such items of payment and proceeds so that the same may be properly deposited by DFS to DFS' account; (d) immediately notify DFS in writing which Accounts may be deemed ineligible as defined in Subsection 3.3; (e) mark all chattel paper and instruments now owned or hereafter acquired by it to show that the same are subject to DFS' security interest and immediately thereafter deliver such chattel paper and instruments to DFS with appropriate endorsements and assignments to DFS; (f) within ten (10) days after the end of each month, provide DFS with a detailed aging of its Accounts for each month, together with the names and addresses of all obligors. 3.11 Release. Dealer releases DFS from all claims and causes of action which Dealer may now or hereafter have for any loss or damage to it claimed to be caused by or arising from: (a) any failure of DFS to protect, enforce or collect, in whole or in part, any Account; (b) DFS' notification to any obligors thereon of DFS' security interest in any of the Accounts; (c) DFS' directing any obligor to pay any sum owing to Dealer directly to DFS; and (d) any other act or omission to act on the part of DFS, its officers, agents or employees, except for willful misconduct. DFS will have no obligation to preserve rights to Accounts against prior parties. Dealer waives all rights of offset and counterclaims Dealer may have against DFS. 3.12 Review. Dealer grants DFS an irrevocable license to enter Dealer's business locations during normal business hours without notice to Dealer to: (a) account for and inspect all Collateral; (b) verify Dealer's compliance with this Agreement; and (c) review, examine, and make copies of Dealer's books, records, files and business procedures and practices. Dealer further agrees to pay DFS a review fee of one thousand dollar ($1,000.00) per fiscal quarter for any such review, inspection or examination made by DFS. DFS may, without notice to Dealer and at any time or times hereafter, verify the validity, amount or any other matter relating to any Account by mail, telephone, or other means, in the name of Dealer or DFS. 4. SECURITY - COLLATERAL 4.1 Grant of Security Interest. To secure payment of all of Dealer's current and future Obligations and to secure Dealer's performance of all of the provisions under this Agreement and the Other Agreements, Dealer grants DFS a security interest in all of Dealer's inventory, equipment, fixtures, accounts, contract rights, chattel paper, security agreements, instruments, deposit accounts, reserves, documents, and general intangibles; and all judgments, claims, insurance policies, and payments owed or made to Dealer thereon; all whether now owned or hereafter acquired, all attachments, accessories, accessions, returns, repossessions, exchanges, substitutions and replacements thereto, and all proceeds thereof. All such assets are collectively referred to herein as the "Collateral." All of such terms for which meanings are provided in the Uniform Commercial Code of the applicable state are used herein with such meanings. Dealer covenants with DFS that DFS may realize upon all or part of any Collateral in any order it desires and any realization by any means upon any Collateral will not bar realization upon any other collateral. Dealer's liability under this Agreement is direct and unconditional and will not be affected by the release or nonperfection of any security interest granted hereunder. All Collateral financed by DFS, and all proceeds thereof, will be held in trust by Dealer for DFS, with such proceeds being payable in accordance with this Agreement. 5. WARRANTIES AND REPRESENTATIONS 5.1 Affirmative Warranties and Representations. Except as otherwise specifically provided in the Other Agreements, Dealer warrants and represents to DFS that: (a) Dealer has good title to all Collateral; (b) DFS' security interest in the Accounts will at all times constitute a perfected, first security interest in such Accounts and will not become subordinate to the security interest, lien, encumbrance or claim of any Entity; (c) Dealer will execute all documents DFS requests to perfect and maintain DFS' security interest in the Collateral and to fully consummate the transactions contemplated under this Agreement and the Other Agreements; (d) Dealer will at all times be duly organized, existing, in good standing, qualified and licensed to do business in each state, county, or parish, in which the nature of its business or property so requires; (e) Dealer has the right and is duly authorized to enter into this Agreement; (f) Dealer's execution of this Agreement does not constitute a breach of any agreement to which Dealer is now or hereafter becomes bound; (g) there are and will be no actions or proceedings pending or threatened against Dealer which might result in any material adverse change in Dealer's financial or business condition or which might in any way adversely affect any of Dealer's assets; (h) Dealer will maintain the Collateral in good condition and repair; (i) Dealer has duly filed and will duly file all tax returns required by law; (j) Dealer has paid and will pay when due all taxes, levies, assessments and governmental charges of any nature; (k) Dealer will maintain a system of accounting in accordance with generally accepted accounting principles and account records which contain such information in a format as may be requested by DFS; (l) Dealer will keep and maintain all of its books and records pertaining to the Accounts at its principal place of business designated in this Agreement; (m) Dealer will promptly supply DFS with such information concerning it or any Guarantor as DFS hereafter may reasonably request; (n) Dealer will give DFS thirty (30) days prior written notice of any change in Dealer's identity, name, form of business organization, ownership, management, principal place of business, Collateral locations or other business locations; and before moving any books and records to any other location; (o) Dealer will observe and perform all matters required by any lease, license, concession or franchise forming part of the Collateral in order to maintain all the rights of DFS thereunder; (p) Dealer will advise DFS of the commencement of material legal proceedings against Dealer or any Guarantor; (q) Dealer will comply with all applicable laws and will conduct its business in a manner which preserves and protects the Collateral and the earnings and incomes thereof; and (r) Dealer will keep the Collateral insured for its full insurable value under an "all risk" property insurance policy with a company acceptable to DFS, naming DFS as a lender loss-payee or mortgagee and containing standard lender's loss payable and termination provisions. Dealer will provide DFS with written evidence of such property insurance coverage and lender's loss- payee or mortgagee endorsement. 5.2 Negative Covenants. Dealer will not at any time (without DFS' prior written consent): (a) grant to or in favor of any Entity a security interest in or permit to exist a lien, claim or encumbrance in the Accounts which is superior to the interest of DFS; (b) other than in the ordinary course of its business, sell, lease or otherwise dispose of or transfer any of its assets; (c) merge or consolidate with another Entity; (d) acquire the assets or ownership interest of any other Entity; (e) enter into any transaction not in the ordinary course of business; (f) guarantee or indemnify or otherwise become in any way liable with respect to the obligations of any Entity, except by endorsement of instruments or items of payment for deposit to the general account of Dealer or which are transmitted or turned over to DFS on account of the Obligations; (g) redeem, retire, purchase or otherwise acquire, directly or indirectly, any of Dealer's capital stock; (h) make any change in Dealer's capital structure or in any of its business objectives or operations which might in any way adversely affect the ability of Dealer to repay the Obligations; (i) make any distribution of Dealer's assets not in the ordinary course of business; (j) incur any debts outside of the ordinary course of business except renewals or extensions of existing debts and interest thereon; and (k) make any loans, advances, contributions or payments of money or in goods to any affiliated entity or to any officer, director, stockholder, member or partner of Dealer or of any such entity (except for compensation for personal services actually rendered); provided, however, that the Dealer may make principal and interest payments on the loan due to Mr. Don Horton which totaled $34,739.00 as of August 19,1996, and the loan due to DDL Electronics, Inc. which totaled $1,569,862.00 as of August 19, 1996, so long as both before and after giving effect of any such payment, Dealer is not in default of any of its Obligations, including without limitation, Dealer's financial covenants with DFS. 5.3 Financial Statements. Dealer will deliver to DFS: (a) within ninety (90) days after the end of each of Dealer's fiscal years, a reasonably detailed balance sheet as of the last day of such fiscal year and a reasonably detailed income statement covering Dealer's operations for such fiscal year, in a form satisfactory to DFS; (b) within forty-five (45) days after the end of each of Dealer's fiscal quarters, a reasonably detailed balance sheet as of the last day of such quarter and an income statement covering Dealer's operations for such quarter in a form satisfactory to DFS; (c) within ten (10) days after request therefor by DFS, any other report requested by DFS relating to the Collateral or the financial condition of Dealer. Dealer warrants and represents to DFS that all financial statements and information relating to Dealer or any Guarantor which have been or may hereafter be delivered by Dealer or any Guarantor to DFS are true and correct and have been and will be prepared in accordance with generally accepted accounting principles consistently applied and, with respect to such previously delivered statements or information, there has been no material adverse change in the financial or business condition of Dealer or any Guarantor since the submission to DFS, either as of the date of delivery, or, if different, the date specified therein, and Dealer acknowledges DFS' reliance thereon. 6. DEFAULT 6.1 Definition. Dealer will be in default under this Agreement if: (a) Dealer breaches any terms, warranties or representations contained herein or in any Other Agreements; (b) any Guarantor of Dealer's debts to DFS breaches any terms, warranties or representations contained in any guaranty or Other Agreements; (c) any representation, statement, report, or certificate made or delivered by Dealer or any Guarantor to DFS is not accurate when made; (d) Dealer fails to pay any of the Obligations when due and payable; (e) Dealer abandons any Collateral; (f) Dealer or any Guarantor is or becomes in default in the payment of any debt owed to any third party; (g) a money judgment issues against Dealer or any Guarantor; (h) an attachment, sale or seizure issues or is executed against any assets of Dealer or of any Guarantor; (i) the undersigned dies while Dealer's business is operated as a sole proprietorship, any general partner dies while Dealer's business is operated as a general or limited partnership, or any member dies while Dealer's business is operated as a limited liability company, as applicable; (j) any Guarantor dies; (k) Dealer or any Guarantor shall cease existence as a corporation, partnership, limited liability company or trust, as applicable; (l) Dealer or any Guarantor ceases or suspends business; (m) Dealer, any Guarantor or any member while Dealer's business is operated as a limited liability company, as applicable, makes a general assignment for the benefit of creditors; (n) Dealer, any Guarantor or any member while Dealer's business is operated as a limited liability company, as applicable, becomes insolvent or voluntarily or involuntarily becomes subject to the Federal Bankruptcy Code, any state insolvency law or any similar law; (o) any receiver is appointed for any assets of Dealer, any Guarantor or any member while Dealer's business is operated as a limited liability company, as applicable; (p) any guaranty of Dealer's debt to DFS is terminated; (q) Dealer loses any franchise, permission, license or right to sell or deal in any Collateral which DFS finances; (r) Dealer or any Guarantor misrepresents Dealer's or such Guarantor's financial condition or organizational structure; or (s) DFS determines in good faith that it is insecure with respect to any of the Collateral or the payment of any part of Dealer's Obligations. 6.2 Rights of DFS. In the event of a Default: (a) DFS may at any time at DFS' election, without notice or demand to Dealer, do any one or more of the following: declare all or any of the Obligations immediately due and payable, together with all costs and expenses of DFS' collection activity, including, without limitation, all reasonable attorneys' fees; exercise any or all rights under applicable law (including, without limitation, the right to possess, transfer and dispose of the Collateral); and/or cease extending any additional credit to Dealer (DFS' right to cease extending credit shall not be construed to limit the discretionary nature of this credit facility). (b) Dealer will segregate and keep the Collateral in trust for DFS, and in good order and repair, and will not sell, rent, lease, consign, otherwise dispose of or use any Collateral, nor further encumber any Collateral. (c) Upon DFS' oral or written demand, Dealer will immediately deliver the Collateral to DFS, in good order and repair, at a place specified by DFS, together with all related documents; or DFS may, in DFS' sole discretion and without notice or demand to Dealer, take immediate possession of the Collateral together with all related documents. (d) DFS may, without notice, apply a default finance charge to Dealer's outstanding principal indebtedness equal to the default rate specified in Dealer's financing program with DFS, if any, or if there is none so specified, at the lesser of 3% per annum above the rate in effect immediately prior to the Default, or the highest lawful contract rate of interest permitted under applicable law. (e) DFS may, without notice to Dealer and at any time or times enforce payment and collect, by legal proceedings or otherwise, Accounts in the name of Dealer or DFS; and take control of any cash or non-cash items of payment or proceeds of Accounts and of any rejected, returned, repossessed or stopped in transit goods relating to Accounts. DFS may at its sole election and without demand enter, with or without process of law, any premises where Collateral might be and, without charge or liability to DFS therefor do one or more of the following: (i) take possession of the Collateral and use or store it in said premises or remove it to such other place or places as DFS may deem convenient; (ii) take possession of all or part of such premises and the Collateral and place a custodian in the exclusive control thereof until completion of enforcement of DFS' security interest in the Collateral or until DFS' removal of the Collateral and, (iii) remain on such premises and use the same, together with Dealer's materials, supplies, books and records, for the purpose of performing all acts necessary and incidental to the collection or liquidation of such Collateral. All of DFS' rights and remedies are cumulative. DFS' failure to exercise any of DFS' rights or remedies hereunder will not waive any of DFS' rights or remedies as to any past, current or future Default. 6.3 Sale of Collateral. Dealer agrees that if DFS conducts a private sale of any Collateral by requesting bids from 10 or more dealers or distributors in that type of Collateral, any sale by DFS of such Collateral in bulk or in parcels within 120 days of: (a) DFS' taking possession and control of such Collateral; or (b) when DFS is otherwise authorized to sell such Collateral; whichever occurs last, to the bidder submitting the highest cash bid therefor, is a commercially reasonable sale of such Collateral under the Uniform Commercial Code. Dealer agrees that the purchase of any Collateral by a vendor, as provided in any agreement between DFS and the vendor, is a commercially reasonable disposition and private sale of such Collateral under the Uniform Commercial Code, and no request for bids shall be required. Dealer further agrees that 7 or more days prior written notice will be commercially reasonable notice of any public or private sale (including any sale to a vendor). Dealer irrevocably waives any requirement that DFS retain possession and not dispose of any Collateral until after an arbitration hearing, arbitration award, confirmation, trial or final judgment. If DFS disposes of any such Collateral other than as herein contemplated, the commercial reasonableness of such disposition will be determined in accordance with the laws of the state governing this Agreement. 7. MISCELLANEOUS 7.1 Termination. This Agreement will continue in full force and effect and be noncanceble by Dealer (except that it may be terminated by DFS upon thirty (30) days written notice to Dealer or in the exercise of its rights and remedies upon Default by Dealer) for a period of two (2) years from the first day of the first month following the date hereof and for successive one (1) year periods thereafter, subject to termination as to future transactions at the end of any such period on at least ninety (90) days prior written notice by Dealer to DFS. If such notice of termination is given by Dealer to DFS, such notice will be ineffective unless Dealer pays to DFS all Obligations on or before the termination date. Any termination of this Agreement by Dealer or DFS will have the effect of accelerating the maturity of all Obligations not then otherwise due. 7.1.1 Termination Privilege. Despite anything to the contrary in Section 7.1 of this Agreement, this Agreement may be terminated by Dealer at any time upon ninety (90) days prior written notice and payment to DFS of the following sum (in addition to payment of all Obligations, whether or not by their terms then due) which sum represents liquidated damages for the loss of the bargain and not as a penalty, and the same is hereby acknowledged by Dealer: (1) Twenty-Five Thousand Dollars ($25,000.00) if termination occurs during the first twelve months following the date of this agreement,(2) Fifteen Thousand Dollars ($15,000.00) if termination occurs during the second twelve months following the date of this agreement. This sum will also be paid by Dealer if the Agreement is terminated on account of Dealer's Default. 7.1.2 Effect of Termination. Dealer will not be relieved from any Obligations to DFS arising out of DFS' advances or commitments made before the effective termination date of this Agreement. DFS will retain all of its rights, interests and remedies hereunder until Dealer has paid all of Dealer's Obligations to DFS. All waivers set forth within this Agreement will survive any termination of this Agreement. 7.2 Collection. Checks and other instruments delivered to DFS on account of the Obligations will constitute conditional payment until such items are actually paid to DFS. 7.3 Demand, Etc. Dealer irrevocably waives notice of: DFS' acceptance of this Agreement, presentment, demand, protest, nonpayment, nonperformance, and dishonor. Dealer and DFS irrevocably waive all rights to claim any punitive and/or exemplary damages. Dealer waives all notices of default and non- payment at maturity of any or all of the Accounts. 7.4 Reimbursement. Dealer will assume and reimburse DFS upon demand for all expenses incurred by DFS in connection with the preparation of this Agreement and the Other Agreements (including fees and costs of outside counsel) and all filing and recording fees and taxes payable in connection with the filing or recording of all documents under this Agreement and the Other Agreements; provided, however, that such reimbursement by Dealer hereunder will not exceed the sum of ONE THOUSAND DOLLARS ($1,000.00). 7.5 Additional Obligations. DFS, without waiving or releasing any Obligation or Default, may perform any Obligations that Dealer fails or refuses to perform. All sums paid by DFS on account of the foregoing and any expenses, including reasonable attorneys' fees, will be a part of the Obligations, payable on demand and secured by the Collateral. 7.6 NO ORAL AGREEMENTS. ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT INCLUDING PROMISES TO EXTEND OR RENEW SUCH DEBTS ARE NOT ENFORCEABLE. TO PROTECT DEALER AND DFS FROM MISUNDERSTANDING OR DISAPPOINTMENT, ALL AGREEMENTS COVERING SUCH MATTERS ARE CONTAINED IN THIS WRITING AND THE OTHER AGREEMENTS, WHICH IS THE COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN THE PARTIES, EXCEPT AS SPECIFICALLY PROVIDED HEREIN OR AS THE PARTIES MAY LATER AGREE IN WRITING TO MODIFY IT. THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE PARTIES. Time is of the essence regarding Dealer's performance of its obligations to DFS notwithstanding any course of dealing or custom on DFS' part to grant extensions of time. DFS will have the right to refrain from or postpone enforcement of this Agreement or any Other Agreements between DFS and Dealer without prejudice and the failure to strictly enforce these agreements will not be construed as having created a course of dealing between DFS and Dealer contrary to the specific terms of the agreements or as having modified, released or waived the same. The express terms of this Agreement will not be modified by any course of dealing, usage of trade, or custom of trade which may deviate from the terms hereof. 7.7 Severability. If any provision of this Agreement or the Other Agreements or the application thereof is held invalid or unenforceable, the remainder of this Agreement and the Other Agreements will not be impaired or affected and will remain binding and enforceable. 7.8 Supplement. If Dealer and DFS have heretofore executed Other Agreements in connection with all or any part of the Collateral, this Agreement shall supplement each and every Other Agreement previously executed by and between Dealer and DFS, and in that event this Agreement shall neither be deemed a novation nor a termination of any such previously executed Other Agreement nor shall execution of this Agreement be deemed a satisfaction of any obligation secured by such previously executed Other Agreement. In the event of any conflict between the terms of this Agreement and any previously executed Business Financing Agreement between DFS and Dealer, the terms of this Agreement shall control. 7.9 Section Titles. The Section titles used in this Agreement are for convenience only and do not define or limit the contents of any Section. 7.10 Binding Effect. Dealer cannot assign its interest in this Agreement or any Other Agreements without DFS' prior written consent, although DFS may assign or participate DFS' interest, in whole or in part, without Dealer's consent. This Agreement and the Other Agreements will protect and bind DFS' and Dealer's respective heirs, representatives, successors and assigns. 7.11 Notices. Except as otherwise stated herein, all notices, arbitration claims, responses, requests and documents will be sufficiently given or served if mailed or delivered: (a) to Dealer at Dealer's principal place of business specified above; and (b) to DFS at 655 Maryville Centre Drive, St. Louis, Missouri 63141-5832, Attention: General Counsel, or such other address as the parties may hereafter specify in writing. 7.12 Receipt of Agreement. Dealer acknowledges that it has received a true and complete copy of this Agreement. Dealer acknowledges that it has read and understood this Agreement. Notwithstanding anything herein to the contrary: (a) DFS may rely on any facsimile copy, electronic data transmission or electronic data storage of any Schedule, statement, financial statements or other reports, and (b) such facsimile copy, electronic data transmission or electronic data storage will be deemed an original, and the best evidence thereof for all purposes, including, without limitation, under this Agreement or any Other Agreements, and for all evidentiary purposes before any arbitrator, court or other adjudicatory authority. 8. BINDING ARBITRATION 8.1 Arbitrable Claims. Except as otherwise specified below, all actions, disputes, claims and controversies under common law, statutory law or in equity of any type or nature whatsoever (including, without limitation, all torts, whether regarding negligence, breach of fiduciary duty, restraint of trade, fraud, conversion, duress, interference, wrongful replevin, wrongful sequestration, fraud in the inducement, usury or any other tort, all contract actions, whether regarding express or implied terms, such as implied covenants of good faith, fair dealing, and the commercial reasonableness of any Collateral disposition, or any other contract claim, all claims of deceptive trade practices or lender liability, and all claims questioning the reasonableness or lawfulness of any act), whether arising before or after the date of this Agreement, and whether directly or indirectly relating to: (a) this Agreement or any Other Agreements and/or any amendments and addenda hereto or thereto, or the breach, invalidity or termination hereof or thereof; (b) any previous or subsequent agreement between DFS and Dealer; (c) any act committed by DFS or by any parent company, subsidiary or affiliated company of DFS (the "DFS Companies"), or by any employee, agent, officer or director of an DFS Company whether or not arising within the scope and course of employment or other contractual representation of the DFS Companies provided that such act arises under a relationship, transaction or dealing between DFS and Dealer; and/or (d) any other relationship, transaction or dealing between DFS and Dealer (collectively the "Disputes"), will be subject to and resolved by binding arbitration. 8.2 Administrative Body. All arbitration hereunder will be conducted in accordance with the Commercial Arbitration Rules of The American Arbitration Association ("AAA"). If the AAA is dissolved, disbanded or becomes subject to any state or federal bankruptcy or insolvency proceeding, the parties will remain subject to binding arbitration which will be conducted by a mutually agreeable arbitrable forum. The parties agree that all arbitrator(s) selected will be attorneys with at least five (5) years secured transactions experience. The arbitrator(s) will decide if any inconsistency exists between the rules of any applicable arbitrable forum and the arbitration provisions contained herein. If such inconsistency exists, the arbitration provisions contained herein will control and supersede such rules. The site of all arbitration proceedings will be in the Division of the Federal Judicial District in which AAA maintains a regional office that is closest to Dealer. 8.3 Discovery. Discovery permitted in any arbitration proceeding commenced hereunder is limited as follows. No later than thirty (30) days after the filing of a claim for arbitration, the parties will exchange detailed statements setting forth the facts supporting the claim(s) and all defenses to be raised during the arbitration, and a list of all exhibits and witnesses. No later than twenty-one (21) days prior to the arbitration hearing, the parties will exchange a final list of all exhibits and all witnesses, including any designation of any expert witness(es) together with a summary of their testimony; a copy of all documents and a detailed description of any property to be introduced at the hearing. Under no circumstances will the use of interrogatories, requests for admission, requests for the production of documents or the taking of depositions be permitted. However, in the event of the designation of any expert witness(es), the following will occur: (a) all information and documents relied upon by the expert witness(es) will be delivered to the opposing party, (b) the opposing party will be permitted to depose the expert witness(es), (c) the opposing party will be permitted to designate rebuttal expert witness(es), and (d) the arbitration hearing will be continued to the earliest possible date that enables the foregoing limited discovery to be accomplished. 8.4 Exemplary or Punitive Damages. The Arbitrator(s) will not have the authority to award exemplary or punitive damages. 8.5 Confidentiality of Awards. All arbitration proceedings, including testimony or evidence at hearings, will be kept confidential, although any award or order rendered by the arbitrator(s) pursuant to the terms of this Agreement may be entered as a judgment or order in any state or federal court and may be confirmed within the federal judicial district which includes the residence of the party against whom such award or order was entered. This Agreement concerns transactions involving commerce among the several states. The Federal Arbitration Act, Title 9 U.S.C. Sections 1 et seq., as amended ("FAA") will govern all arbitration(s) and confirmation proceedings hereunder. 8.6 Prejudgment and Provisional Remedies. Nothing herein will be construed to prevent DFS' or Dealer's use of bankruptcy, receivership, injunction, repossession, replevin, claim and delivery, sequestration, seizure, attachment, foreclosure, dation and/or any other prejudgment or provisional action or remedy relating to any Collateral for any current or future debt owed by either party to the other. Any such action or remedy will not waive DFS' or Dealer's right to compel arbitration of any Dispute. 8.7 Attorneys' Fees. If either Dealer or DFS brings any other action for judicial relief with respect to any Dispute (other than those set forth in Section 8.6), the party bringing such action will be liable for and immediately pay all of the other party's costs and expenses (including attorneys' fees) incurred to stay or dismiss such action and remove or refer such Dispute to arbitration. If either Dealer or DFS brings or appeals an action to vacate or modify an arbitration award and such party does not prevail, such party will pay all costs and expenses, including attorneys' fees, incurred by the other party in defending such action. Additionally, if Dealer sues DFS or institutes any arbitration claim or counterclaim against DFS in which DFS is the prevailing party, Dealer will pay all costs and expenses (including attorneys' fees) incurred by DFS in the course of defending such action or proce eding. 8.8 Limitations. Any arbitration proceeding must be instituted: (a) with respect to any Dispute for the collection of any debt owed by either party to the other, within two (2) years after the date the last payment was received by the instituting party; and (b) with respect to any other Dispute, within two (2) years after the date the incident giving rise thereto occurred, whether or not any damage was sustained or capable of ascertainment or either party knew of such incident. Failure to institute an arbitration proceeding within such period will constitute an absolute bar and waiver to the institution of any proceeding, whether arbitration or a court proceeding, with respect to such Dispute. 8.9 Survival After Termination. The agreement to arbitrate will survive the termination of this Agreement. 9. INVALIDITY/UNENFORCEABILITY OF BINDING ARBITRATION. IF THIS AGREEMENT IS FOUND TO BE NOT SUBJECT TO ARBITRATION, ANY LEGAL PROCEEDING WITH RESPECT TO ANY DISPUTE WILL BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE WITHOUT A JURY. DEALER AND DFS WAIVE ANY RIGHT TO A JURY TRIAL IN ANY SUCH PROCEEDING. 10. Governing Law. Dealer acknowledges and agrees that this and all Other Agreements between Dealer and DFS have been substantially negotiated, and will be substantially performed, in the state of CALIFORNIA. Accordingly, Dealer agrees that all Disputes will be governed by, and construed in accordance with, the laws of such state, except to the extent inconsistent with the provisions of the FAA which shall control and govern all arbitration proceedings hereunder. IN WITNESS WHEREOF, Dealer and DFS have executed this Agreement as of the date first set forth hereinabove. THIS CONTRACT CONTAINS BINDING ARBITRATION, JURY WAIVER AND PUNITIVE DAMAGE WAIVER PROVISIONS. DEUTSCHE FINANCIAL SERVICES CORPORATION SMTEK, INC. ------------------------ Dealer's Name By: /s/ Edward Stepanow By: /s/ Gregory L. Horton ---------------------- ------------------------- Print Name: Edward Stepanow Print Name: Gregory L. Horton Title: Marketing Manager Title: President and Secretary By: /s/ Richard K. Vitelle ------------------------ Print Name: Richard K. Vitelle Title: CFO and Treasurer ATTEST: /s/ Barbara Casablanca ------------------------- (Assistant) Secretary Print Name: Barbara Casablanca EXHIBIT 10 (continued) ADDENDUM TO BUSINESS FINANCING AGREEMENT This Addendum is made to that certain Business Financing Agreement executed on the 21st day of August, 1996, between SMTEK, Inc. ("Dealer") and Deutsche Financial Services Corporation ("DFS"), as amended ("Agreement"). FOR VALUE RECEIVED, DFS and Dealer agree as follows: 1. Section 3.8 of the Agreement is hereby amended in its entirety to read as follows: "3.8 Collection Days. All Dealer payments and all amounts received in settlement, adjustment, or liquidation of any Account will be credited by DFS to Dealer's account (subject to final collection thereof) after allowing one (1) business day for collection of checks or other instruments." 2. Section 7.1 of the Agreement is hereby amended in its entirety to read as follows: "7.1 Termination. This Agreement will continue in full force and effect and be noncancellable (except that it may be terminated by DFS upon the exercise of its rights and remedies upon Default by Dealer) for a period of two (2) years from the first day of the first month following the date hereof and for successive one (1) year periods thereafter, subject to termination as to future transactions at the end of any such period on at least ninety (90) days prior written notice by either party to the other. If such notice of termination is given by either party, Dealer will pay to DFS all Obligations on or before the termination date. Any termination of this Agreement by Dealer or DFS will have the effect of accelerating the maturity of all Obligations not then otherwise due." 3. New Paragraph 8 is incorporated into the BFA to read in its entirety as follows: "8. Facility Fee. Dealer agrees to pay DFS a one-time facility fee in connection with the Accounts Receivable Facility in the amount of Twelve Thousand Five Hundred Dollars ($12,500.00), payable in advance, upon the execution of this Agreement. Once received by DFS, the facility fee shall not be refundable by DFS for any reason." 4. The following paragraph is incorporated into the Agreement as if fully and originally set forth therein: "Dealer will (I) as of the end of each of its fiscal years maintain: (a) a Tangible Net Worth and Subordinated Debt in the combined amount of not less than One Million Five Hundred Thousand Dollars ($1,500,000.00); and (b) a ratio of Debt to Tangible Net Worth and Subordinated Debt of not more than three to one (3.0:1); and (II) for each of its fiscal years, achieve a Net Income of not less than One Hundred Thousand Dollars ($100,000.00). For purposes of this paragraph: (i) 'Tangible Net Worth' means the book value of Dealer's assets less liabilities, excluding from such assets all Intangibles; (ii) 'Intangibles' means and includes general intangibles (as that term is defined in the Uniform Commercial Code); accounts receivable and advances due from officers, directors, employees, stockholders and affiliates; leasehold improvements net of depreciation; licenses; good will; prepaid expenses; escrow deposits; covenants not to compete; the excess of cost over book value of acquired assets; franchise fees; organizational costs; finance reserves held for recourse obligations; capitalized research and development costs; and such other similar items as DFS may from time to time determine in DFS' sole discretion; (iii) 'Debt' means all of Dealer's liabilities and indebtedness for borrowed money of any kind and nature whatsoever, whether direct or indirect, absolute or contingent, and including obligations under capitalized leases, guaranties, or with respect to which Dealer has pledged assets to secure performance, whether or not direct recourse liability has been assumed by Dealer; (iv) 'Subordinated Debt' means all of Dealer's Debt which is subordinated to the payment of Dealer's liabilities to DFS by an agreement in form and substance satisfactory to DFS; and (v) 'Net Income' means the net income of Dealer before provision for taxes and extraordinary items. The foregoing terms will be determined in accordance with generally accepted accounting principles consistently applied, and, if applicable, on a consolidated basis." 5. The following paragraphs are hereby incorporated into the Agreement as if fully set forth therein (all capitalized terms shall have the same meaning used in the Agreement unless otherwise defined herein): "Dealer hereby agrees to cause an institution acceptable to DFS to issue in favor of DFS one or more Irrevocable Letters of Credit, in a total amount, form, substance and with expiration dates satisfactory to DFS. Dealer hereby agrees that if at least sixty (60) days prior to the expiration of the above referenced Irrevocable Letter(s) of Credit or any subsequent Letter(s) of Credit issued for the account of Dealer in favor of DFS, such Irrevocable Letter of Credit is not extended for a term of twelve (12) months or longer, or a new Irrevocable Letter of Credit in an amount, form and from an institution acceptable to DFS and for a term of twelve (12) months or longer is not provided to DFS, an event of default shall have occurred under this Agreement, and DFS may declare all sums owed by Dealer under this Agreement to be immediately due and payable. Upon such default, DFS may: (i) exercise any and all of its rights under this Agreement including, but not limited to, the right to repossess the Collateral from Dealer; and (ii) exercise any and all of its rights to draw upon any Irrevocable Letter of Credit issued for the account of Dealer in favor of DFS." 6. After giving effect to the initial advance made to Dealer under the Agreement, Dealer will have unused availability under the Accounts Receivable Facility of not less than One Hundred Thousand Dollars ($100,000.00). Dealer waives notice of DFS' acceptance of this Addendum. All other terms and provisions of the Agreement, to the extent not inconsistent with the foregoing, are ratified and remain unchanged and in full force and effect. IN WITNESS WHEREOF, Dealer and DFS have executed this Addendum on this 21st day of August, 1996. SMTEK, INC. ATTEST: By: /s/ Richard K. Vitelle /s/ Barbara Casablanca ------------------------ - ------------------------ Title: Chief Financial Officer (Assistant) Secretary DEUTSCHE FINANCIAL SERVICES CORPORATION By: /s/ Edward Stepanow ------------------------- Title: Marketing Manager EX-11 3 EXHIBIT 11 DDL ELECTRONICS, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE (Unaudited) Three Months Ended September 30, ------------------------ 1996 1995 ------ ------ PRIMARY EARNINGS PER SHARE: Net income (loss) $ (725,000) $ 1,084,000 ========== ========== Weighted average number of common shares outstanding 23,017,458 16,200,911 Assumed exercise of options and warrants net of shares assumed reacquired - 641,822 ---------- ---------- Average common shares and common share equivalents 23,017,458 16,842,733 ========== ========== Earnings (loss) per share $(0.03) $ 0.06 ==== ==== FULLY DILUTED EARNINGS PER SHARE: Net income (loss) $ (725,000) $ 1,084,000 Add back net interest related to convertible subordinated debentures 34,000 34,000 ---------- ---------- Net income (loss) for fully diluted computation $ (691,000) $ 1,118,000 ========== ========== Weighted average number of common shares outstanding 23,017,458 16,200,911 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 309,562 689,195 Assumed conversion of convertible subordinated debentures 310,206 699,206 ---------- ---------- Average fully diluted shares 23,637,226 17,589,312 ========== ========== Earnings (loss) per share $(0.03) $ 0.06 ==== ==== EX-27 4
5 3-MOS JUN-30-1997 SEP-30-1996 1333000 0 6698000 146000 3574000 15428000 21631000 15527000 27770000 17435000 5777000 230000 0 0 4328000 27770000 9895000 9895000 8799000 8799000 0 0 258000 (725000) 0 (725000) 0 0 0 (725000) (0.03) (0.03)
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