-----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, SQ/aZE+qoYO6NBE6WmT5d5RExC3VSsHI9PvrTceD/olFoJy0Lvv0rzHw1/wFboIy Toc7MfBKLYVxIMIXciOY6w== 0000026987-98-000014.txt : 19980605 0000026987-98-000014.hdr.sgml : 19980605 ACCESSION NUMBER: 0000026987-98-000014 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19980604 SROS: NYSE SROS: PCX 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/A SEC ACT: SEC FILE NUMBER: 001-08101 FILM NUMBER: 98642664 BUSINESS ADDRESS: STREET 1: 2151 ANCHOR COURT CITY: NEWBURY PARK STATE: CA ZIP: 91320 BUSINESS PHONE: 805-376-94 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/A 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q/A Amendment No. 2 (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, 1997 [ ] 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 24,593,858 shares of Common Stock outstanding as of November 14, 1997. RESTATEMENT OF FINANCIAL STATEMENTS Effective July 1, 1997, the Company changed its amortization period for goodwill related to the acquisition of SMTEK, Inc. from 5 to 20 years. However, after further review and consideration, and discussion with the Securities and Exchange Commission, the Company determined to reinstate the 5 year amortization period. Accordingly, the Company has restated its financial statements for the quarter ended September 30, 1997 to amortize goodwill over the originally-determined 5 year period rather than over 20 years. This restatement had the effect of decreasing operating income, pretax income and net income for the three months ended September 30, 1997 by $257,000 or $.01 per share. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS DDL ELECTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited, except June 30, 1997) September 30, June 30, 1997 1997 ------ ------ Assets Current assets: Cash and cash equivalents $ 563,000 $ 4,718,000 Accounts receivable, net 7,910,000 9,198,000 Costs and estimated earnings in excess of billings on uncompleted contracts 3,568,000 3,161,000 Inventories, net 3,502,000 3,211,000 Prepaid expenses 255,000 132,000 ---------- ---------- Total current assets 15,798,000 20,420,000 ---------- ---------- Property, equipment and improvements, at cost: Buildings and improvements 5,909,000 6,037,000 Plant equipment 14,671,000 14,962,000 Office and other equipment 2,010,000 1,952,000 ---------- ---------- 22,590,000 22,951,000 Less: Accumulated depreciation and amortization (16,092,000) (16,161,000) ---------- ---------- Property, equipment and improvements, net 6,498,000 6,790,000 ---------- ---------- Other assets: Goodwill, net 4,122,000 4,439,000 Deposits and other assets 233,000 231,000 ---------- ----------- 4,355,000 4,670,000 ---------- ----------- $ 26,651,000 $ 31,880,000 ========== =========== DDL ELECTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Continued) (Unaudited, except June 30, 1997) September 30, June 30, 1997 1997 ------ ------ Liabilities and Stockholders' Equity Current liabilities: Bank lines of credit payable $ 2,663,000 $ 1,378,000 Current portion of long-term debt 820,000 4,167,000 Accounts payable 6,663,000 9,084,000 Accrued payroll and employee benefits 943,000 1,145,000 Other accrued liabilities 2,103,000 2,321,000 ---------- ---------- Total current liabilities 13,192,000 18,095,000 ---------- ---------- Long-term debt: 7% Convertible Subordinated Debentures, less current portion 398,000 398,000 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 5,629,000 5,842,000 ---------- ---------- Total long-term debt 7,607,000 7,820,000 ---------- ---------- Stockholders' equity: Common stock 246,000 246,000 Additional paid-in capital 6,527,000 6,410,000 Accumulated deficit since June 27, 1997 (128,000) - Foreign currency translation adjustment (793,000) (691,000) ---------- ---------- Total stockholders' equity 5,852,000 5,965,000 ---------- ---------- $ 26,651,000 $ 31,880,000 ========== ========== See accompanying Notes to Unaudited Consolidated Financial Statements DDL ELECTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited) Three Months Ended September 30, ----------------------- 1997 1996 ------ ------ Sales $12,605,000 $ 9,895,000 Cost of goods sold 10,777,000 8,799,000 ---------- --------- Gross profit 1,828,000 1,096,000 ---------- --------- Operating expenses: Administrative and selling 1,312,000 1,141,000 Goodwill amortization 317,000 317,000 ---------- --------- 1,629,000 1,458,000 ---------- --------- Operating income (loss) 199,000 (362,000) ---------- --------- Non-operating income (expense): Interest income 13,000 24,000 Interest expense (226,000) (268,000) Debt issue cost amortization - (124,000) Other income (expense) net (7,000) 5,000 ---------- --------- (220,000) (363,000) ---------- --------- Loss before taxes (21,000) (725,000) Provision for income taxes (107,000) - ---------- --------- Net loss $ (128,000) $ (725,000) ========== ========= Loss per share $ (.01) $ (.03) ==== ==== Shares used in computing earnings per share 24,723,854 23,017,458 ========== ========== See accompanying Notes to Unaudited Consolidated Financial Statements DDL ELECTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended September 30, ----------------------- 1997 1996 ------ ------ Cash flows from operating activities: Net loss $ (128,000) $ (725,000) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization 714,000 755,000 Utilization of pre quasi- reorganization tax benefits 107,000 - Net increase in operating working capital (2,562,000) (2,099,000) Increase in deposits and other assets (2,000) (2,000) Benefit of non-capital grants - (58,000) Other 20,000 23,000 --------- --------- Net cash used by operating activities (1,851,000) (2,106,000) --------- --------- Cash flows from investing activities: Capital expenditures (189,000) (84,000) Proceeds from sale of assets 19,000 - --------- --------- Net cash used by investing activities (170,000) (84,000) --------- --------- Cash flows from financing activities: Proceeds from bank lines of credit 1,295,000 946,000 Proceeds from long-term debt 2,000,000 - Payments of long-term debt (5,553,000) (199,000) Proceeds from foreign government grants 122,000 251,000 --------- --------- Net cash provided by (used in) financing activities (2,136,000) 998,000 --------- --------- Effect of exchange rate changes on cash 2,000 6,000 --------- --------- Decrease in cash and cash equivalents (4,155,000) (1,186,000) Cash and cash equivalents at beginning of period 4,718,000 2,519,000 --------- --------- Cash and cash equivalents at end of period $ 563,000 $1,333,000 ========= ========= 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, 1997), 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, 1997 and its results of operations and cash flows for the three months ended September 30, 1997 and 1996. The Company uses a 52-53 week fiscal year ending on the Friday closest to June 30, which for fiscal year 1997 fell on June 27, 1997. In the accompanying interim consolidated financial statements, the 1997 fiscal year end is shown as June 30 and the interim period end for both years is shown as September 30 for clarity of presentation. The actual interim periods ended on October 3, 1997 and September 27, 1996. The fiscal 1998 quarter consisted of 14 weeks compared to 13 weeks in the first quarter of fiscal 1997. 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 1997 Annual Report to Stockholders as filed with the Securities and Exchange Commission on October 10, 1997. Certain reclassifications have been made to the interim fiscal 1997 financial statements to conform with the fiscal 1998 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 assemblies 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, 1997 1997 ---- ---- Trade receivables $7,708,000 $8,810,000 Other receivables 383,000 546,000 Less allowance for doubtful accounts (181,000) (158,000) --------- --------- $7,910,000 $9,198,000 ========= ========= 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, 1997 1997 ---- ---- Costs incurred on uncompleted contracts $25,041,000 $20,455,000 Estimated earnings 2,695,000 2,714,000 ---------- ---------- 27,736,000 23,169,000 Less: Billings to date (24,168,000) (20,008,000) ---------- ---------- $ 3,568,000 $ 3,161,000 ========== ========== 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, 1997 1997 ---- ---- Raw materials $3,026,000 $2,889,000 Work in process 659,000 654,000 Finished goods 309,000 160,000 Less reserves (492,000) (492,000) --------- --------- $3,502,000 $3,211,000 ========= ========= Note 6 - OTHER ACCRUED LIABILITIES Other accrued liabilities consist of the following: September 30, June 30, 1997 1997 ---- ---- Environmental liabilities $ 674,000 $ 684,000 Accrued taxes payable 794,000 794,000 Other 635,000 843,000 --------- --------- $2,103,000 $2,321,000 ========= ========= Note 7 - FINANCING ARRANGEMENTS AND ACQUISITION COMMITMENT 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 September 30, 1997, borrowings outstanding under this credit facility amounted to $1,351,000. 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 3,000,000 pounds sterling (approximately $4,860,000), and provides for interest on borrowings at 1.50% over the bank's base rate. At September 30, 1997, borrowings outstanding under this credit facility amounted to $1,312,000. On June 30, 1997 (which is subsequent to the year ended June 27, 1997), the Company repaid its 10% Senior Notes due July 1, 1997 in the amount of $5,300,000 plus accrued interest of $43,000. Of the funds used to repay the 10% Senior Notes, $2,000,000 was borrowed from a private investor (the "Investor") on June 30, 1997 under an 8% note payable due February 1, 1999 which is secured by the common stock of SMTEK. Following is pro forma information for certain consolidated balance sheet line items presented as if the issuance of the $2,000,000 note payable and repayment of the 10% Senior Notes had occurred on June 27, 1997: June 27, 1997 --------------------------- As Reported Pro forma ----------- ----------- Assets: Cash and cash equivalents $4,718,000 $1,375,000 Liabilities: Current portion of long-term debt $4,167,000 $ 867,000 Other accrued liabilities $2,321,000 $2,278,000 Concurrent with issuing the $2,000,000 note payable on June 30, 1997, the Company agreed to acquire all of the issued and outstanding shares of Jolt Technology, Inc.("Jolt"), a privately-held electronic manufacturing services company controlled by the Investor, for nine million shares of the Company's common stock. The acquisition of Jolt is subject to executing a definitive agreement, obtaining a fairness opinion on the transaction, and obtaining the approval of the Company's stockholders. Upon consummation of the Jolt acquisition, the maturity date of the $2,000,000 note payable will be extended from February 1, 1999 to October 31, 1999. 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, --------------------- 1997 1996 ------ ------ Interest paid $ 244,000 $ 276,000 ======= ======= "Net increase in operating working capital" is comprised of the following: Three months ended September 30, --------------------- 1997 1996 ------ ------ (Increase) decrease in accounts receivable $ 1,024,000 $ (1,168,000) Increase in costs and estimated earnings in excess of billings on uncompleted contracts (407,000) (556,000) (Increase) decrease in inventories (369,000) 616,000 (Increase) decrease in prepaid expenses (125,000) 3,000 Decrease in accounts payable (2,285,000) (728,000) Decrease in accrued payroll and employee benefits (186,000) (157,000) Decrease in other liabilities (214,000) (109,000) --------- --------- Net increase in operating working capital $(2,562,000) $(2,099,000) ========= ========= Following is the supplemental schedule of non-cash investing and financing activities: Three months ended September 30, --------------------- 1997 1996 ------ ------ Capital expenditures financed by lease obligations $ 36,000 $ 395,000 Conversion of debt to equity $ 10,000 $ 76,000 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 as 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. 333-31349). 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 design and electronic manufacturing services. QUASI-REORGANIZATION The Company, with the authorization of its Board of Directors, implemented a quasi-reorganization effective June 27, 1997. The quasi-reorganization, which did not require the approval of the Company's stockholders, resulted in an elimination of the accumulated deficit of $23,678,000 by a transfer from additional paid-in capital of an equivalent amount. This deficit was attributable primarily to operations which were divested or discontinued in prior years. Following a review and evaluation by management, no adjustment was made to the carrying values of the Company's assets and liabilities because such amounts were deemed to be not in excess of estimated fair values. RESULTS OF OPERATIONS 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 October 3, 1997 and September 27, 1996. The fiscal 1998 quarter consisted of 14 weeks compared to 13 weeks in the first quarter of fiscal 1997. Consolidated sales for the quarter ended September 30, 1997 were $12,605,000, compared to $9,895,000 for the first quarter of last year. The additional week of production in the latest quarter was a contributing factor to the increase in sales. Sales for the Company's EMS operations increased $2,544,000 in the latest quarter compared to the first quarter of last year. Sales to new customers as well as increased sales to existing customers contributed to the sales growth of the EMS operations. For the three months ended September 30, 1997, sales of the PCB operations increased approximately 9% over sales for the first quarter of the prior year. Consolidated gross profit for the latest quarter was $1,828,000, compared to $1,096,000 for the three months ended September 30, 1996. Gross profit of the EMS operations was $1,425,000 for the first quarter of fiscal 1998, compared to $822,000 for the prior year first quarter, which accounted for $603,000 of the overall increase. The higher sales volume of the EMS operations, increased productivity, and lower material prices contributed to the increase in EMS gross profit. For the three months ended September 30, 1997, gross profit from PCB operations increased approximately 51% over gross profit for the first quarter of the prior year. This improvement is attributable primarily to material price reductions and processing cost savings. The Company's consolidated gross profit margin increased from 11.1% in the three months ended September 30, 1996 to 14.5% in the latest quarter as a result of the aforementioned factors. Administrative and selling expenses for the three months ended September 30, 1997 were $1,312,000, compared to $1,141,000 for the same period in the previous year. The increase is primarily attributable to the additional week of operations included in the latest quarter as a result of the Company's 52-53 week fiscal year. In the three months ended September 30, 1997, consolidated operating income was $199,000, compared to a consolidated operating loss of ($362,000) in the three months ended September 30, 1996. Interest expense decreased from $268,000 in the three months ended September 30, 1996 to $226,000 in the three months ended September 30, 1997 because the Company repaid its 10% Senior Notes in the amount of $5,300,000 on June 30, 1997. Of the funds used to repay the 10% Senior Notes, $2,000,000 was borrowed on June 30, 1997 under an 8% promissory note due February 1, 1999. Debt issue cost amortization expense of $124,000 for the three months ended September 30, 1996 relates to the 10% Senior Notes. There is no such amortization expense in the latest quarter because these debt issue costs were fully amortized as of June 30, 1997. The provision for income taxes of $107,000 for the three months ended September 30, 1997 represents the utilization of pre-quasi reorganization tax benefits. Pursuant to quasi-reorganization accounting, as the portion of loss carryforwards and deferred tax benefits originating prior to the June 27, 1997 quasi-reorganization are utilized, the corresponding tax effect ($107,000 for the quarter ended September 30, 1997) is credited to paid-in capital instead of being treated as a reduction of the provision for income taxes. Additionally, because the Company's goodwill amortization expense is not deductible for income taxes, the provision for income taxes in the three months ended September 30, 1997 is greater than the amount which would result from applying statutory tax rates to pretax income. The net loss for the three months ended September 30, 1997 was ($128,000) or ($.01) per share, compared to ($725,000) or ($.03) per share for the same period of fiscal 1997. LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of liquidity are its cash and cash equivalents, which amounted to $563,000 at September 30, 1997, and its bank lines of credit. During the three months ended September 30, 1997, cash and cash equivalents decreased by $4,155,000. This decrease consisted of cash used by operating activities of $1,851,000, capital expenditures of $189,000, and net reductions of long-term debt of $2,258,000, partially offset by cash inflows of $122,000 from government grants, proceeds from the sale of assets of $19,000, and the effect of exchange rate changes on cash of $2,000. Components of operating working capital increased by $2,562,000 during the first three months of fiscal 1998, comprised of a $407,000 increase in costs and earnings in excess of billings on uncompleted contracts, a $369,000 increase in inventories, a $125,000 increase in prepaid expenses, and a $2,685,000 decrease in accounts payable and other accrued liabilities, partially offset by a $1,024,000 decrease in accounts receivable. Accounts receivable decreased from $9,198,000 at June 30, 1997 to $7,910,000 at September 30, 1997. This decrease results primarily from a decrease in sales from $14,259,000 in the three months ended June 30, 1997 to $12,605,000 in the three months ended September 30, 1997. 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 September 30, 1997, borrowings outstanding under this credit facility amounted to $1,351,000. 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 3,000,000 pounds sterling (approximately $4,860,000), and provides for interest on borrowings at 1.50% over the bank's base rate. At September 30, 1997, borrowings outstanding under this credit facility amounted to $1,312,000. The Company's EMS and PCB fabrication businesses require continuing investment in plant and equipment to remain competitive. Recently, however, the Company's financial position has severely restricted its ability to make capital improvements in its facilities. Capital expenditures during fiscal 1997, 1996 and 1995 were approximately $2,210,000, $1,599,000 and $643,000, respectively. The Company anticipates it will need to increase its capital spending in the coming years in order to stay competitive as technology evolves. Capital expenditures for the three months ended September 30, 1997 were $225,000. Management estimates that capital expenditures of as much as $2 million may be required in fiscal 1998. Of that amount, the substantial majority is expected to be financed by a combination of capital leases, secured loans and foreign government grants. 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 negative cash flow from operating activities of $1,851,000 during the three months ended September 30, 1997. 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 sustain 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. With the exception of the three quarters ended September 30, 1997, during which the Company generated cumulative operating income of $795,000, the Company has incurred operating losses for a number of years. Operating losses could return and persist until such time as sales increase to a level sufficient to cover costs and operating expenses. 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 working capital lines of credit are sufficient to fund operations 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: On July 9, 1997, a Form 8-K was filed regarding a press release announcing the repayment in full of 10% Senior Secured Notes, the issuance of a $2,000,000 promissory note, and the agreement in principle to acquire the stock of Jolt Technology, Inc. On September 29, 1997, a Form 8-K was filed regarding a press release announcing that DDL had commenced litigation against Century Electronics Manufacturing, Inc. ("Century") over a breach of contract. On November 7, 1997, a Form 8-K was filed disclosing that the Company and Century entered into a settlement agreement which generally releases and resolves all claims between them. SIGNATURE 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. June 4, 1998 /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 September 30, ------------------------ 1997 1996 ------ ------ PRIMARY EARNINGS PER SHARE: Net loss $ (128,000) $ (725,000) ========== ========== Weighted average number of common shares outstanding 24,591,103 23,017,458 Assumed exercise of options and warrants net of shares assumed reacquired 132,751 - ---------- ---------- Average common shares and common share equivalents 24,723,854 23,017,458 ========== ========== Primary earnings (loss) per share $ (.01) $ (.03) ==== ==== FULLY DILUTED EARNINGS PER SHARE: Net loss $ (128,000) $ (725,000) Add back net interest related to convertible subordinated debentures 34,000 34,000 ---------- ---------- Net loss for fully diluted computation $ (94,000) $ (691,000) ========== ========== Weighted average number of common shares outstanding 24,591,103 23,017,458 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 132,751 309,562 Assumed conversion of convertible subordinated debentures 310,206 310,206 ---------- ---------- Average fully diluted shares 25,034,060 23,637,226 ========== ========== Fully diluted earnings (loss) per share $ (.01) $ (.03) ==== ==== EX-27 3
5 3-MOS JUN-30-1998 SEP-30-1997 563000 0 7708000 181000 3502000 15798000 22590000 16092000 26651000 13192000 8427000 246000 0 0 5606000 26651000 12605000 12605000 10777000 12406000 0 0 226000 (21000) 107000 (128000) 0 0 0 (128000) (0.01) (0.01)
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