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)