<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 13, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CENTURY ELECTRONICS MANUFACTURING, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3672 04-3334332
STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER)
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
274 CEDAR HILL ROAD, MARLBOROUGH, MASSACHUSETTS 01752
(508) 485-0275
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
LESLIE J. SAINSBURY, CHIEF EXECUTIVE OFFICER
274 CEDAR HILL ROAD, MARLBOROUGH, MASSACHUSETTS 01752
(508) 485-0275
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------------
Copies To:
<TABLE>
<S> <C>
KEITH F. HIGGINS, ESQ. WILLIAM P. GELNAW, JR., ESQ.
Ropes & Gray Choate, Hall & Stewart
One International Place Exchange Place
Boston, Massachusetts 02110-2624 53 State Street
(617) 951-7000 Boston, Massachusetts 02109
(617) 951-7050 (fax) (617) 248-5000
(617) 248-4000 (fax)
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED PER SHARE (1) OFFERING PRICE (1) FEE
Common Stock, par value $0.01 per share 4,600,000 Shares $10.00 $46,000,000 $12,788
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(a) under the Securities Act of 1933.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION DATED AUGUST 13, 1999
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES, AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
4,000,000 SHARES
CENTURY ELECTRONICS MANUFACTURING, INC.
[CENTURY LOGO]
COMMON STOCK
------------------
This is our initial public offering of common stock. All of the shares in
this offering are being sold by us, Century Electronics Manufacturing.
We currently expect the public offering price to be between $8.00 and $10.00
per share. After pricing of the offering, we expect that our common stock will
trade on the Nasdaq National Market under the symbol "CEMI."
------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 4.
------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
---------- ----------
<S> <C> <C>
Public Offering Price................................................................. $ $
Underwriting Discount................................................................. $ $
Proceeds, before expenses, to Century................................................. $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT, NOR HAS ANY STATE SECURITIES
REGULATOR, APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
We have granted the underwriters a 30-day option to purchase up to 600,000
additional shares of our common stock to cover overallotments. We expect the
underwriters to deliver the shares of common stock to purchasers on or about
[ ], 1999.
------------------------
ADVEST, INC.
J.C. BRADFORD & CO.
NEEDHAM & COMPANY, INC.
THE DATE OF THIS PROSPECTUS IS , 1999.
<PAGE>
Inside front cover:
[Map of world with the following:
line going from Massachusetts to picture of Century's Marlborough, MA
facility;
line going from Florida to picture of Century's Boca Raton, FL facility;
line going from United Kingdom to picture of Century's St. Albans
facility and Hemel Hemstead facility;
line going from California to picture of Century's Santa Clara, CA
facility; and
line going from Thailand to picture of Century's Bangkok, Thailand
facility.
Note: all facility pictures are labeled by location]
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE AND
THE UNDERWRITERS HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT
INFORMATION. WE AND THE UNDERWRITERS ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR ANY SALE OF OUR COMMON STOCK. IN THIS PROSPECTUS, REFERENCES TO
THE "COMPANY," "CENTURY," "WE," "US" AND "OUR" REFER TO CENTURY ELECTRONICS
MANUFACTURING, INC. AND ITS SUBSIDIARIES, INCLUDING AMITEK CORPORATION, EXCEPT
WHERE NOTED OR THE CONTEXT CLEARLY SUGGESTS OTHERWISE.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Disclosure Regarding Forward-Looking Statements............................................................ i
Prospectus Summary......................................................................................... 1
Risk Factors............................................................................................... 4
Use of Proceeds............................................................................................ 12
Dividend Policy............................................................................................ 12
Capitalization............................................................................................. 13
Dilution................................................................................................... 14
Selected Consolidated Financial Data....................................................................... 15
Unaudited Pro Forma Financial Data......................................................................... 16
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 22
Business................................................................................................... 31
Management................................................................................................. 39
Principal Stockholders..................................................................................... 44
Certain Relationships and Related Transactions............................................................. 46
Description of Securities.................................................................................. 49
Shares Eligible for Future Sale............................................................................ 54
Underwriting............................................................................................... 56
Validity of Common Stock................................................................................... 58
Experts.................................................................................................... 58
Where You Can Find More Information........................................................................ 59
Index to Consolidated Financial Statements................................................................. F-1
</TABLE>
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. For example, statements
included in this prospectus regarding the future of the industry in which we
operate and our financial position, business strategy and other plans and
objectives for future operations, and assumptions and predictions about future
customer relationships, product demand, supply, manufacturing, costs, marketing
and pricing factors are all forward-looking statements. When we use words like
"intend," "may," "will," "strategy," "should," "continue," "anticipate,"
"believe," "estimate," "plan" or "expect," we are making forward-looking
statements. We believe that the assumptions and expectations reflected in such
forward-looking statements are reasonable, based on information currently
available to us, but we cannot assure you that these assumptions and
expectations will prove to have been correct or that we will take any action
that we may presently be planning. Our actual results and future events may
differ materially from what we currently expect. We have disclosed important
factors that could cause our actual results to differ materially from our
current expectations under the section entitled "Risk Factors" and elsewhere in
this prospectus. Forward-looking statements made in connection with this
offering should be read with these factors in mind.
--------------------------
THE INDUSTRY STATISTICAL DATA PRESENTED IN THIS PROSPECTUS HAVE BEEN
COMPILED FROM AN ELECTRONICS MANUFACTURING SERVICES INDUSTRY REPORT -- "CONTRACT
MANUFACTURING FROM A GLOBAL PERSPECTIVE, 1997 UPDATE" -- PREPARED BY TECHNOLOGY
FORECASTERS, INC., A CALIFORNIA BASED MANAGEMENT CONSULTING FIRM SPECIALIZING IN
THE ELECTRONICS MANUFACTURING INDUSTRY, EXCEPT WHERE OTHERWISE NOTED. TECHNOLOGY
FORECASTERS IS COMMONLY RELIED UPON AS AN INFORMATION SOURCE IN THE ELECTRONICS
MANUFACTURING SERVICES INDUSTRY. ALTHOUGH WE HAVE NOT INDEPENDENTLY VERIFIED ANY
SUCH DATA, WE BELIEVE THAT THE INFORMATION PROVIDED BY TECHNOLOGY FORECASTERS IN
THIS PROSPECTUS IS RELIABLE.
i
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY CONTAINS BASIC INFORMATION. BECAUSE THIS IS ONLY A
SUMMARY, IT DOES NOT CONTAIN ALL THE INFORMATION THAT MAY BE IMPORTANT TO YOU.
YOU SHOULD READ THE ENTIRE PROSPECTUS, ESPECIALLY "RISK FACTORS," BEGINNING ON
PAGE 4, AND OUR CONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED NOTES, BEFORE
DECIDING TO INVEST IN OUR COMMON STOCK.
We are a worldwide provider of electronics manufacturing services to leading
original equipment manufacturers, or OEMs, primarily in the communications and
networking markets. We have established manufacturing facilities in several of
the world's major electronics markets to meet the requirements of our OEM
customers. Our strategy is to focus on the manufacture of complex, high-density
electronic assemblies and products in low- to medium-volume production runs. We
offer a broad range of manufacturing services from product design and
prototyping through volume production and order fulfillment. In addition we have
substantial expertise in manufacturing and testing radio frequency, or RF,
assemblies.
The electronics manufacturing services industry has grown in response to
OEMs outsourcing an increasingly larger portion of their manufacturing
requirements. In some instances, OEMs have sold their manufacturing operations
to electronics manufacturing service providers, while at the same time
establishing contractual manufacturing relationships. Outsourcing allows OEMs to
take advantage of the manufacturing expertise and capital investments of the
electronics manufacturing service providers. It also enables OEMs to concentrate
on their core competencies, such as product development, marketing and sales.
Our principal strategic focus is on the manufacture of complex, high-density
electronic assemblies in low- to medium-volumes. We believe this focus enables
us to compete effectively against many of the largest electronic manufacturing
service providers who tend to focus on higher volume production with a less
flexible approach to customer service. This focus allows us to develop
relationships with large OEMs and presents opportunities for us to expand our
business with many of these customers.
We manufacture a variety of electronic products, including cable modems,
wireless phones, telecom and networking switching equipment, two-way radio
equipment and digital imaging products. Our existing customer base includes
industry leaders in the communications and networking industries, such as Nortel
Networks, Motorola, Lucent Technologies and 3Com. In the nine months ended March
31, 1999, Nortel represented 49% and Motorola represented 27% of our total pro
forma net sales. We also serve emerging companies which present us with
opportunities to maintain our technological expertise, while providing
attractive growth opportunities as their products gain market acceptance.
Global manufacturing capabilities are becoming increasingly important as
many OEMs expand their international revenues. We believe our strategy of
establishing regionally focused operations on a global basis will enable us to
increase penetration with our existing OEM customers as we have the ability to
manufacture the same product in multiple locations. Furthermore, we expect this
strategy will enable us to establish new relationships with leading OEMs and
emerging technology companies in our targeted markets. We believe our strategy
benefits our customers by reducing logistical barriers and costs, improving
supply-chain management, increasing flexibility, lowering transportation costs,
reducing turnaround times and accelerating time-to-market.
Growth through selective acquisitions is an important element in our
strategy. We have completed three acquisitions since April 1998, including our
recent acquisition of Amitek Corporation, a Florida-based electronics
manufacturing services provider. Motorola is Amitek's largest customer. Amitek
supports Motorola locations in Florida, Illinois, Iowa, and Georgia,
domestically, and Brazil, Ireland, Israel, Malaysia, and Germany,
internationally. We will continue to selectively seek other acquisition
opportunities. We believe that acquisitions can strengthen our market position
by expanding our
1
<PAGE>
geographic presence, enlarging our target OEM customer base, broadening our
service offerings and expanding our management team.
We are a Delaware corporation incorporated in 1996. Our principal executive
offices are located at 274 Cedar Hill Road, Marlborough, Massachusetts 01752 and
our telephone number is (508) 485-0275.
THE OFFERING
The following assumes that the underwriters do not exercise the option we
have granted them to purchase additional shares in this offering. Please see
"Underwriting."
<TABLE>
<S> <C>
Common stock offered by Century.............. 4,000,000 shares
Common stock to be outstanding after the
offering................................... 16,787,325 shares
Use of proceeds.............................. To pay down existing indebtedness and for
working capital and general corporate
purposes, including possible acquisitions.
Nasdaq National Market Symbol................ CEMI
</TABLE>
This information and, unless otherwise noted, the information throughout
this prospectus is based upon our shares of common stock outstanding as of March
31, 1999 and gives effect to the conversion of all outstanding shares of our
convertible preferred stock into 4,337,900 shares of our common stock
automatically upon the closing of this offering. This information excludes:
- 1,283,405 shares subject to options outstanding at a weighted average
exercise price of $2.34 per share;
- 187,397 shares subject to warrants outstanding at a weighted average
exercise price of $5.12 per share; and
- 864,500 additional shares that could be issued under our stock option
plan.
2
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following tables summarize selected historical and pro forma financial
data for our business. The pro forma as adjusted statement of operations data
give effect to the acquisition of Amitek and this offering as if each had
occurred on July 1, 1997. The pro forma balance sheet data give effect to the
Amitek acquisition as if it had occurred on March 31, 1999. The pro forma as
adjusted balance sheet data give effect to the application of the estimated net
proceeds from the sale of common stock in this offering and the conversion of
all outstanding convertible preferred stock to common stock. You should read
this information with the discussion in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our consolidated financial
statements and notes to those statements, our unaudited pro forma financial data
and the related notes and the audited financial statements of Amitek and the
notes to those statements and unaudited pro forma financial data.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, NINE MONTHS ENDED MARCH 31,
--------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
EIGHT MONTHS PRO FORMA PRO FORMA
ENDED JUNE 30, AS ADJUSTED AS ADJUSTED
1996 1997 1998 1998 1998 1999 1999
--------------- --------- --------- ----------- --------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Net sales........................... $ 11,450 $ 70,744 $ 69,945 $ 106,989 $ 49,619 $ 84,045 $ 121,126
Cost of sales....................... 10,782 63,428 65,079 97,788 46,426 75,178 108,505
------- --------- --------- ----------- --------- ----------- -----------
Gross profit........................ 668 7,316 4,866 9,201 3,193 8,867 12,621
------- --------- --------- ----------- --------- ----------- -----------
Operating costs and expenses:
Selling, marketing, general and
administrative expenses......... 1,109 2,493 6,007 8,676 4,282 5,293 6,913
Stock compensation expense........ -- 1,775 1,186 1,186 1,186 -- --
Goodwill write off................ -- -- 7,489 7,489 7,489 -- --
Goodwill amortization............. -- 788 -- 1,864 -- -- 1,398
------- --------- --------- ----------- --------- ----------- -----------
Operating income (loss)............. (441) 2,260 (9,816) (10,014) (9,764) 3,574 4,310
------- --------- --------- ----------- --------- ----------- -----------
Other (income) expenses:
Interest expense, net............. 202 558 1,136 941 770 1,271 1,217
Other, net........................ (3) (26) (280) (280) (134) (185) (185)
------- --------- --------- ----------- --------- ----------- -----------
Income (loss) before income taxes... (640) 1,728 (10,672) (10,675) (10,400) 2,488 3,278
Income tax expense (benefit)........ -- 1,451 (218) 527 (209) 945 1,820
------- --------- --------- ----------- --------- ----------- -----------
Net income (loss)................... $ (640) $ 277 $ (10,454) $ (11,202) $ (10,191) $ 1,543 $ 1,458
------- --------- --------- ----------- --------- ----------- -----------
------- --------- --------- ----------- --------- ----------- -----------
Net income (loss) per
share--basic...................... $ (0.10) $ 0.03 $ (1.33) $ (0.64) $ (1.14) $ 0.24 $ 0.09
------- --------- --------- ----------- --------- ----------- -----------
------- --------- --------- ----------- --------- ----------- -----------
Net income (loss) per
share--diluted.................... $ (0.10) $ 0.03 $ (1.33) $ (0.64) $ (1.14) $ 0.13 $ 0.08
------- --------- --------- ----------- --------- ----------- -----------
------- --------- --------- ----------- --------- ----------- -----------
Weighted average common shares
outstanding--basic................ 6,256 9,889 7,870 17,404 8,956 6,489 16,954
Weighted average common shares
outstanding--diluted.............. 6,256 9,889 7,870 17,404 8,956 11,592 17,720
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
-----------------------------------
<S> <C> <C> <C>
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- -----------
BALANCE SHEET DATA:
Cash............................................................................ $ 2,715 $ 3,645 $ 7,672
Working capital................................................................. 3,036 (6,850) 18,411
Total assets.................................................................... 57,031 109,871 113,898
Total debt...................................................................... 15,933 44,185 15,732
Total stockholders' equity...................................................... 16,598 30,619 63,099
</TABLE>
3
<PAGE>
RISK FACTORS
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. IN ADDITION TO THE OTHER
INFORMATION IN THIS PROSPECTUS, YOU SHOULD CAREFULLY CONSIDER THE RISKS
DESCRIBED BELOW BEFORE YOU DECIDE TO PURCHASE OUR COMMON STOCK. THE RISKS AND
UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY ONES FACING OUR COMPANY.
ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN TO US OR THAT WE
CURRENTLY BELIEVE TO BE IMMATERIAL MAY ALSO ADVERSELY AFFECT OUR BUSINESS IN THE
FUTURE. IF ANY OF THE FOLLOWING RISKS WERE TO OCCUR, OUR BUSINESS, FINANCIAL
CONDITION OR RESULTS OF OPERATIONS WOULD LIKELY SUFFER. IN THAT EVENT, THE
TRADING PRICE OF OUR COMMON STOCK COULD DECLINE AND YOU COULD LOSE ALL OR PART
OF YOUR INVESTMENT.
RISKS RELATED TO OUR BUSINESS AND INDUSTRY
WE HAVE EXPERIENCED RECENT SIGNIFICANT GROWTH IN A SHORT PERIOD OF TIME AND MAY
HAVE TROUBLE MANAGING OUR EXPANSION
We have experienced significant growth since 1996 and intend to pursue
continued growth through internal expansion and acquisitions. Such growth has
placed and will continue to place a significant strain on management and
financial resources, and on our management information, operating and financial
systems. Our success will depend in part on our ability to manage this growth
effectively. To do so, we will need to:
- enhance our management information, operating and financial systems, and
internal controls;
- expand our management team;
- develop the skills of our operations managers and supervisors; and
- train, motivate, manage, retain and increase the number of our employees.
No assurances can be given that we will continue to grow. Our failure to grow or
to manage growth effectively could adversely affect our business and operating
results.
WE RELY ON TWO SIGNIFICANT CUSTOMERS AND THE LOSS OF EITHER OF THEM WOULD
ADVERSELY AFFECT OUR BUSINESS OPERATIONS
We have historically relied on a small number of customers to generate a
significant percentage of our net sales. Two customers currently account for a
substantial majority of our net sales. The loss of either of our two major
customers or a material reduction in the net sales produced by these customers
would adversely affect us. On a pro forma basis, giving effect to the
acquisition of Amitek, Nortel accounted for 54.7% of our total pro forma net
sales and Motorola accounted for 27.3% of our total pro forma net sales in the
nine months ended March 31, 1999. We expect to continue to depend on sales to
our largest customers. Any loss of our relationship with these customers or
material delay, cancellation or reduction of orders from these or other
significant customers could adversely affect our results of operations. For
example, our sales to 3Com decreased by $18.0 million from fiscal 1997 to fiscal
1998, as a result of the loss of production of certain products. In addition,
the insolvency or other inability of a significant customer to pay outstanding
receivables could adversely affect our results of operations and financial
condition.
In addition, we derive substantial revenues from a single product program
with Nortel. In the nine months ended March 31, 1999, all of our net sales to
Nortel were attributable to this product program. If Nortel were to cancel this
program or the product's life cycle were to wind down, our net sales would be
materially adversely affected.
4
<PAGE>
WE MAY EXPERIENCE DIFFICULTY IN INTEGRATING ACQUIRED BUSINESSES WHICH MAY
INTERRUPT OUR BUSINESS OPERATIONS
Since April 1998, we have made three acquisitions, including our recent
acquisition of Amitek. Amitek is the most significant acquisition we have made
to date. Acquisitions involve numerous risks, including some or all of the
following:
- difficulty in integrating operations, technologies, systems, and products
and services of acquired companies;
- diversion of management's attention;
- increased expenses and working capital requirements;
- entering markets in which we have no or limited prior experience and where
competitors in such markets have stronger market positions;
- potential loss of key employees and customers of acquired companies; and
- financial risks, such as
- potential liabilities of the acquired businesses;
- the dilutive effect of the issuance of additional equity securities;
- the incurrence of additional debt;
- the financial impact of amortizing or writing off goodwill and other
intangible assets involved in any transactions that are accounted for
using the purchase method of accounting; and
- possible adverse tax and accounting effects.
The difficulties of integrating acquired businesses may be further complicated
by geographic distances. The occurrence of any one or a combination of these
risks may adversely affect our ability to operate our business successfully and
produce consistent financial results. In addition, during the integration of an
acquired company, our financial performance may suffer from disruption of
operations and the financial impact of expenses necessary to close the
transaction and realize benefits from the acquisition.
WE MAY NOT BE ABLE TO IDENTIFY, FINANCE, AND CLOSE ANY FUTURE ACQUISITIONS
We expect to pursue acquisitions as part of our overall growth strategy.
Competition for attractive companies in our industry is substantial. In
executing this part of our strategy, we may experience difficulty in identifying
suitable acquisition candidates or in completing selected transactions. In
addition, our existing credit facilities restrict our ability to acquire the
assets or business of other companies. If we are able to identify acquisition
candidates, such acquisitions may be financed with cash or substantial
borrowings. The use of cash or borrowings may affect our financial liquidity. In
addition, we may choose to finance transactions with potentially dilutive
issuances of equity securities.
WE HAVE HAD RECENT OPERATING LOSSES
As of March 31, 1999, we had an accumulated deficit of $12.4 million. We
have had net losses in three of the last four fiscal years. We may not be
profitable in future periods. If we are not profitable, the market price of our
common stock would be adversely affected. For a discussion of our results of
operations, please turn to "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
5
<PAGE>
SHORTAGES OR PRICE FLUCTUATIONS IN COMPONENT PARTS SPECIFIED BY OUR CUSTOMERS
COULD DELAY PRODUCT SHIPMENT AND AFFECT OUR PROFITABILITY
A substantial portion of our sales are derived from "turnkey" sales. In
turnkey manufacturing, we provide both the materials and the manufacturing
services. As a result, we often bear the risk of fluctuations in materials
costs, scrap and excess inventory, all of which can affect our gross profit
margins. We are required to forecast our future needs based upon the anticipated
needs of our customers. Inaccuracies in making these forecasts or estimates
could result in a shortage of or an excess of materials, which would affect
production schedules, margins and profitability.
Many of the products we manufacture require one or more components that we
order from sole-source suppliers. Supply shortages for a particular component
can delay production of all products using that component or cause cost
increases in the services we provide. In addition, in the past some of the
materials we use, such as memory and logic devices, have been subject to
industry-wide shortages. As a result, suppliers have been forced to allocate
available quantities among their customers and we have not been able to obtain
all of the materials desired. Our inability to obtain these needed materials
could slow production or assembly, delay shipments to our customers and impact
profitability. Also, we may bear the risk of component price increases that
occur between periodic repricings during the term of a customer contract.
Accordingly, some component price increases could adversely affect our gross
profit margins.
LONG-TERM CONTRACTS ARE NOT TYPICAL IN OUR INDUSTRY AND REDUCTIONS,
CANCELLATIONS, OR DELAYS IN CUSTOMER ORDERS WOULD ADVERSELY AFFECT OUR
PROFITABILITY
As is typical in the electronic manufacturing services industry, we do not
obtain long-term purchase orders or commitments from our customers. Instead, we
work closely with customers to develop nonbinding forecasts of the future volume
of orders. Customers may cancel their orders, change production quantities from
forecast volumes or delay production for a number of reasons beyond our control.
Significant or numerous cancellations, reductions or delays in orders by
customers would have a material adverse effect on us. In addition, because many
of our costs are fixed, a reduction in customer demand can have an adverse
affect on our gross profit margins and operating income.
OUR INDUSTRY IS VERY COMPETITIVE AND OUR SUCCESS WILL DEPEND IN PART ON OUR
ABILITY TO COMPETE EFFECTIVELY
We are in a highly competitive industry. We compete against numerous other
domestic and foreign providers of electronic manufacturing services, some of
which are more established in the industry and have substantially greater
revenues or resources than we do. Competition could cause price reductions,
reduced profits or losses, or loss of market share, any of which could
materially adversely affect us. To compete effectively, we must:
- provide technologically advanced manufacturing services;
- maintain strict quality standards;
- offer geographic flexibility in production and delivery;
- respond flexibly and rapidly to customers' design and schedule changes;
and
- deliver products on a reliable basis at competitive prices.
Our inability to do any of these things could materially adversely affect us. We
also face competition from the manufacturing operations of our current and
potential customers who are continually evaluating the relative merits of
internal manufacturing versus outsourcing. A shift away from outsourcing on
behalf of our current or potential customers could materially adversely impact
our earnings. Finally, a number of OEMs, including some of our customers, are
currently focusing on
6
<PAGE>
divesting some or all of their manufacturing facilities. These divestitures may
adversely affect us if our competitors acquire these facilities. Among other
things, this may adversely affect our ability to continue as an electronic
manufacturing service provider to such OEMs.
FLUCTUATIONS OR SLOWDOWNS IN THE ELECTRONICS OR TECHNOLOGY INDUSTRIES COULD
ADVERSELY AFFECT OUR BUSINESS
Factors affecting the electronics industry in general could have a material
adverse effect on our customers and, as a result, on us. Our financial
performance depends on our customers' continued growth, viability and financial
stability. Our customers, in turn, substantially depend on the growth of the
communications and networking industries. These industries are characterized by
rapidly changing technologies and short product life cycles. These industries
have also experienced pricing and margin pressures. A downturn in demand for
technology products, such as cellular phones or cable modems, would adversely
affect our business. If our customers' existing demand changes, our business
would likely be adversely affected. In addition, we are currently seeking to add
emerging technology companies to our customer base. If there is a slowdown in
technological development, or new technological companies do not emerge, our
ability to attract new customers or expand our customer base may be limited. Our
success will depend to a significant extent on the success achieved by our
customers in developing and marketing their products, some of which are new and
untested. If our customers' products become obsolete or fail to gain widespread
commercial acceptance, our business may be materially and adversely affected.
Our customers' markets are also subject to economic cycles and are likely to
experience recessionary periods in the future. A recession in the industries we
serve could have a material adverse effect on us.
WE ARE SUBJECT TO A VARIETY OF ENVIRONMENTAL LAWS WHICH COULD ADVERSELY AFFECT
OUR BUSINESS OPERATIONS
In addition to other regulatory requirements affecting our business, we are
subject to a variety of federal, state and local regulatory requirements
relating to environmental, waste management, health and safety matters. If we
fail to comply with any present or future regulations, we could be subject to
future liabilities or the suspension of production. In addition, such
regulations could restrict our ability to expand our facilities or could require
us to acquire costly equipment, or to incur other significant expenses to comply
with environmental regulations.
WE MAY EXPERIENCE VARIABILITY IN OUR ANNUAL AND QUARTERLY RESULTS
Our operating results have fluctuated in the past. Our annual and quarterly
results may vary significantly depending on various factors, many of which are
beyond our control. These factors include:
- variations in the timing and volume of customer orders relative to our
capacity due to, among other things,
- the customer's attempts to balance its inventory;
- changes in the customer's manufacturing strategy; and
- variation in demand for the customer's products;
- customer introduction and market acceptance of new products;
- changes in demand for our customers' products;
- the timing of our expenditures in anticipation of future orders;
- our effectiveness in managing manufacturing processes;
- changes in competitive and economic conditions generally or in our
customers' markets;
7
<PAGE>
- the timing of, and the price we pay for, acquisitions and related
integration costs; and
- the impact of any accounting issues arising in connection with past or
future acquisitions, including the amortization or write-off of goodwill.
In addition, our customers typically do not commit to firm production
schedules for more than 30 to 90 days in advance. Accordingly, we cannot
forecast the level of customer orders with certainty. This makes it difficult to
schedule production and maximize utilization of our manufacturing capacity. To
the extent we have too little or too great capacity to meet actual customer
needs, our results of operations will be adversely affected.
Because of these factors, you should not rely on quarter-to-quarter
comparisons of our results of operations as an indication of our future
performance. It is possible that, in future periods, our results may be below
the expectations of public market analysts and investors. This could cause the
trading price of our common stock to decline.
WE MUST MAINTAIN OUR TECHNOLOGICAL AND MANUFACTURING PROCESS EXPERTISE TO BE
COMPETITIVE
The market for our manufacturing services is characterized by rapidly
changing technology and continuing process development. We are continually
evaluating the advantages and feasibility of new manufacturing processes. We
believe that our future success will depend upon our ability to develop and
provide manufacturing services which meet our customers' changing needs,
maintain technological leadership, and successfully anticipate or respond to
technological changes in manufacturing processes on a cost-effective and timely
basis. As technologies evolve and product life cycles shrink, we will need to
develop new manufacturing solutions to reduce the time between a customer's
product idea and the time it is sold commercially. If our efforts at process
development are not successful, our ability to be competitive may be hindered,
and we may be adversely affected.
WE MAY EXPERIENCE YEAR 2000 PROBLEMS WHICH COULD ADVERSELY AFFECT OUR REGULAR
BUSINESS OPERATIONS
Many existing computer programs use only two digits to identify a year in
the date field. These programs were designed and developed without considering
the impact of the upcoming change in century. If not corrected, many computer
applications could fail or create erroneous results by or at the Year 2000. We
are actively taking steps to ensure that our information technology
infrastructure and business system applications, manufacturing equipment and
systems will be Year 2000 compliant. We are also seeking assurances of Year 2000
compliance from our suppliers, customers and other third parties with whom we
conduct business. However, we cannot be certain that our efforts will be
appropriate, adequate or complete. If Year 2000 problems should occur with our
systems, or the systems of our suppliers, customers or third parties with whom
we do business or the systems of entities we have acquired or may acquire in the
future, our business operations and financial results could be adversely
affected. Please see "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
PROVISIONS IN OUR CHARTER DOCUMENTS AND STATE LAW MAY MAKE IT HARDER FOR OTHERS
TO OBTAIN CONTROL OF US EVEN THOUGH SOME STOCKHOLDERS MIGHT CONSIDER SUCH A
DEVELOPMENT FAVORABLE
Provisions in our charter and bylaws may have the effect of delaying or
preventing a change of control or changes in our management that stockholders
consider favorable or beneficial. If a change of control or change in management
is delayed or prevented, the market price of our common stock could suffer.
Please see "Description of Securities."
8
<PAGE>
OUR DIRECTORS, EXECUTIVE AND KEY EMPLOYEES HAVE SUBSTANTIAL CONTROL OVER OUR
BUSINESS OPERATIONS
Our directors, executive officers and key employees currently beneficially
own in the aggregate approximately 58% of the outstanding shares of our common
stock, and after the offering will beneficially own approximately 45% of the
outstanding shares of our common stock. Accordingly, they will have significant
influence in determining the outcome of any corporate transaction or other
matter submitted to the stockholders for approval, including mergers,
consolidations and the sale of all or substantially all of our assets, and also
the power to prevent or cause a change in control. The interests of these
stockholders may differ from your interests or the interests of other
stockholders.
OUR BUSINESS WILL SUFFER IF WE ARE UNABLE TO ATTRACT AND RETAIN KEY PERSONNEL
Recruiting personnel in the electronic manufacturing services industry is
highly competitive. We depend on the services of our senior key executives,
including Leslie J. Sainsbury, Ian McEwan and Mark Lombardo. In particular, our
success depends on the continued efforts of several senior executives who have
strong relationships with our existing customers. Our ability to maintain and
develop these customer relationships is heavily dependent on these executives.
For example, at Amitek, Mr. Lombardo's continued services are critical to
Amitek's relationship with Motorola. The loss of the services of one or several
of these key employees or an inability to attract or retain qualified employees
could result in the loss of customers or otherwise adversely affect our ability
to operate our business successfully.
RISKS PARTICULAR TO OUR INTERNATIONAL OPERATIONS COULD ADVERSELY AFFECT OUR
OVERALL RESULTS
Pro forma net sales generated outside of the United States were
approximately 34.7% during fiscal 1998 and 11.1% for the nine months ended March
31, 1999. Our manufacturing operations are located in Thailand, the United
Kingdom and the United States. The geographical distances between Asia, the
United States and Europe create a number of logistical and communications
challenges. In addition, we purchase a substantial portion of our materials from
international suppliers. International operations are subject to inherent risks,
which may adversely affect us, including:
- fluctuations in the value of currencies;
- changes in labor conditions and difficulties in staffing and managing
foreign operations;
- longer payment cycles;
- greater difficulty in collecting accounts receivable;
- unexpected changes in and the burdens and costs of compliance with a
variety of foreign laws;
- political and economic instability;
- increases in duties and taxation;
- imposition of restrictions on currency conversion or the transfer of
funds;
- limitations on imports or exports;
- expropriation of private enterprises; and
- reversal of the current policies (including favorable tax and lending
policies) encouraging foreign investment or foreign trade by our host
countries.
The attractiveness of our services to our customers can be affected by
changes in U.S. trade policies, such as favorable trade status and trade
preferences for certain Asian nations. In addition, our international operations
are subject to significant political, economic and legal uncertainties outside
the United States. In the recent past, for instance, Thailand has experienced
economic turmoil and a
9
<PAGE>
devaluation of its currency. The risks related to such economic turmoil could
result in the reversal of current policies encouraging foreign investment and
trade, restrictions on the transfer of funds overseas or other domestic economic
problems that could adversely affect us.
Our success will depend among other things on successful expansion into new
foreign markets in order to offer our customers lower production options. In our
experience, entry into new international markets requires considerable
management time as well as start-up expenses for market development, hiring and
establishing office facilities before any significant revenues are generated. As
a result, operations in a new market may operate at low margins or may be
unprofitable.
RISKS RELATED TO THIS OFFERING
WE MAY USE SOME OF THE PROCEEDS OF THIS OFFERING IN WAYS WITH WHICH YOU MAY NOT
AGREE
We have not committed all of the net proceeds of this offering to a specific
purpose. Our management will therefore have significant flexibility in applying
a portion of the net proceeds of this offering, including ways with which
stockholders may disagree. If we do not apply the funds we receive effectively,
our accumulated deficit will increase and we may lose significant business
opportunities. Please see "Use of Proceeds."
OUR STOCK PRICE COULD BE VOLATILE AND COULD DROP UNEXPECTEDLY FOLLOWING THIS
OFFERING
Following this offering, the price at which our common stock will trade is
likely to be highly volatile and may fluctuate substantially. The trading price
of our common stock could fluctuate widely in response to:
- quarterly and annual variations in our operations and financial results
and our ability to meet analysts' expectations;
- announcements by us or our competitors of technological innovations, new
products, new contracts or acquisitions;
- changes in our prices or the prices of our competitors' products and
services;
- changes in our product mix;
- changes in our growth rate as a whole or for a particular portion of our
business;
- general conditions in our industry; and
- systemic fluctuations in the stock markets.
In addition, the stock market has from time to time experienced significant
price and volume fluctuations that have affected the market prices for the
securities of technology companies, including companies in the electronic
manufacturing services industry. Such fluctuations have often been unrelated to
the companies' operating performance. As a result, investors in our common stock
may experience a decrease in the value of their common stock regardless of our
operating performance or prospects.
THERE IS CURRENTLY NO PUBLIC MARKET FOR OUR COMMON STOCK
Prior to the offering, there has been no public market for our common stock.
We cannot assure you that an active trading market for our common stock will
develop or be sustained after the offering. The initial public offering price
for our common stock will be determined by negotiations between the underwriters
and us. We cannot assure you that the initial public offering price will
correspond to the price at which our common stock will trade in the public
market subsequent to the offering or that the price of our common stock
available in the public market will reflect our actual financial performance.
10
<PAGE>
IF OUR STOCK PRICE IS VOLATILE, WE MAY BECOME SUBJECT TO SECURITIES LITIGATION
WHICH IS EXPENSIVE AND COULD RESULT IN A DIVERSION OF RESOURCES
In the past, following periods of volatility in the market price of a
particular company's securities, securities class action litigation has often
been brought against that company. Many companies have been subject to this type
of litigation in the past. We may also become involved in this type of
litigation. Litigation is often expensive and diverts management's attention and
resources. Such litigation, if it were to occur, could have a material adverse
effect upon our business, financial condition and results of operations.
SHARES ELIGIBLE FOR PUBLIC SALE AFTER THIS OFFERING COULD ADVERSELY AFFECT OUR
STOCK PRICE
The market price of our common stock could decline as a result of sales by
our existing stockholders of shares of common stock in the market after this
offering, or the perception that these sales could occur. These sales also might
make it difficult for us to sell equity securities in the future at a time and
at a price that we deem appropriate. See "Shares Eligible For Future Sale." In
addition, some existing stockholders have the ability to require us to register
their shares. Please see "Description of Securities."
YOU WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION
The initial public offering price per share will significantly exceed the
net tangible book value per share. Accordingly, investors purchasing shares in
this offering will suffer immediate and substantial dilution of their
investment. For additional information about this dilution, please turn to
"Dilution."
11
<PAGE>
USE OF PROCEEDS
We estimate that our net proceeds from our sale of common stock will be
approximately $32.5 million, assuming an initial public offering price of $9.00
and after deducting the estimated underwriting discounts and offering expenses
payable by us. If the underwriters' overallotment option is exercised in full,
we estimate that our net proceeds will be approximately $37.5 million.
We expect to use the net proceeds from this offering for the following
purposes:
- approximately $7.2 million to pay notes issued as a portion of the
consideration for the Amitek acquisition. These notes bear interest at
prime plus 1% and mature in five years but is payable earlier upon an
initial public offering;
- approximately $1.3 million owing to four current or former Amitek
employees. These amounts bear interest at prime plus 1% and mature
September 2004 but are payable earlier upon an initial public offering;
- approximately $13.1 million to pay down the Amitek revolving credit
facility. This indebtedness bears interest at prime plus 1.5% and matures
June 2001;
- approximately $8.1 million to pay down indebtedness under our revolving
credit facility. This indebtedness bears interest at prime plus 1% and
matures December 2001. A portion of such indebtedness was used to pay the
purchase price and transaction costs in the Amitek acquisition;
- approximately $965,000 to pay the unpaid balance of a fee owed by Amitek
to Advest for Advest's investment banking services to Amitek in connection
with its acquisition by Century;
- to make future acquisitions, although we currently have no agreements or
understandings about any specific acquisition; and
- for working capital and general corporate purposes.
With respect to the balance of the net proceeds, we have not determined the
amount of net proceeds to be used for the other purposes indicated. Accordingly,
our management will have significant flexibility in applying the net proceeds of
the offering. Pending any use, we will invest our net proceeds of this offering
in short-term, investment-grade interest-bearing securities.
DIVIDEND POLICY
We have never declared or paid a cash dividend on our common stock, and we
do not intend to do so in the foreseeable future. Our existing credit facilities
restrict our ability to pay dividends. We currently intend to retain earnings to
finance future operations and expansion. Please see "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
12
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999:
- on an actual basis;
- on a pro forma basis to give effect to our acquisition of Amitek as if it
occurred on March 31, 1999; and
- on a pro forma basis as adjusted to reflect the conversion of all
outstanding convertible preferred stock, the application of the estimated
net proceeds from the sale of common stock in this offering, assuming an
initial public offering price of $9.00 per share and after deducting the
estimated underwriting discount and estimated offering expenses payable by
us.
You should read this information together with our consolidated financial
statements and notes to those statements appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1999
-----------------------------------
(IN THOUSANDS)
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- -----------
<S> <C> <C> <C>
Long-term obligations......................................................... $ 4,728 $ 15,030 $ 7,811
Stockholders' equity
Series A preferred stock, $0.01 par value per share; 3,726,027 shares
authorized (actual and pro forma); 3,671,233 shares issued and outstanding
(actual and pro forma); no shares authorized, issued and outstanding (pro
forma as adjusted).......................................................... 13,300 13,300 --
Series B preferred stock $0.01 par value per share; 666,667 shares authorized,
issued and outstanding (actual and pro forma); no shares authorized, issued
and outstanding (pro forma as adjusted)..................................... 4,000 4,000 --
Common stock, $0.01 par value per share; 17,593,607 shares authorized
(actual); 17,593,607 shares authorized (pro forma); 22,500,000 shares
authorized (pro forma as adjusted); 6,321,877 shares, issued and outstanding
(actual); 8,449,425 shares, issued and outstanding (pro forma); 16,787,325
shares, issued and outstanding (pro forma as adjusted)...................... 63 84 168
Additional paid-in capital.................................................... 11,696 25,696 75,392
Accumulated deficit........................................................... (12,372) (12,372) (12,372)
Foreign currency translation (loss)........................................... (89) (89) (89)
--------- ----------- -----------
Total stockholders' equity.................................................. 16,598 30,619 63,099
--------- ----------- -----------
Total capitalization........................................................ $ 21,326 $ 45,649 $ 70,910
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
13
<PAGE>
DILUTION
At March 31, 1999, our pro forma net tangible book value was approximately
$2.2 million, or $0.26 per share of common stock. Our pro forma net tangible
book value per share of common stock represents our total tangible assets less
total liabilities divided by the total number of shares of our common stock
outstanding at such date, in each case giving effect to the acquisition of
Amitek.
After giving effect to the sale of shares of our common stock in this
offering, our pro forma net tangible book value as of March 31, 1999 would have
been approximately $34.7 million or $2.07 per share. This represents an
immediate increase in pro forma net tangible book value of $1.81 per share to
the existing stockholders and an immediate dilution in pro forma net tangible
book value of $6.93 per share to new investors purchasing shares in this
offering.
The following table illustrates the dilution in pro forma net tangible book
value per share to new investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............................. $ 9.00
Pro forma net tangible book value per share as of March 31, 1999.......... $ 0.26
Increase in net tangible book value per share attributable to new
investors............................................................... 1.81
---------
Pro forma net tangible book value per share after the offering (after
deducting underwriting commissions and estimated expenses of the offering
payable by us)............................................................ 2.07
---------
Dilution per share to new investors......................................... $ 6.93
---------
---------
</TABLE>
If the initial public offering price is higher or lower, the dilution to new
investors will be greater or less.
The table below summarizes, as of March 31, 1999 on a pro forma basis, the
difference between:
- the number of shares of common stock purchased from us by our existing
stockholders since our inception;
- the number of shares of common stock purchased by new investors in this
offering;
- the aggregate cash consideration paid by existing stockholders and to be
paid by new investors; and
- the average purchase price per share paid by the existing stockholders and
to be paid by the new investors.
The table below assumes an initial public offering price of $9.00 per share
before deducting underwriting discounts and commissions and estimated offering
expenses payable by us.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............................ 12,787,325 76.2% $ 43,080,000 54.5% $ 3.37
New investors.................................... 4,000,000 23.8 36,000,000 45.5 9.00
------------ ----- ------------- ----- ------
Total........................................ 16,787,325 100% $ 79,080,000 100% $ 4.71
------------ ----- ------------- ----- ------
------------ ----- ------------- ----- ------
</TABLE>
The information in this table assumes that the underwriters' over-allotment
option and stock options and warrants are not exercised. We have outstanding
options and warrants exercisable for a total of 1,470,802 shares of our common
stock at a weighted average exercise price of $2.69 per share. To the extent any
of those options or warrants are exercised, there would be further dilution to
new investors.
14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
You should read the following selected financial data in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and notes to those
statements and other financial information included elsewhere in this
prospectus. In 1995, we changed our fiscal year end from October 31 to June 30
beginning June 30, 1996. The statement of operations data for the years ended
October 31, 1993, 1994 and 1995, for the eight month period ended June 30, 1996,
and for the years ended June 30, 1997 and 1998, and the related balance sheet
data are derived from our audited financial statements that have been audited by
KPMG LLP. The statement of operations data and related balance sheet data for
the nine month periods ended March 31, 1998 and 1999 are derived from our
unaudited financial statements. In the opinion of management, the unaudited
financial statements have been prepared on a basis consistent with audited
financial statements and include all adjustments, which are only normal
recurring adjustments, necessary for a fair statement of the financial position
and results of operations for the unaudited periods. Interim results are not
necessarily indicative of the results that may be achieved for the entire fiscal
year. The historical results presented herein are not necessarily indicative of
future results. These historical results do not include the operations of
Amitek.
<TABLE>
<CAPTION>
EIGHT NINE
MONTHS MONTHS
YEAR ENDED OCTOBER 31, ENDED YEAR ENDED JUNE 30, ENDED
JUNE 30, MARCH 31,
------------------------------- ----------- -------------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1993 1994 1995 1996 1997 1998 1998
--------- --------- --------- ----------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................................... $ 4,095 $ 8,482 $ 9,070 $ 11,450 $ 70,744 $ 69,945 $ 49,619
Cost of sales.................................. 3,456 6,926 8,814 10,782 63,428 65,079 46,426
--------- --------- --------- ----------- --------- --------- ---------
Gross profit................................... 639 1,556 256 668 7,316 4,866 3,193
--------- --------- --------- ----------- --------- --------- ---------
Operating costs and expenses:
Selling, marketing, general and
administrative expenses.................... 666 1,171 1,244 1,109 3,281 6,007 4,282
Stock compensation expense................... -- -- 98 -- 1,775 1,186 1,186
Goodwill write off........................... -- -- -- -- -- 7,489 7,489
--------- --------- --------- ----------- --------- --------- ---------
Operating income (loss)........................ (27) 385 (1,086) (441) 2,260 (9,816) (9,764)
--------- --------- --------- ----------- --------- --------- ---------
Other (income) expenses:
Interest expense, net........................ 118 197 348 202 558 1,136 770
Other, net................................... -- (22) -- (3) (26) (280) (134)
--------- --------- --------- ----------- --------- --------- ---------
Income (loss) before income taxes.............. (145) 210 (1,434) (640) 1,728 (10,672) (10,400)
Income tax expense (benefit)................... -- 39 (16) -- 1,451 (218) (209)
--------- --------- --------- ----------- --------- --------- ---------
Net income (loss).............................. $ (145) $ 171 $ (1,418) $ (640) $ 277 $ (10,454) $ (10,191)
--------- --------- --------- ----------- --------- --------- ---------
--------- --------- --------- ----------- --------- --------- ---------
Net income (loss) per share--basic............. $ (0.03) $ 0.03 $ (0.23) $ (0.10) $ 0.03 $ (1.33) $ (1.14)
--------- --------- --------- ----------- --------- --------- ---------
--------- --------- --------- ----------- --------- --------- ---------
Net income (loss) per share--diluted........... $ (0.03) $ 0.03 $ (0.23) $ (0.10) $ 0.03 $ (1.33) $ (1.14)
--------- --------- --------- ----------- --------- --------- ---------
--------- --------- --------- ----------- --------- --------- ---------
Weighted average common shares
outstanding--basic............................. 5,066 6,092 6,256 6,256 9,889 7,870 8,956
Weighted average common shares
outstanding--diluted........................... 5,066 6,092 6,256 6,256 9,889 7,870 8,956
BALANCE SHEET DATA:
Cash........................................... $ 5 $ 28 $ 2 $ 385 $ 2,556 $ 1,630 $ 3,376
Working capital................................ (40) 49 (299) (688) (1,092) 403 831
Total assets................................... 3,026 4,977 6,136 6,475 46,348 36,821 39,670
Total debt..................................... 1,349 2,237 2,352 2,099 10,284 9,851 12,762
Total stockholders' equity..................... 981 1,252 599 305 13,901 12,128 9,834
<CAPTION>
<S> <C>
1999
---------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................................... $ 84,045
Cost of sales.................................. 75,178
---------
Gross profit................................... 8,867
---------
Operating costs and expenses:
Selling, marketing, general and
administrative expenses.................... 5,293
Stock compensation expense................... --
Goodwill write off........................... --
---------
Operating income (loss)........................ 3,574
---------
Other (income) expenses:
Interest expense, net........................ 1,271
Other, net................................... (185)
---------
Income (loss) before income taxes.............. 2,488
Income tax expense (benefit)................... 945
---------
Net income (loss).............................. $ 1,543
---------
---------
Net income (loss) per share--basic............. $ 0.24
---------
---------
Net income (loss) per share--diluted........... $ 0.13
---------
---------
Weighted average common shares
outstanding--basic............................. 6,489
Weighted average common shares
outstanding--diluted........................... 11,592
BALANCE SHEET DATA:
Cash........................................... $ 2,715
Working capital................................ 3,036
Total assets................................... 57,031
Total debt..................................... 15,933
Total stockholders' equity..................... 16,598
</TABLE>
15
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
The following unaudited pro forma combined financial statements as of and
for the nine months ended March 31, 1999 and for the twelve months ended June
30, 1998 give effect to the acquisition of Amitek Corporation and this offering.
The pro forma combined balance sheet presents our financial position as if the
acquisition of Amitek and the offering had occurred on March 31, 1999. The pro
forma combined statements of operations present results for us as if the
acquisition of Amitek and the offering had occurred on July 1, 1997 for the year
ended June 30, 1998 results and July 1, 1998 for the nine months ended March 31,
1999 results.
The pro forma combined financial statements include, in management's
opinion, all material adjustments necessary to reflect the acquisition of
Amitek. The pro forma combined financial statements do not represent the actual
historical results of our operations, or of Amitek, nor do they purport to
predict or indicate our financial position or results of operations at any
future date or for any future period. The pro forma combined financial
statements should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," our financial
statements and notes to those statements and Amitek's financial statements and
notes to those statements included elsewhere in the prospectus.
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JUNE 30, 1998
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PRO FORMA PRO FORMA
PRO FORMA FOR OFFERING AS
CENTURY ACTUAL AMITEK ACTUAL ADJUSTMENTS ACQUISITION ADJUSTMENTS ADJUSTED
-------------- ------------- ------------- ----------- ------------- -----------
Net sales........................ $ 69,945 $ 37,044 -- $ 106,989 -- $ 106,989
Cost of sales.................... 65,079 33,847 (1,138)(d) 97,788 -- 97,788
-------------- ------------- ------------- ----------- ------------- -----------
Gross profit..................... 4,866 3,197 1,138 9,201 -- 9,201
-------------- ------------- ------------- ----------- ------------- -----------
Operating costs and expenses:
Selling, marketing, general and
administrative expenses...... 6,007 2,125 544(d) 8,676 -- 8,676
Stock compensation expense..... 1,186 -- -- 1,186 -- 1,186
Goodwill write off............. 7,489 -- -- 7,489 -- 7,489
Goodwill amortization.......... -- -- 1,864(e) 1,864 -- 1,864
-------------- ------------- ------------- ----------- ------------- -----------
Operating (loss) income.......... (9,816) 1,072 (1,270) (10,014) -- (10,014)
-------------- ------------- ------------- ----------- ------------- -----------
Other (income) expenses:
Interest expense, net.......... 1,136 453 1,226(c) 2,815 (1,717)(i) 941
(157)(j)
Other income, net.............. (280) -- -- (280) -- (280)
-------------- ------------- ------------- ----------- ------------- -----------
Income (loss) before income
taxes.......................... (10,672) 619 (2,496) (12,549) 1,874 (10,675)
Income tax expense (benefit)..... (218) -- (5)(h) (223) 750(h) 527
-------------- ------------- ------------- ----------- ------------- -----------
Net income (loss)................ $ (10,454) $ 619 $ (2,491) $ (12,326) $ 1,124 $ (11,202)
-------------- ------------- ------------- ----------- ------------- -----------
-------------- ------------- ------------- ----------- ------------- -----------
Net income (loss) per share
(basic and diluted)............ $ (1.33) $ (1.23) $ (0.64)
-------------- ----------- -----------
-------------- ----------- -----------
Weighted average common shares
outstanding.................... 7,870 9,998 17,404
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED MARCH 31, 1999
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PRO FORMA PRO FORMA
PRO FORMA FOR OFFERING AS
CENTURY ACTUAL AMITEK ACTUAL ADJUSTMENTS ACQUISITION ADJUSTMENTS ADJUSTED
-------------- ------------- ------------- ----------- ------------- -----------
Net sales........................ $ 84.045 $ 37,081 -- $ 121,126 -- $ 121,126
Cost of sales.................... 75,178 34,470 (1,143)(d) 108,505 -- 108,505
-------------- ------------- ------------- ----------- ------------- -----------
Gross profit..................... 8,867 2,611 1,143 12,621 -- 12,621
-------------- ------------- ------------- ----------- ------------- -----------
Operating costs and expenses:
Selling, marketing, general and
administrative expenses...... 5,293 1,212 408(d) 6,913 -- 6,913
Goodwill amortization.......... -- -- 1,398(e) 1,398 -- 1,398
-------------- ------------- ------------- ----------- ------------- -----------
Operating income................. 3,574 1,399 (663) 4,310 -- 4,310
-------------- ------------- ------------- ----------- ------------- -----------
Other (income) expenses:
Interest expense, net............ 1,271 695 1,129(c) 3,095 (1,760)(i) 1,217
-------------- ------------- ------------- ----------- ------------- -----------
Other income, net................ (185) -- -- (185) (118)(j) (185)
-------------- ------------- ------------- ----------- ------------- -----------
Income before income taxes....... 2,488 704 (1,792) 1,400 1,878 3,278
Income tax expense............... 945 -- 124(h) 1,069 751(h) 1,820
-------------- ------------- ------------- ----------- -------------
Net income....................... $ 1,543 $ 704 $ (1,916) $ 331 $ 1,127 $ 1,458
-------------- ------------- ------------- ----------- ------------- -----------
-------------- ------------- ------------- ----------- ------------- -----------
Net income per share--basic...... $ 0.24 $ 0.04 $ 0.09
-------------- ----------- -----------
-------------- ----------- -----------
Net income per share--diluted.... $ 0.13 $ 0.02 $ 0.08
-------------- ----------- -----------
-------------- ----------- -----------
Weighted average common shares
outstanding--basic............. 6,489 8,617 16,954
Weighted average common shares
outstanding--diluted........... 11,592 13,720 17,720
</TABLE>
17
<PAGE>
PRO FORMA COMBINED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PRO FORMA PRO FORMA
CENTURY PRO FORMA FOR OFFERING AS
ACTUAL AMITEK ACTUAL ADJUSTMENTS ACQUISITION ADJUSTMENTS ADJUSTED
------------- ------------- ------------- ----------- ------------- -----------
ASSETS
Current assets:
Cash................................. $ 2,715 $ 930 $ (5,654)(a) $ 3,645 $ 4,027(g) $ 7,672
5,654(c)
Accounts receivable, less allowance
for doubtful accounts.............. 22,110 9,275 -- 31,385 -- 31,385
Inventories.......................... 12,717 10,307 (339)(d) 22,685 -- 22,685
Prepaid expenses..................... 777 -- -- 777 -- 777
Receivable from stockholders and
affiliates......................... 323 1,556 (1,556)(l) 323 -- 323
Deferred income taxes................ 99 -- -- 99 -- 99
Other................................ -- 14 -- 14 -- 14
------------- ------------- ------------- ----------- ------------- -----------
Total current assets............... 38,741 22,082 (1,895) 58,928 4,027 62,955
Property, plant, equipment and land.... 16,756 4,530 -- 21,286 -- 21,286
Goodwill, net.......................... 461 -- 27,955(a) 28,416 -- 28,416
Other assets........................... 1,073 168 -- 1,241 -- 1,241
------------- ------------- ------------- ----------- ------------- -----------
Total assets........................... $ 57,031 $ 26,780 $ 26,060 $ 109,871 $ 4,027 $ 113,898
------------- ------------- ------------- ----------- ------------- -----------
------------- ------------- ------------- ----------- ------------- -----------
CURRENT LIABILITIES:
Revolving notes payable.............. 10,098 13,123 2,154(c) 25,375 (13,123)(g) 4,141
(8,111)(g)
Note payable......................... -- -- 3,500(c) 3,500 3,500
Payable to affiliates................ -- 7,121 (7,121)(d) -- -- --
Current portion of long term debt.... 472 62 -- 534 -- 534
Current portion of capital leases.... 1,093 667 -- 1,760 -- 1,760
Accounts payable..................... 22,159 785 6,782(d) 29,726 -- 29,726
Income taxes payable................. 373 -- -- 373 -- 373
Accrued expenses and other current
liabilities........................ 1,510 -- 3,000(a) 4,510 -- 4,510
------------- ------------- ------------- ----------- ------------- -----------
Total current liabilities.......... 35,705 21,758 8,315 65,778 (21,234) 44,544
Long term portion of bank term note.... 3,305 443 3,748 -- 3,748
Notes payable to stockholder........... -- 1,641 7,219 ( )(c 7,304 (7,219)(g) 85
(1,556)(l)
Capital leases payable, net of current
installments......................... 965 999 -- 1,964 -- 1,964
Deferred income taxes.................. 458 -- -- 458 -- 458
------------- ------------- ------------- ----------- ------------- -----------
40,433 24,841 13,978 79,252 (28,453) 50,799
STOCKHOLDERS' EQUITY
Series A preferred stock............... 13,300 -- -- 13,300 (13,300)(k) --
Series B preferred stock............... 4,000 -- -- 4,000 (4,000)(k)
Common stock........................... 63 1 21(a) 84 40(f) 168
(1)(b) 44(k)
Additional paid-in capital............. 11,696 2,678 13,276(a) 25,696 17,256(k) 75,392
724(a)
(2,678)(b) 32,440(f)
-- --
Accumulated deficit.................... (12,372) (740) 740(b) (12,372) -- (12,372)
Foreign currency translation loss...... (89) -- -- (89) -- (89)
------------- ------------- ------------- ----------- ------------- -----------
Total stockholders' equity............. 16,598 1,939 12,082 30,619 32,480 63,099
------------- ------------- ------------- ----------- ------------- -----------
Total liabilities and stockholders'
equity............................... $ 57,031 $ 26,780 $ 26,060 $ 109,871 $ 4,027 $ 113,898
------------- ------------- ------------- ----------- ------------- -----------
------------- ------------- ------------- ----------- ------------- -----------
</TABLE>
18
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(a) We acquired Amitek for aggregate merger consideration of approximately
$27,000, subject to adjustment. The acquisition is expected to result in an
excess of the purchase price over the historical net assets to be acquired
as follows:
<TABLE>
<S> <C>
Purchase price:
Cash..................................................................... $ 5,654
Issuance of 2,127,548 shares of common stock, par value $0.01
Common stock........................................................... 21
Additional paid-in capital............................................. 13,276
Value of vested options issued........................................... 724
Notes payable to former stockholders..................................... 7,219
---------
$ 26,894
---------
---------
Historical carrying value of net assets:
Total net assets......................................................... $ 1,939
Less: accrued transaction costs.......................................... (3,000)
---------
Historical carrying value of net assets acquired......................... (1,061)
---------
Excess of net purchase over assets acquired................................ $ 27,955
---------
---------
</TABLE>
The allocation of the Amitek purchase price is based on preliminary estimates
of fair value of the assets and liabilities. Final determination of the
allocation of the purchase price is currently being completed. Accordingly,
final amounts could differ from those used in those statements. However, the
impact of any differences is not anticipated to have a material effect on
our financial statements.
(b) To eliminate the historical net book value of Amitek:
<TABLE>
<S> <C>
Common stock............................................................... $ (1)
Additional paid-in capital................................................. (2,678)
Accumulated deficit........................................................ 740
---------
$ (1,939)
---------
---------
</TABLE>
(c) We incurred additional debt to finance our acquisition of Amitek. The terms
of the debt and adjustments are as follows:
<TABLE>
<CAPTION>
INTEREST EXPENSE
------------------------------
<S> <C> <C>
FOR THE YEAR FOR THE NINE
ENDED MONTHS ENDED
JUNE 30, 1998 MARCH 31, 1999
------------- ---------------
Term note-Suntrust
($3,500 at Prime +1%).................................................. $ 333 $ 306
Line of credit
($2,154 at Prime +1%).................................................. 209 193
Note payable to former stockholders
($7,219 at Prime +1%).................................................. 684 630
------ ------
$ 1,226 $ 1,129
------ ------
------ ------
</TABLE>
19
<PAGE>
(d) Prior to its acquisition, Amitek purchased all of its inventory from an
affiliated company which charged a fee equal to 5% of material cost. This
affiliated company was not acquired as part of the Amitek acquisition. As of
the date of the acquisitions; all of the employees of the affiliated
company's purchasing department became employees of Amitek.
These pro forma adjustments eliminate the effects of the 5% charge from the
affiliated company from Amitek's financial statements and recognize the cost
of the purchasing department.
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE NINE
AS OF ENDED MONTHS ENDED
MARCH 31, 1999 JUNE 30, 1998 MARCH 31, 1999
-------------- ------------- --------------
<S> <C> <C> <C>
Inventories............................................. $ (339) -- --
Payables to affiliate................................... (7,121) -- --
Accounts payable........................................ 6,782 -- --
Cost of sales........................................... -- $ (1,138) $ (1,143)
Selling, marketing, general and administrative.......... -- 544 408
</TABLE>
(e) To reflect the pro forma adjustments as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE NINE
ENDED MONTHS ENDED
JUNE 30, 1998 MARCH 31, 1999
------------- --------------
<S> <C> <C> <C>
Amortization (over a period of 15 years) of goodwill established in the
acquisition............................................................. $ 1,864 $ 1,398
(f) To reflect the par value and anticipated additional paid-in capital as a
result of this offering, based upon an offering price of $9.00 per share
Common stock, par value $0.01 per share; 4,000,000 shares............... $ 40
Additional paid-in capital (net proceeds of $32,480 less $40 par
value).................................................................. 32,440
-------
$ 32,480
-------
-------
</TABLE>
<TABLE>
<S> <C> <C> <C>
(g) To reflect the application of the anticipated net proceeds
from this offering:
Repayment of note payable to Amitek former stockholder.... $ 7,219
Repayment of Amitek's line of credit...................... 13,123
Repayment of Century's line of credit..................... 8,111
Increase in cash and cash equivalents..................... 4,027
-------------
$ 32,480
-------------
-------------
(h) To reflect the income tax provision based on applying the pro forma estimated marginal
effective income tax rate of the combined companies.
</TABLE>
20
<PAGE>
<TABLE>
<S> <C> <C> <C>
(i) The offering adjustments reflect the use of proceeds to pay off existing debt:
</TABLE>
<TABLE>
<CAPTION>
INTEREST EXPENSE REDUCTION
----------------------------------
PRO-FORMA FOR THE YEAR FOR THE NINE
HISTORICAL PRINCIPAL OFFERING ENDED MONTHS ENDED
CENTURY AMOUNT ADJUSTMENTS ADJUSTMENTS JUNE 30, 1998 MARCH 31, 1999
- -------------------------------------- ----------- ------------- ----------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
Revolving note payable................ $ 10,098 $ 2,154 $ (8,111) $ 730 $ 547
Note payable--stockholder............. -- 7,219 (7,219) 684 630
Note payable--Suntrust................ -- 3,500 -- -- --
Bank note............................. 3,777 -- -- -- --
Capital lease obligation.............. 2,058 -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
INTEREST EXPENSE REDUCTION
----------------------------------
PRO-FORMA FOR THE YEAR FOR THE NINE
HISTORICAL PRINCIPAL OFFERING ENDED MONTHS ENDED
AMITEK AMOUNT ADJUSTMENTS ADJUSTMENTS JUNE 30, 1998 MARCH 31, 1999
- -------------------------------------- ----------- ------------- ----------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
Revolving note payable................ $ 13,123 -- $ (13,123) $ 303 $ 583
Bank term note........................ 505 -- -- -- --
Note payable--stockholder............. 1,641 $ (1,556) -- -- --
Capital lease obligation.............. 1,666 -- -- -- --
----------- ------------- ----------- ------ ------
Total debt outstanding................ $ 32,868 $ 11,317 $ (28,453) $ 1,717 $ 1,760
----------- ------------- ----------- ------ ------
----------- ------------- ----------- ------ ------
</TABLE>
(j) To reflect interest income from the anticipated cash proceeds of this
offering utilizing the interest rate we receive on overnight funds (3.9%):
<TABLE>
<CAPTION>
INTEREST INCOME
----------------------------------
<S> <C> <C>
FOR THE YEAR FOR THE NINE
ENDED MONTHS ENDED
JUNE 30, 1998 MARCH 31, 1999
--------------- -----------------
Interest income from the anticipated cash proceeds from offering......... $ 157 $ 118
----- -----
----- -----
</TABLE>
(k) To reflect the one for one conversion of the series A and series B preferred
stock to common stock.
(l) To offset the Amitek receivable from affiliate against the Amitek note
payable to stockholder in accordance with the merger agreement.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YOU SHOULD READ THE FOLLOWING DISCUSSION IN CONJUNCTION WITH THE "SELECTED
CONSOLIDATED FINANCIAL DATA" SECTION OF THIS PROSPECTUS AND OUR CONSOLIDATED
FINANCIAL STATEMENTS AND NOTES TO THOSE STATEMENTS INCLUDED ELSEWHERE IN THIS
PROSPECTUS. UNLESS THE CONTEXT OTHERWISE INDICATES, THIS DISCUSSION RELATES
SOLELY TO OUR OPERATIONS AND DOES NOT REFLECT THE OPERATIONS OF AMITEK. THE
FORWARD-LOOKING STATEMENTS IN THIS DISCUSSION REGARDING THE ELECTRONICS
MANUFACTURING SERVICES INDUSTRY, OUR EXPECTATIONS REGARDING OUR FUTURE
PERFORMANCE, LIQUIDITY AND CAPITAL RESOURCES AND OTHER NON-HISTORICAL STATEMENTS
IN THIS DISCUSSION INCLUDE NUMEROUS RISKS AND UNCERTAINTIES, AS DESCRIBED IN THE
"RISK FACTORS" SECTION OF THIS PROSPECTUS. OUR ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THOSE CONTAINED IN ANY FORWARD-LOOKING STATEMENTS. REFERENCES TO
"FISCAL 1998" REFER TO THE FISCAL YEAR ENDED JUNE 30, 1998 AND REFERENCES TO
"FISCAL 1997" REFER TO THE FISCAL YEAR ENDED JUNE 30, 1997.
OVERVIEW
We are a worldwide provider of electronics manufacturing services to leading
OEMs in the communications and networking markets. Our headquarters are in
Marlborough, Massachusetts and we have local manufacturing operations in
Marlborough, Massachusetts, Santa Clara, California, St. Albans and Hemel
Hempstead, United Kingdom, Bangkok, Thailand, and Boca Raton, Florida (Amitek
Corporation). We have established manufacturing facilities in several of the
world's major electronics markets, to serve the increasing international needs
of our OEM customers. We have grown primarily through internal growth and
strategic acquisitions. Most of the increase in our revenues is due to the
overall growth of the electronics manufacturing services industry, primarily due
to the increasing number of OEMs who have outsourced their manufacturing
requirements.
Most of our net sales are derived from the manufacture of products for OEM
customers. Sales, net of estimated product returns and warranty costs, are
recognized at the time of product shipment.
Our cost of sales includes the cost of raw materials and components that
comprise the manufactured products, the cost of labor and manufacturing
overhead, and provisions for excess and obsolete inventory adjustments.
COMPANY HISTORY
On July 10, 1996, Centennial Technologies, Inc. and a group of investors
acquired all of the outstanding common stock of Design Circuits, Inc., or DCI,
and redeemed all of the outstanding preferred stock, common stock warrants, and
common stock options of DCI. A portion of the total consideration paid by
Centennial and the other investors in the acquisition was paid to DCI's
employees in consideration for the cancellation of their outstanding DCI stock
options. As a result of these transactions, Centennial acquired approximately
75% of DCI.
On July 24, 1996, Centennial formed Century Manufacturing, Inc., a Delaware
corporation, now known as Century Electronics Manufacturing, Inc. In October
1996, Centennial and the other investors exchanged their shares in DCI for
shares of Century. As a result, Century became the parent company of DCI. DCI
was later renamed Century Electronics Manufacturing (NE) Inc.
In November 1996, we acquired all of the outstanding capital stock of TRIAX
Technology Group, Ltd. in exchange for 2,119,500 shares of our common stock,
valued at approximately $4.5 million, and approximately $5.0 million in cash,
including transaction costs. This transaction was accounted for under the
purchase method of accounting.
In July 1997, we acquired from Centennial a 51% interest in a company now
known as Century Electronics Manufacturing (Thailand) Limited for $1,250,000. As
part of this transaction, we repurchased 3,000,000 shares of common stock held
by Centennial and Centennial's ownership in us was reduced below 50%. To effect
our repurchase, we issued Centennial a 6% convertible debenture due in 2007 in a
face amount of $6.0 million. Centennial transferred 928,000 shares of common
stock
22
<PAGE>
to employees and others who were former stockholders of TRIAX to settle
potential litigation against Centennial. In November 1997, we purchased the
remaining 49% of Century Thailand from the minority owner for 750,000 shares of
our common stock and 100,000 warrants to purchase our common stock at $5.00 per
share. Both of these transactions were accounted for under the purchase method
of accounting.
In April 1998, we acquired all of the outstanding capital stock of Quality
Manufacturing Services, Inc., an electronics manufacturing service provider
located in California, for a total purchase price of $300,000 in cash and the
issuance of 200,000 common stock options at an exercise price of $4.00 per
share. In connection with the transaction, we assumed approximately $500,000 of
outstanding indebtedness. This transaction was recorded under the purchase
method of accounting.
In August 1998, we acquired all of the outstanding capital stock of YMC
Manufacturing Inc., an electronics manufacturing service provider located in
California, for a total purchase price of approximately $250,000 in cash. In
connection with the transaction, we assumed approximately $2.2 million of
outstanding indebtedness. This transaction was recorded under the purchase
method of accounting.
Finally in July 1999, we acquired all of the outstanding capital stock of
Amitek Corporation, a Florida electronics manufacturing service provider, for a
total purchase price of approximately $27 million, subject to adjustment, of
which we paid $5.6 million in cash, $7.2 million in notes, $724,000 in vested
stock options and 2,127,548 shares of our common stock valued at approximately
$14 million. In connection with the Amitek acquisition, we recorded $28 million
as goodwill. Goodwill will be amortized as a non-cash charge to the income
statement over a period of 15 years. The pro forma impact of this amortization
expense is approximately $1.9 million per year.
Please also refer to "Certain Relationships and Related Transactions" for
more information about these transactions.
RESULTS OF OPERATIONS
The following table presents certain information concerning our results of
operations, including certain information presented as a percentage of net
sales:
<TABLE>
<CAPTION>
EIGHT MONTHS ENDED
YEAR ENDED JUNE 30, YEAR ENDED JUNE 30,
JUNE 30, NINE MONTHS ENDED MARCH 31,
-------------------- -------------------- -------------------- -------------------------------
1996 1997 1998 1998 1999
-------------------- -------------------- -------------------- -------------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT FOR PER SHARE AND PERCENTAGE DATA)
Net sales..................... $ 11,450 100.0% $ 70,744 100.0% $ 69,945 100.0% $ 49,619 100.0% $ 84,045
Cost of sales................. 10,782 94.2 63,428 89.7 65,079 93.0 46,426 93.6 75,178
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Gross profit.................. 668 5.8 7,316 10.3 4,866 7.0 3,193 6.4 8,867
Operating costs and expenses:
Selling, marketing, general
and administrative
expenses.................. 1,109 9.7 2,493 3.5 6,007 8.6 4,282 8.6 5,293
Stock compensation
expense................... -- -- 1,775 2.5 1,186 1.7 1,186 2.4 --
Goodwill write off.......... -- -- -- -- 7,489 10.7 7,489 15.1 --
Goodwill amortization....... -- -- 788 1.1 -- -- -- -- --
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Operating income (loss)....... (441) (3.9) 2,260 3.2 (9,816) (14.0) (9,764) (19.7) 3,574
Other expense, net............ 199 1.7 532 0.8 856 1.2 636 1.3 1,086
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss) before
income tax.................. (640) (5.6) 1,728 2.4 (10,672) (15.2) (10,400) (21.0) 2,488
Income tax expense
(benefit)................... -- -- 1,451 2.0 (218) (0.3) (209) (.4) 945
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss)............. (640) (5.6) 277 0.4 (10,454) (14.9) (10,191) (20.6) 1,543
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss) per share--
basic....................... $ (0.10) $ 0.03 $ (1.33) $ (1.14) $ 0.24
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average common
shares--basic............... 6,256 9,889 7,870 8,956 6,489
<CAPTION>
<S> <C>
Net sales..................... 100.0%
Cost of sales................. 89.5
---------
Gross profit.................. 10.5
Operating costs and expenses:
Selling, marketing, general
and administrative
expenses.................. 6.3
Stock compensation
expense................... --
Goodwill write off.......... --
Goodwill amortization....... --
---------
Operating income (loss)....... 4.2
Other expense, net............ 1.3
---------
Net income (loss) before
income tax.................. 2.9
Income tax expense
(benefit)................... 1.1
---------
Net income (loss)............. 1.8
---------
Net income (loss) per share--
basic.......................
Weighted average common
shares--basic...............
</TABLE>
23
<PAGE>
NINE MONTHS ENDED MARCH 31, 1999 COMPARED TO NINE MONTHS ENDED MARCH 31, 1998
NET SALES
Net sales for the nine months ended March 31, 1999 increased $34.4 million,
or 69.4%, to $84.0 million from $49.6 million for the nine months ended March
31, 1998. The increase in net sales was primarily attributable to growth in
sales to a customer in the broadband networking technology industry from $20.7
million in the nine months ended March 31, 1998 to $62.1 million in the nine
months ended March 31, 1999 and sales of $3.1 million generated by our West
Coast operations acquired in April and August 1998. This increase was partially
offset by a reduction in sales of approximately $12.3 million because of the
loss of production of a product for a large customer of TRIAX. We believe that
this loss was principally due to a combination of the end of a product lifecycle
for the initial product and the OEM's decision to utilize a different electronic
manufacturing service provider for the next generation of that product.
COST OF SALES
Cost of sales for the nine months ended March 31, 1999 increased $28.8
million, or 61.9%, to $75.2 million from $46.4 million for the nine months ended
March 31, 1998. Cost of sales as a percentage of net sales decreased to 89.5%
for the nine months ended March 31, 1999 from 93.6% for the nine months ended
March 31, 1998, primarily as a result of changes in customer mix and increased
utilization of our production facilities.
OPERATING EXPENSES
Operating expenses for the nine months ended March 31, 1999 decreased $7.7
million, or 59.1%, to $5.3 million from $13.0 million for the nine months ended
March 31, 1998. The decrease in operating expenses was primarily due to the
writeoff of goodwill of $7.5 million in the nine months ended March 31, 1998
associated with our acquisition of TRIAX. Such goodwill was written off due to
the loss of production of a product for a significant customer of TRIAX. Also in
the nine months ended March 31, 1998, Centennial transferred 928,000 shares of
our stock to several of our employees who were the former owners of TRIAX in
exchange for a mutual release. We recorded stock compensation expense of $1.2
million related to this transfer. Operating expenses as a percentage of net
sales were 6.3% for the nine months ended March 31, 1999 compared to 26.1%, 8.6%
excluding the two charges, for the nine months ended March 31, 1998. Excluding
the two charges, operating expenses as a percentage of sales for the nine months
ended March 31, 1999 decreased compared to the nine months ended March 31, 1998
because our fixed costs did not increase proportionally with sales.
OTHER EXPENSE, NET
Other expense, net for the nine months ended March 31, 1999 increased $0.5
million to $1.1 million from $0.6 million for the nine months ended March 31,
1998, primarily due to the higher interest costs resulting from increased
borrowings under our revolving credit facility.
INCOME TAX EXPENSE (BENEFIT)
Income tax expense for the nine months ended March 31, 1999 increased $1.1
million to $0.9 million from a benefit of $0.2 million for the nine months ended
March 31, 1998. The effective tax rate for the nine months ended March 31, 1999
of 38.0% was 4.0% higher than the federal statutory rate of 34.0% due to state
income taxes with an effective tax rate of 6.0%, offset by a decrease in our
valuation allowance for deferred taxes reducing the effective tax rate by 2.0%.
The effective tax rate for the nine months ended March 31, 1998 was 2.0%
compared to the federal statutory rate of 34.0% due
24
<PAGE>
to the write off of non-deductible goodwill and an increase in our valuation
allowance for deferred tax assets.
NET INCOME (LOSS)
For reasons set forth above, net income for the nine months ended March 31,
1999 increased $11.7 million to $1.5 million, or $0.24 per share, from a loss of
$10.2 million, or ($1.14) per share, for the nine months ended March 31, 1998.
PRO FORMA RESULTS OF OPERATIONS
After the inclusion of Amitek and the application of the anticipated net
proceeds from this offering, pro forma net sales were $121.1 million and pro
forma net income for the nine months ended March 31, 1999 was $1.5 million, or
$0.09 per share--basic, compared to our actual results of net sales of $84.0
million and net income of $1.5 million, or $0.24 per share--basic for the same
period.
The results of operations on a pro forma basis include the amortization of
goodwill that results from the net difference between the purchase price of
Amitek and the fair value of the net assets of Amitek on the date of
acquisition. See "Unaudited Pro Forma Financial Data." These results are not
necessarily indicative of the results that would have been achieved had the
Amitek acquisition occurred on July 1, 1997.
YEAR ENDED JUNE 30, 1998 COMPARED TO YEAR ENDED JUNE 30, 1997
NET SALES
Net sales for fiscal 1998 decreased $0.8 million, or 1.1%, to $69.9 million
from $70.7 million for fiscal 1997. The decrease in the net sales was
attributable to a reduction in sales of approximately $18.1 million from $41.2
million in fiscal 1997 to $23.1 million in fiscal 1998 from the loss of
production by our UK operations offset by increases in sales of $8.5 million to
a major customer in the broadband technology industry and net increases of $8.8
million to other OEM customers.
COST OF SALES
Cost of sales for fiscal 1998 increased $1.7 million, or 2.6%, to $65.1
million from $63.4 million for fiscal 1997. Cost of sales as a percentage of net
sales increased to 93% for fiscal 1998 from 89.7% for fiscal 1997 primarily as a
result of changes in customer mix combined with a decrease in utilization of our
UK production facilities related to the loss of production of a product for a
significant customer.
OPERATING EXPENSES
Operating expenses for fiscal 1998 increased $9.6 million, to $14.7 million
from $5.1 million for fiscal 1997. The increase in operating expenses was
primarily due to the writeoff of goodwill of $7.5 million in fiscal 1998
associated with our UK operation due to the loss of production of a product for
a significant customer. Also in fiscal 1998, Centennial transferred 928,000
shares of our stock to several of our employees who were the former owners of
TRIAX in exchange for a mutual release. We recorded stock compensation expense
of $1.2 million related to this transfer. Operating expenses as a percentage of
net sales were 21% for fiscal 1998 compared to 7.1% for fiscal 1997. Excluding
the two charges in fiscal 1998, operating expenses as a percentage of net sales
were 8.6% for fiscal 1998.
OTHER EXPENSE, NET
Other expense, net for fiscal 1998 increased $0.4 million to $0.9 million
from $0.5 million for fiscal 1997.
25
<PAGE>
INCOME TAX EXPENSE (BENEFIT)
Income tax expense for fiscal 1998 decreased $1.7 million to an income tax
benefit of $0.2 million from an expense of $1.5 million for fiscal 1997. Our
effective tax rate for fiscal 1998 of 2.0% was 32.0% less than the federal
statutory tax rate of 34.0% due to the write off of non-deductible goodwill, an
increase in our valuation allowance for deferred tax assets and losses from
foreign losses for which no benefit was taken. Our effective tax rate for fiscal
1997 of 84.0% was 50.0% higher than the federal statutory tax rate of 34.0% due
primarily to non-deductible goodwill amortization and an increase in the
valuation allowance for deferred tax assets.
NET INCOME (LOSS)
For reasons set forth above, net income for fiscal 1998 decreased $10.7
million to a net loss of $10.4 million, or $(1.33) per share, from net income of
$0.3 million, or $0.03 per share, for fiscal 1997.
YEAR ENDED JUNE 30, 1997 COMPARED TO ANNUALIZED EIGHT MONTHS ENDED JUNE 30, 1996
NET SALES
Net sales for fiscal 1997 increased $53.5 million, to $70.7 million from
$17.2 million for the annualized eight months ended June 30, 1996. The increase
in net sales was primarily due to the acquisition of TRIAX in November 1996,
which accounted for an increase of approximately $38.0 million in sales; the
remainder related to increased domestic production of communication products.
COST OF SALES
Cost of sales for fiscal 1997 increased $47.2 million, to $63.4 million from
$16.2 million for the annualized eight months ended June 30, 1996. Cost of sales
as a percentage of net sales decreased to 89.7% for fiscal 1997 from 94.2% for
the annualized eight months ended June 30, 1996 primarily as a result of changes
in customer mix and increased absorption of fixed costs.
OPERATING EXPENSES
Operating expenses for fiscal 1997 increased $3.4 million, to $5.1 million
from $1.7 million for the annualized eight months ended June 30, 1996. Operating
expenses increased primarily due to the acquisition of TRIAX in November 1996
and the recognition of stock compensation expense of approximately $1.8 million
for the buy out of employee stock options in connection with Centennial's
acquisition of DCI. Operating expenses as a percentage of net sales were 7.1%
for fiscal 1997 compared to 9.7% for the annualized eight months ended June 30,
1996.
OTHER EXPENSE, NET
Other expense, net for fiscal 1997 increased $0.2 million to $0.5 million
from $0.3 million for the annualized eight months ended June 30, 1996.
INCOME TAX EXPENSE (BENEFIT)
Income tax expense for fiscal 1997 increased $1.5 million to $1.5 million
from $0 for the annualized eight months ended June 30, 1996. Our effective tax
rate for fiscal 1997 of 84.0% was 50.0% higher than the federal statutory tax
rate of 34.0% due primarily to non-deductible goodwill amortization and an
increase in our valuation allowance for deferred tax assets. Our effective tax
rate of 0% for the eight month period ended June 30, 1996 was lower than the
expected effective income tax benefit of 34% due to an increase in the valuation
allowance of deferred tax assets.
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NET INCOME (LOSS)
For reasons set forth above, net income for fiscal 1997 increased $0.9
million to $0.3 million, or $0.03 per share, from a net loss of $0.6 million, or
$(0.10) per share, for the eight months ended June 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal years 1997 and 1998 and the nine months ended March 31, 1999
we primarily funded operations through borrowings under credit facilities with
banks, and debt and equity investments by shareholders. We generated negative
cash flow from operations of $1.6 million for fiscal 1997, $1.9 million for
fiscal 1998, and $1.6 million for the nine months ended March 31, 1999.
Cash used in investing activities was $7.3 million for fiscal 1997, $1.6
million for fiscal 1998 and $3.0 million for the nine months ended March 31,
1999. Cash was paid (assumed) in connection with our acquisitions of $4.5
million for fiscal 1997, ($0.9 million) for fiscal 1998 and $0.3 million for the
nine months ended March 31, 1999. Capital expenditures were $2.7 million for
fiscal 1997, $2.5 million for fiscal 1998 and $2.6 million for the nine months
ended March 31, 1999.
Cash provided by financing activities was $2.6 million for fiscal 1998,
$11.1 million for fiscal 1997 and $5.8 million for the nine months ended March
31, 1999. In fiscal 1997, we raised $5.0 million from the issuance of common
stock to fund the acquisition of TRIAX, $3.9 million in capital contributions
was received from shareholders to repurchase employee stock options and to repay
existing debt, and $4.1 million was received from shareholder notes to fund
operations. In fiscal 1998, we received $9.9 million from the issuance of
preferred stock, $2.0 million from the issuance of convertible notes, and $4.7
million from borrowings under our credit facility. These amounts were utilized
to repurchase and retire $5.7 million of common stock from Centennial, to repay
the $4.1 million of notes payable to Centennial, to pay $3.6 million of capital
lease obligations and to fund operating and capital expenditures. Also, in
fiscal 1998, the $2.0 million in convertible notes were converted into 705,424
shares of common stock. During the nine months ended March 31, 1999, we received
$6.4 million of net proceeds from borrowings under credit facilities and $3.4
million for the issuance of preferred stock, offset by $3.9 million of principal
payments on capital lease obligations and debt. In addition, we received $1.0
million of bridge financing, which was paid off upon the issuance of the
preferred stock.
During the nine months ended June 30, 1999, we experienced significant
growth in operations. As a result we used cash from operations, vendor trade
payables and our revolving credit facility to finance increases in our inventory
and accounts receivable. In the event that we experience significant growth in
the future, we may need to finance such growth and any corresponding working
capital needs with additional borrowings as well as additional public and
private offerings of our debt and equity, including this offering. However, we
currently do not know if such funds will be available to us in the future on
terms that would be favorable to us, or at all.
In December 1998, we entered into a three-year, $14.0 million loan facility
with Fidelity Funding, Inc. The credit facility provides for a $2.0 million term
loan and a $12.0 million revolving credit facility. The amount of credit
available under the revolving credit facility is based upon the levels of
eligible receivables and inventory. Loans under this facility bear interest at
prime plus 1% and are secured by substantially all of our assets of our United
States operations. This facility includes conditions to borrowing, certain
financial and other affirmative and negative covenants, including, among others,
limits on the incurrence of indebtedness, covenants concerning financial ratios,
restrictions on dividends, and events of default. As of March 31, 1999, we had
borrowed $1.9 million on the term loan and $10.1 million on the revolving loan.
As of March 31, 1999, we had outstanding 3,671,233 shares of series A
preferred stock and 666,667 shares of series B preferred stock. Series A
preferred stock is convertible into common stock on a one for one basis and has
a liquidation preference of $26.8 million. Series B preferred stock is
convertible
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into common stock on a one for one basis and has a liquidation preference of
$4.0 million which is subordinate to the series A shareholders. All preferred
shares will be automatically converted into common stock in the event of an
initial public offering.
In July 1999, we acquired Amitek in a merger. The acquisition will be
accounted for using the purchase method of accounting. The purchase price, which
is subject to adjustment, was $5.7 million in cash, $7.2 million in notes,
$724,000 in vested options and 2.1 million shares of our common stock. In
connection with the acquisition we assumed approximately $13.6 million of
indebtedness (based on Amitek's March 31, 1999 balance sheet). The notes payable
to former Amitek shareholders bear interest at prime plus 1% and are payable on
a quarterly basis over a five-year period or, if sooner, at the time of closing
of this offering. The indebtedness assumed is under a $14.0 million revolving
credit agreement with National Bank of Canada that will remain in place to fund
the operations of Amitek. We have agreed to guaranty all of Amitek's obligations
under the revolving credit facility. The amount of credit available under the
revolving credit facility is based upon the levels of eligible receivables and
inventory. Borrowings under the facility bear interest at prime plus 1.5% and
are secured by substantially all of the assets of Amitek. This facility includes
conditions to borrowing, certain financial and other affirmative and negative
covenants, including, among others, limits on the incurrence of indebtedness,
covenants concerning financial ratios, restrictions on dividends, and events of
default.
Also in July 1999, in connection with the acquisition of Amitek, we amended
our loan facility with Fidelity Funding to increase the revolving credit
facility to $15.0 million. We anticipate that upon this offering the limit on
the revolving credit facility will be reduced to $12.0 million. In addition, we
entered into a $3.5 million term loan with Suntrust Bank. The term loan bears
interest at prime plus 1%, is payable over five years and contains covenants and
restrictions substantially identical to those under the Amitek revolving credit
facility. Proceeds from the term loan and additional borrowings on the revolving
credit facility were utilized to make the cash payment for the acquisition.
We intend to continue pursuing attractive acquisition opportunities. The
timing, size or success of any acquisition and the associated potential capital
commitments are unpredictable. We currently plan to fund future acquisitions
primarily through a combination of working capital, including the proceeds from
this offering, cash flow from operations and borrowings, as well as the
issuances of debt and/or equity securities. However, we currently do not know if
such funds will be available to us in the future at terms that would be
favorable to us. We believe that our cash flows from operations, cash on hand
and cash from the net proceeds of this offering, together with the availability
under our credit facilities, will be sufficient to meet our working capital and
capital expenditure requirements and provide us with adequate liquidity to meet
our anticipated operating needs for at least the next 12 months. Although
operating activities are expected to provide cash, to the extent we grow
significantly in the future, our operating and investing activities may use cash
and, consequently, this growth may require us to obtain additional sources of
financing. There can be no assurance that any necessary additional financing
will be available to us on commercially reasonable terms, if at all.
YEAR 2000
GENERAL
The year 2000 issue concerns the potential exposures related to the
automated generation of business and financial misinformation resulting from the
fact that certain computer systems, embedded systems and hardware use two
digits, rather than four, to define the applicable year. On January 1, 2000,
these systems and programs may recognize the date as January 1, 1900 and may
process data incorrectly or stop processing data altogether. We rely upon
vendor-supplied technology and recognize the potential business risk to our
assets and systems associated with the arrival of the year 2000.
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STATUS OF REMEDIATION
We have identified three phases in our year 2000 project: identify, test and
validate. The identification phase involves the collection and validation of an
inventory of computer related devices and an evaluation and assessment of each
inventoried item. The testing phase includes remediation (repair, replace or
retire) and various levels of testing for compliance. The validation phase
includes the verification that the system or process will continue to function
in the year 2000 and beyond.
In addressing the year 2000 issues and risks, we have focused on our mission
critical systems, including our information systems used in manufacturing, sales
and finance, and have begun converting these systems to systems that are
certified to be year 2000 compliant by the vendors providing the new or upgraded
systems. Conversion efforts, including testing, will be completed by the end of
September 1999.
We expect to complete all year 2000 remediation for these projects by the
end of September 1999. The failure to complete the remedial actions on a timely
basis could have a material adverse effect on our business, results of
operations and financial condition.
THIRD PARTY COMPLIANCE
Our year 2000 project scope extends to assessing issues affecting suppliers'
and customers' products, services, systems and operations. In early 1999, we
sent questionnaires to our principal vendors and suppliers requesting
information regarding their year 2000 compliance, and we are following up on all
unsatisfactory responses. Based on information available to us at August 1,
1999, we believe that approximately 45% of our suppliers are year 2000
compliant.
In addition to these formal inquiries, we have been working closely on year
2000 issues with those third parties with which we have significant
relationships, including, in particular, significant customers and suppliers.
Mutual testing of electronic data interfaces between us and our significant
customers and suppliers is being performed in an effort to ensure their year
2000 compliance.
CONTINGENCY PLANS
We are developing contingency plans for potential year 2000 failures. We
intend to develop, where practicable, contingency plans for all mission critical
processes. We plan to complete these contingency plans by the end of October
1999.
ESTIMATED COSTS
We currently estimate that the total costs for our year 2000 remediation
projects will be approximately $1.0 million. As of August 1, 1999, we had
incurred $0.7 million for year 2000 projects. Year 2000 expenditures are
financed through funds generated from operations, and are capitalized to the
extent they enhance the capabilities and useful life of the underlying systems.
We have not deferred any major information technology projects as a result of
our year 2000 remediation efforts.
We have not assessed the financial impact of not being year 2000 compliant.
Failure to be year 2000 compliant could have a material adverse effect on our
business, results of operations and financial condition.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS 130,
"Reporting Comprehensive Income," which establishes standards for reporting and
display of comprehensive income and its components in a full set of
general-purpose financial statements. Under this concept, all revenues,
expenses, gains and losses recognized during the period are included in income,
regardless of whether they are considered to be results of operations of the
period. SFAS 130, which becomes
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effective for us in our year ending June 30, 1999, is not expected to have a
material impact on our consolidated financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS 131,
"Disclosures about Segments of an Enterprise and Related Information," which
establishes standards for the way that public business enterprises report
selected information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports to shareholders. It also establishes
standards for related disclosures about products and services, geographic areas
and major customers. SFAS 131, which becomes effective for us in our year ending
June 30, 1999, is currently not expected to have a material impact on our
consolidated financial statements and footnote disclosures.
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Financial Instruments and Hedging Activities." This
statement establishes accounting and reporting standards for derivative
instruments and hedging, requiring recognition of all derivatives as either
assets or liabilities in the statement of financial position measured at fair
value. This statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. The effects of adopting SFAS 133 are not expected
to have a material impact on our financial condition, results of operations or
cash flows.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have financial instruments which are subject to interest rate risk,
principally debt obligations under our credit facilities. Historically, we have
not experienced significant fluctuations in operating results due to interest
rate changes. The carrying value of our long-term debt, including current
maturities, was approximately $5.8 million at March 31, 1999. We also have
borrowings under a revolving note payable with a carrying value of approximately
$10.1 million at March 31, 1999. After giving effect to the use of the
anticipated net proceeds from this offering, the pro forma as adjusted carrying
value of our long-term debt would have been $8.0 million at March 31, 1999 and
the carrying value at borrowings under our revolving note payable would have
been $4.1 million at March 31, 1999. Due to the nature of the debt instruments,
management has determined that the fair value was not materially different from
carrying value. Based upon a hypothetical ten-percent increase in interest
rates, the potential losses in future earnings before taxes would be immaterial
to us.
We are subject to foreign currency exchange rate risk primarily for the
operations in the United Kingdom and Thailand. We currently do not enter into
any derivative financial instruments to either hedge our foreign currency risk
or for trading purposes. Based upon the size of the operations outside the
United States, and our corresponding exposure to changes in exchange rates, we
do not consider our exposure relating to currency exchange to be material.
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BUSINESS
BACKGROUND
We are a worldwide provider of electronics manufacturing services to leading
original equipment manufacturers, or OEMs, primarily in the communications and
networking markets. We have established manufacturing facilities in several of
the world's major electronics markets to meet the requirements of our OEM
customers. Our strategy is to focus on the manufacture of complex, high-density
electronic assemblies and products in low- to medium-volume production runs. We
offer a broad range of manufacturing services from product design and
prototyping through volume production and order fulfillment. In addition we have
substantial expertise in manufacturing and testing radio frequency, or RF,
assemblies. Our customers include industry leaders, such as Nortel, Motorola,
Lucent and 3Com.
RECENT DEVELOPMENTS
On July 30, 1999 we acquired Amitek Corporation, a Florida-based electronics
manufacturing services provider, for aggregate consideration of approximately
$27 million, subject to adjustment, in cash, notes, and stock and options in a
transaction accounted for as a purchase. Amitek had net sales of $45.2 million
for the year ended December 31, 1998 and $14.2 million for the three months
ended March 31, 1999. From 1995 to 1998, Amitek achieved a compound annual
growth rate of net sales of 78%. Amitek's largest customer is Motorola. Motorola
represented 88% of Amitek's net sales in 1998 and has been a customer since
1994. Amitek supports Motorola locations in Florida, Illinois, Iowa, and Georgia
domestically, and Brazil, Ireland, Israel, Malaysia and Germany,
internationally. The Amitek acquisition has provided us with a new
regionally-focused manufacturing operation.
After giving effect to the Amitek acquisition, our pro forma combined net
sales were $121.1 million for the nine-month period ended March 31, 1999.
OVERVIEW OF THE ELECTRONICS MANUFACTURING SERVICES INDUSTRY
The electronic manufacturing services industry provides a range of
manufacturing services to OEMs in the electronics industry. According to
Technology Forecaster's estimates, the electronics manufacturing services
industry grew from $10 billion in 1988 to $89.6 billion in 1998, a compound
annual growth rate of 25%. Technology Forecasters forecasts that the EMS
industry will continue to grow annually at approximately 25.0% into the next
decade, with industry revenue projected at $178.0 billion by 2001.
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ELECTRONICS MANUFACTURING SERVICES REVENUES
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
BILLIONS OF
DOLLARS
<S> <C>
1996 59.3
1997 (1) 72.6
1998 (1) 89.6
1999 (1) 112.0
2000 (1) 140.5
2001 (1) 178.0
</TABLE>
(1) Estimated
Source: Technology Forecasters
OEMs are increasingly outsourcing their manufacturing requirements. In some
instances, OEMs have sold their manufacturing operations to electronics
manufacturing service providers, while at the same time establishing contractual
manufacturing relationships. Technology Forecasters estimates that by 2001,
outsourcing by OEMs to electronics manufacturing service providers will increase
to 26% of the projected cost of goods sold for the electronics industry:
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
OUTSOURCING OPPORTUNITY
<S> <C>
(ESTIMATED ELECTRONICS MANUFACTURING SERVICES DEMAND AS A PERCENTAGE OF THE ELECTRONICS INDUSTRY COST OF GOODS
SOLD)
Total Electronics
Cost of Goods Sold -
$554.0 billion
1998 $554.0
Total Electronics
Cost of Goods Sold -
$682.0 billion
2001 $682.0
<CAPTION>
OUTSOURCING OPPORTUNITY
<S> <C>
(ESTIMATED ELECTRONICS MANUFACTURING SERVICES DEMAND AS A PERCENTAGE OF THE ELECTRONICS INDUSTRY COST OF GOODS
SOLD)
16% $89.6 billion
1998 $89.6
26% $178.0 billion
2001 $178.0
</TABLE>
Outsourcing allows OEMs to take advantage of the manufacturing expertise and
capital investments of the electronics manufacturing service providers. It also
enables OEMs to concentrate on
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their core competencies, such as product development, marketing and sales. We
believe that an electronics manufacturing service provider can enhance an OEM's
competitive position by:
- reducing overall production costs;
- accelerating product time-to-market and time-to-volume;
- providing access to advanced manufacturing capabilities;
- improving inventory management and purchasing power; and
- reducing capital investment in equipment and facilities.
In order to meet the evolving needs of OEMs, electronic manufacturing
service providers are focused on establishing manufacturing facilities around
the world that can shorten and simplify an OEM's supply chain and significantly
reduce the time it takes to bring products to market. In addition, electronic
manufacturing service providers are locating facilities in regions such as
Mexico, Asia and Central Europe in order to expand their services offerings to
include a low cost manufacturing solution.
The electronics content of many of today's commercial and consumer products
has increased dramatically, with more and more products involving complex, high
density assemblies in low to medium-volume production. The growth of the
Internet and the increased usage of personal communications systems have spawned
development of a multitude of complex electronics products addressing these
trends, which is also helping to drive the growth of the electronic
manufacturing services industry. For many users of the Internet, particularly
those seeking broadband access, the cable modem has become a desired method of
connecting to the Internet. According to Kinetic Strategies Inc., a Phoenix,
Arizona, based consulting firm specializing in the emerging broadband Internet
market, the number of cable modem subscribers in North America is expected to
reach 3 million in 2001, up from approximately 500,000 in 1998, representing
more than an 80% compound annual growth rate. Wireless communications is one of
the fastest growing sectors of the communications industry. Nokia, a leading
wireless communications equipment provider, expects the number of wireless
subscribers worldwide to reach 1 billion in 2005, up from an estimated 300
million subscribers at the end of 1998, representing approximately a 20%
compound annual growth rate. These trends are proving favorable for providers of
electronics manufacturing services, particularly those with the ability to
effectively meet the production requirements of these markets as well as those
with RF expertise. We believe that the diversity of electronics products
provides significant opportunities for low- to medium-volume manufacturers to
capture substantial production opportunities.
OUR BUSINESS STRATEGY
Our goal is to be the leading global provider of complex, high-density
electronic assemblies. To achieve this, we are implementing the following
business strategy:
- PROVIDE MANUFACTURING SERVICES THROUGH REGIONALLY FOCUSED OPERATIONS ON A
GLOBAL BASIS. Global manufacturing capabilities are becoming increasingly
more important as many OEMs expand their international revenues. We
believe our strategy of establishing regionally focused operations on a
global basis will enable us to increase penetration with our existing OEM
customers as we have the ability to manufacture the same product in
multiple locations. Furthermore, in the United States and the United
Kingdom, we have manufacturing operations that are strategically
positioned close to our customers. This local presence enables us to be
more responsive to our customers requirements, while reducing costs and
accelerating time to market. We believe this global strategy will enable
us to increase our penetration with existing OEM customers and establish
new relationships with leading OEMs in our targeted markets.
- PROVIDE A BROAD RANGE OF MANUFACTURING SERVICES. In an effort to meet the
increasing needs of our OEM customers, we offer a broad range of services
from product design through
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prototyping and volume production. We also have significant expertise in
manufacturing and testing RF assemblies. In recent years we have expanded
our service offering to include distribution and repair and warranty
services.
- ATTRACT PROMISING EMERGING COMPANIES. Our expertise in manufacturing
complex products for the communications and networking industries and our
proximity to several of the world's technology centers makes us an
attractive manufacturing partner for emerging companies. Emerging
companies present us with opportunities to maintain our technological
expertise, which helps strengthen our competitive position, while
providing attractive growth opportunities as their products gain market
acceptance.
- PROVIDE A BROAD RANGE OF MANUFACTURING SERVICES. We offer services from
initial product design, electromechanical and printed circuit board
assemblies and testing to final product assembly. In recent years, we have
increased our service offerings to include distribution to the OEMs'
distribution channels, distributors, warranty return and repair services
and testing services.
- PURSUE STRATEGIC ACQUISITIONS. Growth through selective acquisitions is an
important element in our strategy. We have completed three acquisitions
since April 1998, including the recent acquisition of Amitek, and will
continue to selectively seek other opportunities that will further our
strategy of locating operations near existing and potential customers. We
may also seek acquisition opportunities similar to our facility in
Thailand that will provide a lower-cost manufacturing option for our OEM
customers. We believe that acquisitions can strengthen our market position
by, among other things:
- Expanding our geographic presence to serve our current and future OEM
customers;
- Enlarging our target OEM customer base;
- Broadening our service offerings; and/or
- Adding experienced management.
There can be no assurance that our strategies will be successful or will reduce
the risks associated with our business. See "Risk Factors--Risks Related to Our
Business and Industry."
OUR SERVICES
We provide a broad range of electronics manufacturing services with advanced
production capabilities on three continents. The services we offer include:
ASSEMBLY AND MANUFACTURING SERVICES. Our assembly and manufacturing
services include printed circuit board assembly, electromechanical assembly and
final product assembly. A substantial portion of our sales are derived from the
manufacture and assembly of complete products (rather than components). As OEMs
seek to provide greater functionality in smaller products, they increasingly
require more sophisticated manufacturing technologies and processes. We have
invested in advanced manufacturing equipment and have experience in packaging
and interconnect technologies, such as ball grid array, micro ball grid arrays,
x-ray analysis, bare die attach and chip-on-board. We view our ability to
provide manufacturing services using our expertise in these advanced
technologies as one of our core strengths.
MATERIAL PROCUREMENT AND MANAGEMENT. Materials procurement and management
involves planning, purchasing and expediting the delivery of components and
materials used in the manufacturing process. We employ various inventory
management techniques such as just-in-time, ship-to-stock, and autoreplenish
programs. We have developed direct relationships with component suppliers that
reduce our customers' material acquisition costs. We have also established
distribution relationships with Avnet Electronics, Arrow Electronics, and Future
Electronics in the United Stated and Pioneer in the United
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Kingdom. These relationships help to protect us from price fluctuations, as a
portion of the risk is typically borne by our customers and/or the distributors.
In addition, we have established in-house stores at our facilities which
effectively shorten the supply chain between component suppliers and our
customers.
DESIGN AND ENGINEERING SERVICES. Our engineers collaborate with customers
to refine and complete product design. We coordinate our design, prototype and
other engineering capabilities to design for manufacturability and design for
test requirements. We also offer mechanical design and metal forming
capabilities from our St. Albans, U.K. facility. We believe this collaborative
approach strengthens our relationships with our customers.
TESTING SERVICES. We provide testing services for assembled printed circuit
boards, subsystems and systems, which enable us to deliver high-quality products
on a consistent basis. We also work with our customers to develop
product-specific test strategies. Our test capabilities include manufacturing
defect analysis, in-circuit tests, functional tests, accelerated stress and life
tests, and environmental stress tests of board or system assemblies. Our
capabilities include custom design test equipment and software. We have also
developed an expertise in radio frequency testing protocols to meet customer
needs. Radio frequency technology involves the wireless transmission and
reception of electromagnetic radiation in the radio frequency range through the
use of a transmitter and a receiver. Advanced applications of radio frequency
technology include analog and digital mobile phone communications, paging
services and wireless data transmission services such as e-mail, facsimile and
wireless connections to computer networks.
DISTRIBUTION AND FULFILLMENT SERVICES. We offer our customers flexible,
just-in-time delivery programs allowing product shipments to be closely
coordinated with customers' requirements. We also offer direct order fulfillment
services and increasingly deliver final products we assemble for our customers
directly into customers' distribution channels or directly to the end-user. We
believe that these services provide our customers with a comprehensive solution
and enable them to be more responsive to market demands.
DEPOT REPAIR SERVICES. We have full product testing and diagnostic
capabilities and depot repair services of product, including system upgrades, in
and out of warranty repair services.
CUSTOMERS
We target leading OEMs in the communications and networking industries and
other growing sectors of the electronics industry. A small number of customers
and industry segments have historically comprised a major portion of our net
sales. Our customers include industry leaders Nortel, Motorola, Lucent and 3Com.
During the first nine months of fiscal 1999, giving effect to the Amitek
acquisition, Nortel represented 54.7% of total pro forma net sales, and Motorola
represented 27.3% of total pro forma net sales. For fiscal 1998, Nortel
represented 27.8% of our pro forma net sales, and Motorola represented 31.2% of
pro forma net sales.
SALES AND MARKETING
We market our services through a direct sales force and through independent
marketing representatives. In addition, our divisional and executive management
teams are an integral part of our relationships with customers. We seek to
develop our business by participating in product design and development,
leveraging relationships with existing customers and executing formal marketing
efforts. Each of our salespeople has been carefully selected for his/her
knowledge of the local market around his/her particular facility. We believe
this knowledge of a specific marketplace is key to understanding who the
customers are and where the business development opportunities exist.
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We recognize the importance of customer relationships. We cooperate with
existing and potential customers to transform their ideas into finished
products. Once a marketable product is conceived, we work with a client to
design a manufacturable product that meets desired specifications. We then
prototype the design and produce a small quantity of assemblies for the
customer. During this "start up" phase, we will assemble a customer specific
team consisting of:
- a program manager;
- a manufacturing/test engineer;
- a quality engineer; and
- a materials/purchasing manager.
Our teams manage all phases of the product development and production
process for the customer. As the product matures, we meet with our customer to
evaluate on-going needs and respond to customer concerns.
COMPETITION
The electronic manufacturing services industry is extremely competitive. We
compete against numerous domestic and foreign electronics manufacturing service
providers, including companies such as ACT Manufacturing, Benchmark Electronics,
Jabil Circuit, Sanmina, and Solectron Corporation. Many of these companies are
substantially larger than us and have greater financial, operating,
manufacturing and marketing resources than we do. Some of our competitors have
broader geographic breadth, broader ranges of services and more established
overseas operations than we do. In addition, some of our customers may have
broader relationships with our customers than we do. We also face competition
from the manufacturing operations of our current and potential customers, who
continually evaluate the relative benefits of internal manufacturing versus
outsourcing. As more OEMs dispose of their manufacturing assets, we face
increasing competitive pressures to grow our business. We believe that the
principal competitive factors in our target markets are product quality,
flexibility and timeliness in responding to design and schedule changes,
reliability in meeting product delivery schedules, pricing, technological
sophistication, and geographic location. To remain competitive, we believe we
must continue to provide technologically advanced manufacturing services,
maintain quality levels, offer flexible delivery schedules, deliver finished
products on a reliable basis and compete effectively on the basis of price.
Please see "Risk Factors."
SUPPLIERS
Many of the products we manufacture require one or more components that are
ordered from only one source. In addition, many assemblies require components
that are available from only a single source. Some of these components are
allocated in response to supply shortages. We attempt to ensure continuity of
supply of these components. One way we have done this is by establishing
in-house stores with a select group of component suppliers to improve their
ability to effectively meet our customers' short lead times. In cases where
unanticipated customer demand or supply shortages occur, we attempt to arrange
for alternative sources of supply, where available, or defer planned production
to meet the anticipated availability of the critical component. In some cases,
supply shortages will substantially curtail production of all assemblies using a
particular component. In addition, at various times there have been industry
wide shortages of electronic components. Please see "Risk Factors."
EMPLOYEES
As of June 30, 1999, including Amitek, we had 835 full-time employees, of
whom 728 worked in manufacturing and 107 worked in sales and administration. Two
hundred forty employees joined us as a result of the Amitek acquisition. We
consider our relations with our employees to be good.
36
<PAGE>
GEOGRAPHIC SALES
For the nine month period ended March 31, 1999, we had net sales of
approximately $12.4 million in Europe, $107.6 million in North America, and $1.1
million in Asia. In fiscal 1998, we had net sales of approximately $23.3 million
in Europe, $45.7 million in North America, and $0.9 million in Asia. In fiscal
1997, we had net sales of approximately $41.2 million in Europe, $29.5 million
in North America and none in Asia. In fiscal 1996, all of our net sales were in
North America.
FACILITIES
Our principal executive offices are located in Marlborough, Massachusetts,
under a lease that expires in July 31, 2007. We also lease manufacturing and
warehouse space in the following locations and employ the following number of
persons at such locations:
<TABLE>
<CAPTION>
LOCATION SPACE EMPLOYEES
- ----------------------------------------------------------------- ----------- ----------------
<S> <C> <C>
(SQ. FEET)
Marlborough, Massachusetts....................................... 70,000 245 employees
Santa Clara, California.......................................... 50,000 152 employees
Boca Raton, Florida.............................................. 51,000 240 employees
Hemel Hempstead, United Kingdom.................................. 70,000 88 employees
Bangkok, Thailand................................................ 10,000 70 employees
</TABLE>
We own a 45,000 square foot facility in St. Albans, United Kingdom where we
have 40 employees. Our operations at the St. Albans facility consist of
mechanical design and metal forming and processing.
The leases for these locations expire between 2000 and 2013. All of our
manufacturing facilities, except Florida, are ISO 9002 certified. Amitek's
Florida location has a QSR rating from Motorola and Amitek is in the process of
applying for ISO 9002 certification.
BACKLOG
Although we obtain firm purchase orders from our customers, OEM customers
typically do not make firm orders for delivery of products more than 30 to 90
days in advance. We do not believe that the backlog of expected product sales
covered by firm purchase orders is a meaningful measure of future sales since
orders may be rescheduled or cancelled.
LEGAL PROCEEDINGS
We are party to certain lawsuits in the ordinary course of business. We do
not believe that these proceedings individually or in the aggregate will have a
material adverse effect on our financial position, results of operations and
cash flows.
GOVERNMENT REGULATION
We are subject to extensive environmental, health and safety laws and
regulations, including measures relating to the release, use, storage,
treatment, transportation, discharge, disposal and remediation of contaminants,
hazardous substances and wastes, as well as practices and procedures applicable
to the construction and operation of our plants. We believe that we comply in
all material respects with current environmental laws.
Our operations, and the operations of businesses that we acquire, are
subject to certain federal, state and local regulatory requirements relating to
environmental, waste management and health and safety matters. There can be no
assurance that material costs and liabilities will not be incurred or that past
or future operations will not result in exposure to injury or claims of injury
by employees or the
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<PAGE>
public. Although some risk of costs and liabilities related to these matters is
inherent in our business, as with many similar businesses, we believe that our
business is operated in substantial compliance with applicable regulations.
However, new, modified or more stringent requirements or enforcement policies
could be adopted, which could adversely affect us.
We periodically generate and temporarily handle limited amounts of materials
that are considered hazardous waste under applicable law. We contract for the
off-site disposal of these materials and have implemented a waste management
program to address related regulatory issues.
We are not presently aware of any facts or circumstances that would cause us
to incur significant costs or liabilities in the future.
38
<PAGE>
MANAGEMENT
Our executive officers and directors and their respective ages and positions
as of the date of this prospectus are as follows:
<TABLE>
<CAPTION>
NAME AGE TITLE(S)
- ---------------------------------------------- --- ------------------------------------------------------------
<S> <C> <C>
Leslie J. Sainsbury 48 President and Chief Executive Officer; Director
Louis Gaviglia 53 Senior Vice President of Operations
Ian McEwan 44 President, New England Operations; Director
Mark A. Lombardo 35 President, Amitek Operations
Paul Wilson 35 Managing Director, United Kingdom Operations
Walter J. Conroy 63 President, West Coast Operations; Director
Robert F. Wennerstrand 44 Vice President, Business Development
James M. Roller 47 Vice President of Finance
Ofer Nemirovsky 41 Director
</TABLE>
MR. SAINSBURY joined us in November 1996 and has held the position of
President of Century Electronics since that time. Prior to joining us, Mr.
Sainsbury served as a director and Managing Director of Stanley Precision Ltd.
from July 1993 until January 1995 when it was placed in receivership under the
laws of the United Kingdom. At the time Mr. Sainsbury joined Stanley, Stanley
had financial problems and Mr. Sainsbury was brought in to help turn around the
company. In February 1995, TRIAX, of which Mr. Sainsbury was a director and
shareholder, purchased the assets of Stanley Precision out of receivership. Mr.
Sainsbury served as Managing Director of TRIAX from February 1995 to October
1996. Before joining TRIAX, Mr. Sainsbury had over 9 years of experience in
electronics manufacturing management. Mr. Sainsbury spent over two years as the
Sales and Marketing Director of Welwyn Systems Ltd. in England where he was
responsible for developing and implementing strategic marketing, sales and
profit, customer care and service, and new corporate identity plans. Mr.
Sainsbury's previous experience also includes serving as a Managing Director of
Interactive Electronics Ltd. and as General Sales and Customer support Manager
for Marconi Instruments.
MR. GAVIGLIA will join us in September 1999. Prior to joining us, Mr.
Gaviglia was President and General Manager of Madison Cable Corporation from
1993 to 1999. From 1967 to 1993, Mr. Gaviglia was employed in various positions
of increasing responsibility at Digital Equipment Corporation, including Vice
President, US Manufacturing, Logistics & Administration, and Vice President &
Group Manager, Computer Systems Manufacturing.
MR. MCEWAN joined us in November 1996 and serves as President of our New
England Operations. Prior to joining us, Mr. McEwan served as Materials /
Operations Director of Stanley Precision from September 1993 to January 1995
when it was placed in receivership under the laws of the United Kingdom. In
February 1995, TRIAX, of which Mr. McEwan was a director and shareholder,
purchased the assets of Stanley Precision out of receivership. Mr. McEwan served
as a director and Materials/ Operations Director of TRIAX from February 1995 to
November 1996. He was Managing Director of Century U.K. from November 1996 to
February 1998. Mr. McEwan has 20 years experience in the electronics industry
and was Materials Director at Welwyn Systems for three years prior to joining
Stanley Precision. His experience also includes tenures with Philips
Communications, Wang Computers and Mitsubishi Video covering the following
management disciplines: materials, distribution and manufacturing.
MR. LOMBARDO joined us in July 1999 and serves as President of our Amitek
operations. Prior to joining us, Mr. Lombardo was co-founder of Amitek in 1992
and served as its Vice President from September 1992 until July 1999. Mr.
Lombardo has 17 years experience in the electronics industry ranging from
robotics engineering, manufacturing engineering operations, and sales and
marketing.
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<PAGE>
Prior to starting at Amitek, Mr. Lombardo was the Director of Engineering and
Operations for Megassembly, Inc. Prior to this, Mr. Lombardo served in senior
level engineering positions at Racal Corporation and Universal Instrument
Corporation.
MR. WILSON joined us in September 1997 as Managing Director of United
Kingdom Operations. Prior to joining us, he had over eleven years experience in
electronics manufacturing. He was Materials Director, responsible for
manufacturing, materials and engineering at Welwyn Systems Ltd. from 1995 to
1997. From 1993 to 1995, Mr. Wilson was Factory Manager at Samsung Electronics
Manufacturing UK Ltd. Other positions Mr. Wilson held at Welwyn included
Production Manager, Manufacturing Manager and Technical Manager, with
responsibilities for Production, Test, Quality and Maintenance Engineering.
MR. CONROY joined us in October 1996 and serves as President of our West
Coast Operations. Previously, Mr. Conroy served as our President of New England
Operations. Prior to joining us Mr. Conroy served as President and CEO of Design
Circuits, Inc., Mr. Conroy co-founded SACON Industries, a contract manufacturing
company, in 1990. Mr. Conroy was a Senior Vice President and General Manager
with Flextronics International from 1988 to 1991, and served in several Vice
President and General Manager positions for SCI Manufacturing from 1983 to 1988,
including Vice President of the Business Machines Group designing and
manufacturing custom products.
MR. WENNERSTRAND joined us in January 1997 and has served as our Vice
President of Business Development since that time. Prior to joining us, Mr.
Wennerstrand was New England Director of Sales for Matco Electronics Group, a
contract manufacturer of high technology products, where he managed accounts
such as 3Com, Monarch Marching Systems, Telxon Corp. and G.A.P. Technologies
from March 1996 to January 1997. Prior to his experience at Matco, Mr.
Wennerstrand spent twelve years as a Senior Account Manager with Pagg
Corporation.
MR. ROLLER joined us in September 1998 as Vice President of Finance. Prior
to joining us, Mr. Roller was the Corporate Controller for Openroute Networks,
Inc., a publicly traded manufacturer of networking products designed for the
Internet, from July 1996 to September 1998. From August 1995 to July 1996, Mr.
Roller served as CFO for Old Neighborhood Foods, a private food processing
company. From December 1991 to May 1995, he served as Director of Product
Engineering for Town & Country Fine Jewelery Group, a publicly traded jewelry
manufacturer. Mr. Roller also previously served as an Assistant Corporate
Controller for a New York-based private investment company. Mr. Roller began his
career as a CPA working twelve years for Arthur Andersen in its New York,
Johannesburg and Cape Town offices. As part of his public accounting experience,
Mr. Roller spent two years as a Project Manager at the FASB, heading up its
project on Consolidations and Joint Ventures.
MR. NEMIROVSKY has served as a director since March 1998. Mr. Nemirovsky has
been a Managing Director of HarbourVest Partners since January 1997. HarborVest
Partners, LLC was formed by the management team of Hancock Venture Partners,
Inc., where Mr. Nemirovsky served in various capacities from 1986. Prior to
joining Hancock. Mr. Nemirovsky held various computer sales and marketing
positions at Hewlett-Packard Company, a measurement, computation and
communications company. He is currently a director of Ultimate Software Group,
Inc., a vendor of human resource management and payroll software solutions,
Primix Solutions, Inc. (formerly OneWave, Inc.), an Internet software and
services company, and Paradigm Geophysical, a software company engaged in the
provision of seismic data processing and interpretation services to facilitate
the exploration and development of oil and gas reserves, as well as several
privately-held companies.
COMMITTEES
Prior to this offering, we had not established any committees. Historically,
the board of directors has made compensation decisions. We intend for the board
of directors to establish a compensation committee and an audit committee. The
compensation committee will have the authority to approve
40
<PAGE>
salaries and bonuses and other compensation matters for our officers, to approve
employee health and benefit plans and to administer our stock plans. The audit
committee will have the authority to recommend the appointment of our
independent auditors and to review the results and scope of audits, internal
accounting controls and tax and other accounting related matters.
DIRECTOR COMPENSATION
No director receives separate compensation for services rendered as a
director.
EXECUTIVE COMPENSATION
The following table shows the cash compensation paid or accrued for the year
ended June 30, 1999, to our Chief Executive Officer and to each of our three
highest paid executive officers other than the Chief Executive Officer who
received more than $100,000 in salary and bonus during the year ended June 30,
1999.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-----------------
SHARES OF
ANNUAL COMPENSATION COMMON STOCK ALL OTHER
---------------------- UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS (#) ($)
- ---------------------------------------------------------- ---------- ---------- ----------------- -------------
<S> <C> <C> <C> <C>
Leslie J. Sainsbury,
PRESIDENT AND CHIEF EXECUTIVE OFFICER................... $ 202,266 $ -- -- $ --
Walter J. Conroy
PRESIDENT, WEST COAST OPERATIONS........................ 178,978 -- -- --
Ian McEwan,
PRESIDENT, NEW ENGLAND OPERATIONS....................... 140,000 -- -- --
Robert F. Wennerstrand,
VICE PRESIDENT, BUSINESS DEVELOPMENT.................... 115,000 -- -- --
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
We did not grant any stock options or stock appreciation rights to the named
executive officers during the year ended June 30, 1999.
FISCAL YEAR-END OPTION VALUES
The table below sets forth information for the named executive officers with
respect to options held as of June 30, 1999. There was no public trading market
for our common stock as of June 30, 1999. Accordingly, the values in the table
have been calculated on the basis of an initial public offering price of $9.00
per share less the applicable exercise price, multiplied by the number of shares
underlying the options.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF COMMON STOCK VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
FISCAL YEAR END FISCAL-YEAR-END
--------------------------------- --------------------------------
EXERCISABLE EXERCISABLE UNEXERCISABLE
NAME (#) UNEXERCISABLE (#) ($) ($)
- -------------------------------------------- -------------- ----------------- -------------- ----------------
<S> <C> <C> <C> <C>
Leslie J. Sainsbury......................... 275,000 0 $ 1,925,000 0
Walter J. Conroy............................ 191,000 0 1,353,500 0
Ian McEwan.................................. 150,000 0 1,050,000 0
Robert F. Wennerstrand...................... 30,000 10,000 210,000 70,000
</TABLE>
41
<PAGE>
EMPLOYMENT CONTRACTS
We have entered into executive employment agreements with Messrs. Sainsbury,
Lombardo and Park.
Mr. Sainsbury's employment agreement provides for a base salary of $200,000
per year, and an initial stock option to purchase 25,000 shares of our common
stock at the fair market value determined by our board of directors upon signing
of the agreement, which was $2.00 per share. He is also entitled to participate
in our health, group insurance plan, or pension insurance and benefits plan. Mr.
Sainsbury's employment agreement terminates on November 5, 1999, but is subject
to earlier termination. Mr. Sainsbury's employment agreement provides that if he
is terminated by us without cause, he will be entitled to receive from us as
severance pay an amount equal to:
- his base salary for a period equal to the lesser of:
- six months or
- the amount of time remaining in the term of the agreement at the time
of termination, but in any event not less than three months, less;
- applicable taxes and other required withholdings, and less;
- any amounts he may owe us.
Mr. Sainsbury will also be entitled to receive all health and insurance
benefits paid for by us that he enjoyed at the time of termination for a period
equal to the lesser of:
- six months or
- the amount of time remaining in the term of the agreement at the time
of termination, but in any event not less than three months.
Mr. Sainsbury's employment agreement prohibits him from doing any business for a
period of two years from the date of his termination of employment with any
person, firm or company who was a client, customer, supplier, agent or
distributor of us or any of our subsidiaries during the period of one year prior
to the end of his employment and with whom he had contact during the period of
one year prior to the end of his employment. In addition, he is prohibited from
rendering services similar or related to those he has rendered during the period
of one year prior to the end of his employment to any person or entity which
competes with us or any of our subsidiaries in any line of business engaged in
by us or any of our subsidiaries.
Mr. Lombardo's employment agreement provides for a base salary of $150,000
per year and the granting of an option to purchase 30,000 shares of our common
stock at its fair market value as determined by our board of directors, which
was $6.34 per share. The employment agreement also provides that Mr. Lombardo
may receive as a performance bonus every year $50,000 and up to 30,000
additional stock options. The employment agreement also provides that he will be
reimbursed in the amount of $650.00 per month for motor vehicle costs. He is
also entitled to participate in our health, group insurance plan, or pension
insurance plan and benefit program. Mr. Lombardo's employment agreement
terminates on July 31, 2002, but is subject to earlier termination. Mr.
Lombardo's employment agreement provides that if he is terminated without cause,
he will be entitled to receive from us as severance pay an amount equal to:
- his base salary for a period equal to the greater of:
- six months or
- the amount of time remaining in the term of the agreement at the time
of termination, but in any event not less than three (3) months, less;
42
<PAGE>
- applicable taxes and other required withholdings, and less;
- any amounts he may owe to us.
- Mr. Lombardo will also be entitled to receive all health and insurance
benefits paid for by us that he enjoyed at the time of termination for a
period equal to the greater of:
- six months or
- the amount of time remaining in the term of the agreement at the time
of termination, but in any event not less than three (3) months.
Mr. Lombardo's employment agreement prohibits him from doing any business or
having any dealings with, for a period of two years after the termination of his
employment, any person, firm, or company who was a client, customer, supplier,
agent, or distributor of ours or any of our subsidiaries during the period of
one year prior to the end of his employment and with whom he had contact during
the period of one year prior to the end of his employment. In addition, he is
prohibited, for a period of two years after the termination of his employment,
from rendering services similar to those which he has rendered during the one
year period prior to the end of his employment to any person which competes with
us or any of our subsidiaries in any line of business engaged in by us or any of
our subsidiaries. Mr. Lombardo's employment agreement prohibits him, for a
period of one year following the termination of his employment, from enticing or
encouraging any then-current employees of us or any of our subsidiaries to leave
his or her employment, and he also may not assist any company, entity,
recruitment firm, employment agency, or other organization in the hiring of any
of our then-current employees.
STOCK OPTION PLANS
1996 STOCK OPTION PLAN
Our 1996 Stock Option Plan was adopted by our board of directors on August
4, 1996 and approved by our stockholders on August 4, 1996. A total of 750,000
shares of common stock were originally authorized for issuance under the 1996
Stock Option Plan. The number of shares of common stock available for issuance
under the 1996 Plan has subsequently been increased to 2,000,000.
Under the 1996 Plan, eligible individuals in our employ or service may, at
the discretion of the plan administrator, be granted options to purchase shares
of common stock at an exercise price determined by the plan administrator.
Eligible individuals include all employees, consultants, directors and other
non-employees.
The 1996 Plan is administered by our board of directors or any one or more
committees that the board of directors may, from time to time, delegate any of
its functions to under the Plan. As plan administrator, the board and/or any
committee has complete discretion to determine which eligible individuals are to
receive option grants, the time or times when option grants are to be made, the
number or shares subject to each grant or issuance, the status of any granted
option as either an incentive stock option or a non-statutory stock option under
the Federal tax laws, the vesting schedule to be in effect for the option grant
and the maximum term for which any granted option is to remain outstanding.
The exercise price for the shares of common stock subject to option grants
made under the 1996 Plan may be paid partly or completely in shares of our stock
valued at fair market value, or by any such other lawful consideration as the
board may determine.
The board of directors may terminate, amend or modify the 1996 Plan at any
time, subject to required stockholder approval for amendments affecting certain
subject matter. The 1996 Plan will terminate on the earliest of the date
determined by the board or September 30, 2006. Options under the 1996 Plan,
however, will remain outstanding in accordance with their term.
43
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of August 13, 1999 and as adjusted to reflect
the sale of the shares offered by us in this offering for:
- each person who is known by us to own beneficially more than 5% of our
outstanding shares of common stock,
- each director and named executive officer, and
- all directors and named executive officers as a group.
As of August 13, 1999, there were 12,787,325 shares of outstanding common
stock prior to giving effect to the shares to be sold in this offering and the
conversion of all outstanding convertible preferred stock. Unless otherwise
indicated below, to our knowledge, all persons listed below have sole voting and
investment power with respect to their shares of common stock, except to the
extent authority is shared by spouses under applicable law. Unless otherwise
indicated below, each entity or person listed below maintains a mailing address
of c/o Century Electronics Manufacturing, Inc., 274 Cedar Hill Road,
Marlborough, Massachusetts 01752.
<TABLE>
<CAPTION>
SHARES PERCENTAGE OF COMMON STOCK
BENEFICIALLY --------------------------------------
NAME OF BENEFICIAL OWNER(1) OWNED PRIOR TO OFFERING AFTER OFFERING
- ---------------------------------------------------------- ----------------- ----------------- -------------------
<S> <C> <C> <C>
HarbourVest Partners V-Direct Fund, L.P.(2)............... 3,698,630 28.86% 22.00%
Ofer Nemirovsky(3)........................................ 3,698,630 28.86% 22.00%
Leslie J. Sainsbury(4).................................... 1,230,600 9.42% 7.21%
Yoon Jung Park(5)......................................... 1,709,168 13.37% 10.18%
Myung Ho Park(6).......................................... 1,709,168 13.37% 10.18%
Thomas DePetrillo(7)...................................... 893,533 6.99% 5.32%
Ian McEwan(8)............................................. 880,600 6.81% 5.20%
Century Electronics Manufacturing Limited(9).............. 850,000 6.60% 5.03%
Centennial Technologies, Inc.(10)......................... 666,667 5.21% 3.97%
Walter J. Conroy, Jr.(11)................................. 251,000 1.93% 1.48%
Robert F. Wennerstand(12)................................. 30,000 * *
All Directors and Executive Officers as a Group (9
persons)................................................ 6,229,603 45.81% 35.40%
</TABLE>
- ------------------------
* Indicates beneficial ownership of less than 1% of the issued and outstanding
common stock.
(1) The number of shares beneficially owned by each stockholder is determined in
accordance with the rules of the Securities and Exchange Commission and is
not necessarily indicative of beneficial ownership for any other purpose.
Under these rules, beneficial ownership includes those shares of common
stock that the stockholder has sole or shared voting or investment power and
any shares of common stock that the stockholder has a right to acquire
within sixty (60) days after August 13, 1999 through the exercise of any
option, warrant or other right. The percentage ownership of the outstanding
common stock, however, is based on the assumption, expressly required by the
rules of the Securities and Exchange Commission, that only the person or
entity whose ownership is being reported has converted options or warrants
into shares of common stock.
(2) c/o HarborVest Partners, L.L.C., One Financial Center, 44th Floor, Boston,
Massachusetts 02111. Includes 3,671,233 share of series A preferred stock
convertible into shares of common stock and 27,397 shares of series A
preferred stock subject to a warrant exercisable within 60 days. The sole
general partner of HarbourVest Partners V-Direct Fund L.P. is HVP-Direct
Associates L.L.C., the managing member of which is HarbourVest Partners,
L.L.C. Mr. Nemirovsky is a Managing
44
<PAGE>
Director of HarbourVest Partners, L.L.C. as well as a member of HVP-Direct
Associates L.L.C. The members of HVP-Direct Associates L.L.C. and
HarbourVest Partners, L.L.C., including Mr. Nemirovsky, may be deemed to
have an indirect pecuniary interest (within the meaning of Rule 16a-1 under
the Exchange Act) in an indeterminate portion of the shares beneficially
owned by HarbourVest Partners V-Direct Fund L.P. Such members disclaim
beneficial ownership of these shares within the meaning of Rule 13d-3 of the
Exchange Act.
(3) c/o HarborVest Partners, L.L.C., One Financial Center, 44th Floor, Boston,
Massachusetts 02111. Consists of 3,671,233 shares of series A preferred
stock held by HarbourVest Partners V-Direct Fund L.P. and 27,397 shares of
series A preferred stock subject to a warrant exercisable within 60 days.
Mr. Nemirovsky is a member of the general partner of Fund V and a member of
the managing member of the general partner of Fund V. As such, he may be
considered to share beneficial ownership of the shares held by Fund V. Mr.
Nemirovsky disclaims beneficial ownership of these shares within the meaning
of Rule 13d-3 of the Exchange Act.
(4) Includes 275,000 shares of common stock subject to options exercisable
within 60 days.
(5) c/o Amitek Corporation, 1701 Clint Moore Road, Boca Raton, Florida 33487.
Includes 624,119 shares held by Myung Ho Park, Mrs. Park's spouse.
(6) c/o Amitek Corporation, 1701 Clint Moore Road, Boca Raton, Florida 33487.
Includes 1,085,049 shares held by Yoon Jung Park, Mr. Park's spouse.
(7) 2 Charles Street, Providence, Rhode Island 02904. Includes 200,000 shares
owned by Kellygreen Ltd., a wholly-owned corporation of Mr. DePetrillo,
50,000 shares held by Carol Keefe, Mr. DePetrillo's wife, and 18,000 shares
held by other family members.
(8) Includes 150,000 shares of common stock subject to options exercisable
within 60 days.
(9) Includes 100,000 shares of common stock subject to a warrant exercisable
within 60 days.
(10) 7 Lopez Road, Wilmington, Massachusetts. Includes 666,667 shares of series
B preferred stock convertible into shares of common stock.
(11) Includes 191,000 shares of common stock subject to options exercisable
within 60 days.
(12) Includes 30,000 shares of common stock subject to options exercisable
within 60 days.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In October 1996, all of the stockholders of Design Circuits Inc., or DCI,
exchanged their shares in DCI for an aggregate of 6,256,332 shares of our common
stock. Consequently, we became the parent company of DCI. As a result of this
transaction, Thomas DePetrillo and members of his family exchanged 6,300 shares
of DCI stock for 315,000 shares of our common stock and Centennial Technologies,
Inc., or Centennial, exchanged 94,270.08 shares of DCI stock for 4,713,504
shares of our common stock. Mr. DePetrillo and Centennial became 5% stockholders
as a result of this transaction.
In November 1996, we purchased all of the outstanding capital stock of TRIAX
Technology Group, Ltd. from the TRIAX shareholders for a purchase price of
$3,760,600 in cash and 2,119,500 shares of our common stock. Of those shares of
our common stock issued in connection with such purchase to the selling
shareholders of TRIAX, Messrs. Sainsbury, McEwan and Stanley each received
605,600 shares of our common stock. As a result of this transaction, Messrs.
Sainsbury and McEwan each became a 5% stockholder and each currently serves as
an officer and director of Century. In addition, to help finance the cash
portion of the purchase price and certain transaction costs, we issued 3,073,130
shares of our common stock, for an aggregate of $5.0 million, to Centennial. In
addition, as a brokers' fee for his services in connection with the transaction,
Mr. DePetrillo received 120,000 shares of our common stock and 25,000 shares of
Centennial common stock.
In November 1996, we and DCI entered into guaranties pursuant to which we
guaranteed the payment of all obligations of Centennial to BankBoston, N.A.
pursuant to a revolving credit agreement. To secure our guaranties, we and DCI
granted a security interest in all of our assets to BankBoston. BankBoston
released us and DCI of our guarantees and its security interest in our assets in
July 1997. At this time, we also purchased certain assets under capital
subleases between us and Centennial valued at $2.2 million.
In March 1997, DCI issued a promissory note to Centennial in the aggregate
principal amount of $4,129,099 payable on demand at a rate of 8.25%. This note
was satisfied in July 1997.
In July 1997, we repurchased 3,000,000 shares of our common stock from
Centennial in exchange for a convertible subordinated debenture in the amount of
$6,000,000 at a rate of 6% due June 25, 2007. As a result, we reduced
Centennial's ownership of our common stock to below 50%. In order to secure
payment of that $6,000,000 debenture, DCI granted a security interest in certain
of its assets to Centennial pursuant to a Security Agreement dated June 1997. At
the same time, Centennial transferred 928,000 shares of common stock to former
owners of TRIAX in exchange for their delivery of a Mutual General Release
executed by them, TRIAX, DCI, and us. As a result, Centennial and its officers
and directors were released from any claims or suits by any of the parties
executing the mutual release. Also, we entered into an Indemnification Agreement
with Centennial acknowledging that three of our stockholders failed to sign the
mutual release and agreeing to indemnify Centennial for any adverse consequences
which occurred as a result of that breach. Of the 928,000 shares sold by
Centennial to former owners of TRIAX, 350,000 are beneficially owned by Mr.
Sainsbury, 150,000 are beneficially owned by Mr. McEwan, 200,000 are
beneficially owned by Mr. DePetrillo through Kellygreen Ltd., 50,000 are
beneficially owned by Ray Stanley and 50,000 are beneficially owned by Mr.
Conroy. Mr. Conroy is both an officer and director of Century. In addition, we
issued 75,000 shares of our common stock to Mr. DePetrillo as a brokers' fee for
his services in connection with these transactions.
In July 1997, we purchased a majority of the stock of Centennial
Technologies (Thailand) Limited (now, Century Electronics Manufacturing
(Thailand) Limited) from Centennial Technologies, Inc. for $1,250,000. To
finance the transaction, we issued to Centennial a promissory note in the face
amount of $1,891,125 at an interest rate of 9% due January 1999 and a warrant to
purchase 250,000 shares of our common stock at $3.00 per share. In November
1997, we purchased the remaining 49% interest in Centennial Technologies
(Thailand) Limited from CTN Thailand Holdings Limited in exchange for
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750,000 shares of our common stock and a warrant to purchase 100,000 shares of
our common stock at $5.00 per share at any time prior to September 2000.
In February 1998, we issued 666,667 shares of series B preferred stock to
Centennial for a purchase price of $6.00 per share (an aggregate purchase price
of $4,000,000) and paid approximately $7.42 million in cash in exchange for the
redemption of 3,683,635 shares of our common stock owned by Centennial,
cancellation of the $6,000,000 convertible subordinated debenture due on June
25, 2007, cancellation of the promissory note issued by us to Centennial on July
1, 1997 in the face amount of $1,891,125, and cancellation of the warrant to
purchase 250,000 shares of our common stock at $3.00 per share. In addition,
Thomas DePetrillo received 175,000 shares of our common stock as a brokers' fee
for his services in connection with the transaction.
In February 1998, we also sold 2,739,726 shares of series A preferred stock
to HarbourVest Venture Partners V--Direct Fund, L.P. for a purchase price of
$3.65 per share (an aggregate purchase price of $10,000,000). As a result of
this transaction, HarbourVest became a 5% stockholder. In August 1998, we also
issued a 10% promissory note due September 30, 1998 to HarbourVest in the
aggregate principal amount of $400,000. In November 1998, we issued a 10%
promissory note due November 1, 1999 or earlier to HarbourVest in the aggregate
principal amount of $1,000,000 and a warrant to purchase 27,397 shares of series
A preferred stock at an exercise price of $3.65 per share at any time on or
before December 31, 2003. Both notes were repaid in December 1998 as part of the
purchase price when we sold an additional 931,507 shares of series A preferred
stock to HarbourVest Partners V--Direct Fund, L.P. for a purchase price of $3.65
per share (an aggregate purchase price of approximately $3,400,001). Mr.
Nemirovsky, one of our directors, is a member of the general partner of
HarbourVest Partners V--Direct Fund L.P., and a member of the managing member of
the general partner of Direct Fund.
In February 1998, Mr. DePetrillo purchased the securities of several
companies owned by Centennial. In order to finance part of the transaction, we
loaned Mr. DePetrillo $410,000 evidenced by a note to us which accrues interest
at the IRS safe harbor imputed interest rate. The note is collateralized by
175,000 shares of our common stock owned by Mr. DePetrillo. There is currently
outstanding $310,000 on the note due to us.
In January 1999, we repurchased 200,000 shares of our common stock from Mr.
Stanley for an aggregate purchase price of $400,000. Prior to this time, Mr.
Stanley had been a 5% stockholder since the TRIAX transaction.
In July 1999, we purchased all of the outstanding capital stock of Amitek
for a purchase price, which is subject to adjustment, of $5,654,000 cash,
7,219,000 in notes and 2,127,548 shares of our common stock. Of those shares of
our common stock issued in connection with such purchase to the selling
shareholders of Amitek, Myung Ho Park received 624,119 shares of our common
stock and Yoon Jung Park received 1,085,049 shares of our common stock. As of
result of this transaction, Myung Ho Park and Yoon Jung Park each became 5%
stockholders.
Mr. Park's employment agreement provides for a base salary of $210,000 per
year. He is entitled to participate in our health, group insurance plan, or
pension insurance and benefits program, and all other employee benefit plans
from time to time in effect for our employees generally. He is also entitled to
the reimbursement of all reasonable business expenses incurred or paid for by
Mr. Park in the performance of his duties and responsibilities for us. Mr.
Park's employment agreement terminates on December 1, 1999, but is subject to
earlier termination. Mr. Park's employment agreement provides that if he is
terminated by us, whether or not for cause, we will pay him on the date of
termination a lump sum severance payment equal to his base salary for the
remainder of the term of his employment agreement. His employment agreement
provides that if he terminates his employment for good reason, we will pay him
on the date of termination a lump sum severance payment equal to his base salary
for the remainder of the term of his employment agreement. In the event Mr. Park
terminates his
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employment without good reason, his employment agreement provides that we will
pay him on the date of termination any base salary earned but not paid through
the date of termination and pay for any vacation time accrued but not used to
that date. After the date of termination of Mr. Park's employment by either
party for any reason until December 31, 1999, we will continue, at our expense,
his participation, and, that of his eligible dependents, in all benefit plans,
programs and perquisites in which he, or they, were eligible to participate
immediately prior to the termination of his employment.
We will require that all future transactions with parties affiliated with
us, including loans between us and our officers, directors, principal
stockholders and their affiliates, be approved by a majority of the board of
directors, including a majority of independent and disinterested directors, and
that such transactions will need to be on terms no less favorable to us than
could be obtained from unaffiliated third parties.
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DESCRIPTION OF SECURITIES
GENERAL
Our amended and restated certificate of incorporation, which will become
effective upon the closing of this offering, authorizes the issuance of up to
22,500,000 shares of common stock, par value $0.01 per share, and 1,000,000
shares of preferred stock, par value $0.01 per share, the rights and preferences
of which may be established from time to time by our board of directors. As of
June 30, 1999, 8,449,425 shares of common stock were outstanding, held of record
by 66 stockholders.
COMMON STOCK
Under our certificate of incorporation, holders of our common stock are
entitled to one vote for each share held of record on all matters submitted to a
vote of the stockholders, including the election of directors. They do not have
cumulative voting rights. Subject to preferences that may be applicable to any
outstanding series of preferred stock, holders of our common stock are entitled
to share ratably in any dividends that may be declared by the board of directors
out of legally available funds. In case of a liquidation, dissolution or winding
up of Century, the holders of common stock will be entitled to share ratably in
the net assets legally available for distribution to shareholders, in each case
after payment of all of our liabilities and subject to preferences that may be
applicable to any series of preferred stock then outstanding. The holders of
common stock have no preemptive or conversion rights or other subscription
rights. There are no redemption or sinking fund provisions applicable to the
common stock. The rights, preferences and privileges of holders of common stock
are subject to the rights of the holders of shares of any series of preferred
stock that we may designate and issue in the future. After the closing of this
offering, there will be no shares of preferred stock outstanding.
PREFERRED STOCK
Under our certificate of incorporation, our board of directors has the
authority, without further action by the stockholders, to issue from time to
time, shares of preferred stock in one or more series. The board of directors
may fix the number of shares, designations, preferences, powers and other
special rights of the preferred stock. The preferences, powers, rights and
restrictions of different series of preferred stock may differ. The issuance of
preferred stock could decrease the amount of earnings and assets available for
distribution to holders of common stock or affect adversely the rights and
powers, including voting rights, of the holders of common stock. The issuance
may also have the effect of discouraging, delaying or preventing a change in
control of Century, regardless of whether the transaction may be beneficial to
stockholders. We have no current plans to issue any additional shares of
preferred stock.
WARRANTS
In July 1999, we granted Guaranty Business Credit Corporation a warrant to
purchase 60,000 shares of our common stock at an exercise price of $6.00 per
share. The warrant is immediately exercisable at any time prior to July 30,
2004, and may be put to us at any time prior to July 30, 2004 for $500,000. The
warrant is subject to anti-dilution protection and includes piggyback
registration rights.
We have also granted other warrants to acquire our equity which are
described under the section entitled "Certain Relationships and Related
Transactions."
LIABILITY OF DIRECTORS
Our certificate of incorporation provides that our directors shall not be
liable to us or our stockholders for monetary damages for any breach of
fiduciary duty, except to the extent otherwise required by the Delaware General
Corporation Law. This provision will not prevent our stockholders
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from obtaining injunctive or other relief against our directors. This provision
also does not shield our directors from liability under federal or state
securities laws.
REGISTRATION RIGHTS
In connection with the private placement of an aggregate of 3,698,630 shares
of series A preferred stock in February 1998 and December 1998, we granted
HarbourVest registration rights. At any time after this offering, if demanded by
the holders of more than 50% of the common stock issued upon conversion of our
series A preferred stock, we must use our diligent best efforts to effect a
registration statement under the Securities Act covering all registrable shares
requested to be included. We are required to effect up to two such demand
registrations. Also, if one of our directors or officers holding other
securities request inclusion in any such registration initiated by the investor,
or if a holder of our securities is entitled by contract to have securities
included in such registration, the investor shall include the securities of such
officers, directors and other shareholders in the underwriting. In addition,
such holders have piggyback registration rights. If we propose to register any
of our securities under the Securities Act, then such holders may have the right
to include all or a portion of their shares in such registration. The
underwriter of any such offering has the right to limit the number of shares in
such registration. We will bear all registration expenses in connection with any
registration, excluding underwriting discounts, selling commissions and transfer
taxes applicable to the sale of registrable securities. We have agreed to
indemnify the holders in connection with the registration of their shares of
common stock.
In connection with our private placement of an aggregate of 666,667 shares
of series B preferred stock in February 1998, we granted the investor,
Centennial Technologies, Inc., registration rights. At any time after this
offering of our securities, if requested by the holders of more than 50% of the
common stock issued upon conversion of our series B preferred stock, then we
must use our diligent best efforts to effect a registration statement under the
Securities Act covering all registrable shares requested to be included by such
holders. We are required to effect up to two such demand registrations. Also, if
one of our directors or officers holding other securities request inclusion in
any such registration initiated by the investor, or if a holder of our
securities is entitled by contract to have securities included in such
registration, the investor shall include the securities of such officers,
directors and other shareholders in the underwriting. In addition, such holders
have piggyback registration rights. If we propose to register any of our
securities under the Securities Act then such holders may require us to include
all or a portion of their shares in such registration. The underwriter of any
such offering has the right to limit the number of shares in such registration.
All registration expenses incurred by us in connection with any registration
shall generally be borne by us, except underwriting discounts, selling
commissions and transfer taxes applicable to the sale of registrable securities.
We have agreed to indemnify the holders in connection with the registration of
their shares of common stock.
In connection with the issuance of notes that were converted into 705,424
shares of our common stock, we granted the holders of such notes demand
registration rights. At any time after six months after this offering, the
holders of at least 20% of these converted securities may collectively demand
only one registration of these securities. In addition, we granted the holders
of such notes piggyback registration rights. At any time we register any
securities after this offering, then such holders may require us to include all
or a portion of their shares in such registration. The managing underwriter of
any such piggyback registration has the right to limit the number of shares in
such registration. We have agreed to bear all registration expenses incurred in
connection with any registration, excluding underwriting discounts or
commissions and filing fees related to the securities to be registered. We have
also agreed to indemnify the holders in connection with the registration of
their shares of common stock.
In connection with our acquisition of Amitek, we granted Myung Ho Park, Yoon
Jung Park and Sung Woo Kwon registration rights with respect to 1,709,168 shares
of our common stock owned by
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them. At any time after six months after this offering, one or more investor
holding at least 50% of the securities issued in connection with the acquisition
may request registration of such securities. We are required to effect only one
such demand registration. The managing underwriter has the right to limit the
number of shares included in such registration. Additionally, at any time after
we become eligible to file a registration statement on Form S-3, any of the
investors may request us to effect the registration on Form S-3 of such number
of their securities having a market value of not less than $100,000, but we are
not required to effect more than one such registration per year. We may postpone
for a period of up to 60 days the filing of any such registration if our board
of directors in good faith determines that such registration is likely to have
an adverse effect on any present or future financing, acquisition,
recapitalization, reorganization, or other material transaction. The managing
underwriter of any such registration has the right to limit the number of shares
included in such registration. We have also granted the investors piggyback
registration rights. If we propose to register any of our securities under the
Securities Act, then the investors may have the right to include all or a
portion of their shares in such registration. The managing underwriter of any
such registration has the right to limit the number of shares in such
registration. We shall bear all registration expenses incurred by us in
connection with any registration, including the fees and disbursements of one
counsel for the investors, but excluding underwriting discounts, applicable
transfer taxes, and commissions and filing fees related to the securities to be
registered. We have agreed to indemnify the investors in connection with the
registration of their securities.
In connection with our grant of a warrant to Guaranty Business Credit
Corporation, we granted Guaranty piggyback registration rights. If we propose to
register any of our securities under the Securities Act, Guaranty may have the
right to include all or a portion of the shares underlying their warrant. The
underwriter of any such offering has the right to limit the number of shares
included in such offering. We have agreed to cover all registration expenses,
excluding underwriting discounts and commissions and fees and expenses of
Guaranty's counsel. We have agreed to indemnify Guaranty in connection with the
registration of its common stock in a registration statement filed by us.
ANTI-TAKEOVER EFFECTS OF DELAWARE LAW AND OUR AMENDED AND RESTATED CERTIFICATE
OF INCORPORATION AND BYLAWS
Certain provisions of the Delaware General Corporation Law and our
certificate of incorporation and by-laws may be deemed to have an anti-takeover
effect and may discourage, delay or prevent a tender offer or takeover attempt
that a stockholder might consider in its best interest, including those attempts
that might result in a premium over the market price for the shares held by
stockholders. These provisions are summarized in the following paragraphs.
BUSINESS COMBINATIONS
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. Section 203 prohibits a publicly-held Delaware corporation from
engaging in a business combination with an interested stockholder for a period
of three years after the date of the transaction in which the person became an
interested stockholder, unless the business combination is approved in a
prescribed manner. A "business combination" includes mergers, asset sales and
other transactions resulting in a financial benefit to the interested
stockholder. Subject to limited exceptions, an "interested stockholder" is:
- a person who together with affiliates and associates owns 15% or more of
the voting stock of the corporation or,
- an affiliate or associate of the corporation who within the three years
preceding the date of the proposed transaction owned 15% or more of the
voting stock of the corporation.
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CLASSIFIED BOARD OF DIRECTORS
Our board of directors is divided into three classes of directors, as nearly
equal in size as possible, serving staggered three-year terms. Upon expiration
of the term of a class of directors, the directors in that class will be elected
for three-year terms at the annual meeting of stockholders in the year in which
the term for that class of directors expires. In addition, our certificate of
incorporation and by-laws provide that directors may be removed only for cause
by the affirmative vote of the holders of two-thirds of the shares of capital
stock entitled to vote. Under our certificate of incorporation and the by-laws,
any vacancy on the board of directors, however occurring, including a vacancy
resulting from an enlargement of the board of directors, may only be filled by
vote of a majority of the directors then in office. The classification of the
board of directors and the limitations on the removal of directors and filling
of vacancies could have the effect of making it more difficult for a third party
to acquire, or of discouraging a third party from acquiring, control of us.
CUMULATIVE VOTING
Our certificate of incorporation expressly denies stockholders the right to
cumulate votes in the election of directors.
STOCKHOLDER ACTION; SPECIAL MEETING OF STOCKHOLDERS
Our certificate of incorporation eliminates the ability of stockholders to
act by written consent. It further provides that special meetings of our
stockholders may be called only by the chairman of the board of directors, the
chief executive officer or, if none, the president, or a majority of the board
of directors. These provisions could have the effect of delaying until the next
annual meeting of stockholders those actions which are favored by the holders of
a majority of our outstanding voting securities. These provisions may also
discourage another person from making a tender offer for our common stock,
because that person, even if it acquired a majority of our outstanding voting
securities, would be able to take action as a stockholder, such as electing new
directors or approving a merger, only at a duly called meeting of stockholders
and not by written consent.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTORS
NOMINATIONS
Our bylaws provide that stockholders seeking to bring business before an
annual meeting of stockholders, or to nominate candidates for election as
directors at an annual meeting of stockholders, must provide timely notice
thereof in writing. To be timely, a stockholder's notice must be received at our
principal executive offices not less than sixty (60) days nor more than ninety
(90) days prior to the anniversary date of the immediately preceding annual
meeting of stockholders. In the event that the annual meeting is called for a
date that is not within thirty (30) days before or after the anniversary date,
in order to be timely, notice from the stockholder must be received no later
than the tenth day following the date on which notice of the annual meeting was
mailed to stockholders or made public, whichever occurred earlier. In the case
of a special meeting of stockholders called for the purpose of electing
directors, notice by the stockholder in order to be timely must be received not
later than the close of business on the tenth day following the day on which
notice was mailed or public disclosure of the date of the special meeting was
made, whichever first occurs. Our amended and restated bylaws also specify
certain requirements as to the form and content of a stockholder's notice. These
provisions may preclude stockholders from bringing matters before an annual
meeting of stockholders or from making nominations for directors at an annual
meeting of stockholders.
AUTHORIZED BUT UNISSUED SHARES
The authorized but unissued shares of common stock and preferred stock are
available for future issuance without stockholder approval. These additional
shares may be utilized for a variety of corporate purposes, including future
public offerings to raise additional capital, corporate acquisitions and
employee benefit plans. The existence of authorized but unissued shares of
common stock and
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preferred stock could render more difficult or discourage an attempt to obtain
control of us by means of a proxy contest, tender offer, merger or otherwise.
AMENDMENTS; SUPERMAJORITY VOTE REQUIREMENTS
The Delaware General Corporation Law provides generally that the affirmative
vote of a majority of the shares entitled to vote on any matter is required to
amend a corporation's certificate of incorporation or by-laws, unless a
corporation's certificate of incorporation or by-laws, as the case may be,
requires a greater percentage. Our certificate of incorporation imposes
supermajority vote requirements in connection with the amendment of provisions
of our amended and restated certificate of incorporation and amended and
restated by-laws, including those provisions relating to the classified board of
directors and the ability of our stockholders to take action by written consent
or to call special meetings.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is EquiServe, L.P.
LISTING OF COMMON STOCK
We have applied to list our common stock on the Nasdaq National Market under
the trading symbol "CEMI."
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SHARES ELIGIBLE FOR FUTURE SALE
The sale of a substantial amount of our common stock in the public market
after this offering could adversely affect the prevailing market price of our
common stock. Furthermore, because no shares will be available for sale shortly
after this offering due to the contractual and legal restrictions on resale
described below, the sale of a substantial amount of common stock in the public
market after these restrictions lapse could adversely affect the prevailing
market price of our common stock and our ability to raise equity capital in the
future.
Upon completion of this offering, we will have outstanding an aggregate of
16,120,658 shares of our common stock, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options. Of these shares,
all of the shares sold in this offering will be freely tradable without
restriction or further registration under the Securities Act, unless the shares
are purchased by "affiliates" as that term is defined in Rule 144 under the
Securities Act. Any shares purchased by an affiliate may not be resold except
pursuant to an effective registration statement or an applicable exemption from
registration, including an exemption under Rule 144 of the Securities Act. The
remaining shares of common stock held by existing stockholders are "restricted
securities" as that term is defined in Rule 144 under the Securities Act. These
restricted securities may be sold in the public market only if they are
registered or if they qualify for an exemption from registration under Rule 144
or Rule 701 under the Securities Act. These rules are summarized below.
Upon the expiration of the lock-up agreements described below and subject to
the provisions of Rule 144 and Rule 701, restricted shares totaling will
be available for sale in the public market ninety (90) days after the date of
this prospectus. The sale of these restricted securities is subject, in the case
of shares held by affiliates, to the volume restrictions contained in those
rules.
LOCK-UP AGREEMENTS
We, our directors and executive officers and some of our stockholders, who
own in the aggregate shares of our common stock, have entered into lock-up
agreements with the underwriters. Under those agreements, neither we nor any of
our directors or executive officers nor any of those stockholders may dispose of
or hedge any shares of common stock or securities convertible into or
exchangeable for shares of common stock. These restrictions will be in effect
for a period of one hundred eighty (180) days after the date of this prospectus.
At any time and without notice, Advest may, in its sole discretion, release all
or some of the securities from these lock-up agreements. Transfers or
dispositions can be made sooner, provided the transferee becomes bound to the
terms of the lockup:
- with the prior written consent of Advest;
- in the case of some transfers to affiliates;
- as a bona fide gift; or
- to any trust.
RULE 144
In general, under Rule 144 as currently in effect, beginning ninety (90)
days after the date of this prospectus, a person who has beneficially owned
shares of our common stock for at least one year from the later of the date
those shares of common stock were acquired from us or from an affiliate of ours
would be entitled to sell within any three-month period a number of shares that
does not exceed the greater of:
- one percent of the number of shares of common stock then outstanding,
which will equal approximately 167,872 shares immediately after this
offering; or
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- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to the sale of any shares of common stock.
The sales of any shares of common stock under Rule 144 are also subject to
manner of sale provisions and notice requirements and to the availability of
current public information about us.
RULE 144(K)
Under Rule 144(k), a person who is not one of our affiliates at any time
during the three months preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least two years from the later of the date
such shares of common stock were acquired from us or from an affiliate of ours,
including the holding period of any prior owner other than an affiliate, is
entitled to sell those shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. Therefore,
unless otherwise restricted pursuant to the lock-up agreements or otherwise,
those shares may be sold immediately upon the completion of this offering.
RULE 701
In general, under Rule 701 of the Securities Act as currently in effect,
each of our employees, consultants or advisors who purchased shares from us in
connection with a compensatory stock plan or other written agreement is eligible
to resell those shares ninety (90) days after the effective date of this
offering in reliance on Rule 144, but without compliance with some of the
restrictions, including the holding period, contained in Rule 144.
No precise prediction can be made as to the effect, if any, that market
sales of shares or the availability of shares for sale will have on the market
price of our common stock prevailing from time to time. We are unable to
estimate the number of our shares that may be sold in the public market pursuant
to Rule 144 or Rule 701 because this will depend on the market price of our
common stock, the personal circumstances of the sellers and other factors.
Nevertheless, sales of significant amounts of our common stock in the public
market could adversely affect the market price of our common stock.
STOCK PLANS
We intend to file a registration statement under the Securities Act covering
2,000,000 shares of common stock reserved for issuance under our 1996 Stock
Option Plan. This registration statement is expected to be filed as soon as
practicable after the effective date of this offering.
Currently, there are options to purchase 1,135,500 shares outstanding under
our 1996 Stock Option Plan and otherwise. All of these shares will be eligible
for sale in the public market from time to time, subject to vesting provisions,
Rule 144 volume limitations applicable to our affiliates and, in the case of
some of the options, the expiration of lock-up agreements.
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UNDERWRITING
Advest, Inc., J.C. Bradford & Co. and Needham & Company, Inc. are acting as
representatives of each of the underwriters named below. Subject to the terms
and conditions set forth in an underwriting agreement between us and the
underwriters, we have agreed to sell to the underwriters, and each of the
underwriters severally and not jointly has agreed to purchase from us, the
number of shares of our common stock set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ---------------------------------------------------------------------------------- -----------------
<S> <C>
Advest, Inc.......................................................................
J.C. Bradford & Co................................................................
Needham & Company, Inc............................................................
-
Total.........................................................................
-
-
</TABLE>
In the underwriting agreement, the several underwriters have agreed, subject
to the terms and conditions set forth therein, to purchase all of the shares of
common stock being sold pursuant to the underwriting agreement if any of the
shares of common stock being sold pursuant to such agreements are purchased. In
some circumstances the commitments of non-defaulting underwriters may be
increased or the underwriting agreement may be terminated.
The underwriters propose initially to offer the shares of our common stock
in part directly to the public at the offering price set forth on the cover page
of this prospectus and in part to some securities dealers at such price less a
concession not in excess of $ per share of common stock. The
underwriters may allow, and such dealers may reallow, a discount not in excess
of $ per share of common stock on sales to some other securities
dealers. After the offering, the offering price, concession and discount may be
changed.
We have granted options to the underwriters, exercisable for thirty (30)
days after the date of this prospectus, to purchase up to an aggregate of
600,000 additional shares of common stock at the offering price set forth on the
cover page of this prospectus, less the underwriting discount. The underwriters
may exercise these options solely to cover over-allotments, if any, made on the
sale of the common stock offered hereby. If the underwriters exercise these
options, each underwriter will be obligated, subject to some conditions, to
purchase a number of additional shares of common stock proportionate to such
underwriter's initial amount reflected in the foregoing table.
The following table shows the per share and total underwriting discounts to
be paid by us to the underwriters and the proceeds before expenses to us. The
expenses of the offering are estimated at $ and are payable by us.
This information is presented assuming either no exercise or full exercise by
the underwriters of their over-allotment options.
<TABLE>
<CAPTION>
WITHOUT WITH
PER SHARE OPTION OPTION
----------- ----------- ---------
<S> <C> <C> <C>
Public offering price.......................................... $ $ $
Underwriting discount.......................................... $ $ $
Proceeds, before expenses, to Century.......................... $ $ $
</TABLE>
The shares of common stock are being offered by the several underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of some legal matters by counsel for the underwriters and some other
conditions. The underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part.
We, our directors and executive officers and some of our stockholders have
entered into lock-up agreements with the underwriters. Under those agreements,
neither we nor any of our directors or
56
<PAGE>
executive officers nor any of those stockholders may dispose of or hedge any
shares of common stock or securities convertible into or exchangeable for shares
of common stock. These restrictions will be in effect for a period of 180 days
after the date of this prospectus. At any time and without notice, Advest may,
in its sole discretion, release all or some of the securities from these lock-up
agreements.
The underwriters do not expect sales of the common stock to any accounts
over which they exercise discretionary authority to exceed five percent of the
number of shares being offered in this offering.
We have agreed to indemnify the underwriters against some liabilities,
including liabilities under the Securities Act, or to contribute to payments the
underwriters may be required to make in respect thereof.
In connection with the offering, the underwriters may purchase and sell the
common stock in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover short positions created by
the underwriters in connection with the offering. Stabilizing transactions
consist of certain bids or purchases for the purpose of preventing or retarding
a decline in the market price of the common stock; and syndicate short positions
involve the sale by the underwriters of a greater number of shares of common
stock than they are required to purchase from us in the offering. The
underwriters also may impose a penalty bid, whereby selling concessions allowed
to broker-dealers in respect of the securities sold in the offering may be
reclaimed by the underwriters if such shares of common stock are repurchased by
the underwriters in stabilizing or covering transactions. These activities may
stabilize, maintain, or otherwise affect the market price of the common stock,
which may be higher than the price that may otherwise prevail in the open
market; and these activities, if commenced, may be discounted at any time. These
transactions may be effected on the Nasdaq National Market, in the
over-the-counter market or otherwise.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
we nor any of the underwriters makes any representation that the representatives
will engage in these transactions or that these transactions, once commenced,
will not be discontinued without notice.
Advest provided investment banking services to Amitek in connection with its
acquisition by us for which Advest received customary fees. The underwriters or
their affiliates may provide investment or commercial banking services to us in
the future for which they will receive customary fees and commissions.
57
<PAGE>
VALIDITY OF COMMON STOCK
The validity of the common stock offered hereby will be passed upon for
Century by Ropes & Gray, Boston, Massachusetts. Certain legal matters in
connection with this offering will be passed upon for the underwriters by
Choate, Hall & Stewart, Boston, Massachusetts.
EXPERTS
KPMG LLP, independent auditors, have audited our consolidated financial
statements at June 30, 1997 and 1998 and the year ended October 31, 1995, the
eight months ended June 30, 1996 and the years ended June 30, 1997 and 1998 as
set forth in their report. We have included our financial statements and
schedule in the prospectus and elsewhere in the registration statement in
reliance on KPMG LLP's report, given on their authority as experts in accounting
and auditing.
The financial statements of Amitek as of December 31, 1998 and 1997 and for
the years then ended included in this prospectus have been so included in
reliance on the report (which includes a paragraph of emphasis regarding
Amitek's transactions and relationships with affiliates as described in Notes 5
and 7 to the financial statements) of PricewaterhouseCoopers LLP, independent
certified public accountants, given on the authority of said firm as experts in
auditing and accounting.
Lawrence N. Legg, CPA, PA, independent auditors, have audited Amitek
Corporation's financial statements as of and for the year ended December 31,
1996 as set forth in his report dated March 20, 1997, except for notes J and K,
as to which the date is June 30, 1999. We have included required financial
statements in the prospectus in reliance on Lawrence N. Legg, CPA, PA's report,
given on their authority as experts in accounting and auditing.
58
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a Registration
Statement on Form S-1, including exhibits and schedules, under the Securities
Act with respect to the common stock to be sold in this offering. This
prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement or the
exhibits and schedules which are part of the registration statement. Any
statements made in this prospectus as to the contents of any contract, agreement
or other document are necessarily incomplete. With respect to each such
contract, agreement or other document filed as an exhibit to the Registration
Statement we refer you to the exhibit for a more complete description of the
matter involved, and each statement in this prospectus shall be deemed qualified
in its entirety by this reference.
You may read and copy all or any portion of the Registration Statement or
any reports, statements or other information in the files at the public
reference facilities of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C., 20549 and at the regional offices of the
Commission located at Seven World Trade Center, 13th Floor, New York, New York
10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You can
request copies of these documents upon payment of a duplicating fee by writing
to the Commission. You may call the Commission at 1-800-SEC-0330 for further
information on the operation of its public reference rooms. Our filings,
including the Registration Statement, will also be available to you on the
Internet site maintained by the Commission at http://www.sec.gov.
We intend to furnish our stockholders with annual reports containing
financial statements audited by our independent auditors and to make available
to our stockholders quarterly reports containing unaudited financial data for
the first three quarters of each fiscal year.
59
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
CENTURY ELECTRONICS MANUFACTURING, INC.
Independent Auditors Report................................................................................ F-2
Consolidated Balance Sheets at June 30, 1997, 1998 and March 31, 1999 (Unaudited).......................... F-3
Consolidated Statements of Operations for the year ended October 31, 1995, the eight month period ended
June 30, 1996, the years ended June 30, 1997 and 1998 and the nine month periods ended March 31, 1998 and
1999 (Unaudited)......................................................................................... F-4
Consolidated Statements of Stockholders' Equity and Comprehensive Income for the year ended October 31,
1995, the eight month period ended June 30, 1996, the years ended June 30, 1997 and 1998 and the nine
month period ended March 31, 1999 (Unaudited)............................................................ F-5
Consolidated Statements of Cash Flows for the year ended October 31, 1995, the eight month period ended
June 30, 1996, the years ended June 30, 1997 and 1998 and the nine month periods ended March 31, 1998 and
1999 (Unaudited)......................................................................................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
AMITEK CORPORATION
Report of Independent Certified Public Accountants......................................................... F-23
Independent Auditor's Report............................................................................... F-24
Balance Sheets as of December 31, 1997, 1998 and March 31, 1999 (Unaudited)................................ F-25
Statements of Operations for the years ended December 31, 1996, 1997 and 1998 and three months ended March
31, 1999 (Unaudited)..................................................................................... F-26
Statement of Changes in Stockholders' Equity for the years ended December 31, 1996, 1997 and 1998 and three
months ended March 31, 1999 (Unaudited).................................................................. F-27
Statements of Cash Flows for the years ended December 31, 1996, 1997 and 1998 and three months ended March
31, 1999 (Unaudited)..................................................................................... F-28
Notes to Financial Statements.............................................................................. F-29
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Century Electronics Manufacturing, Inc.
We have audited the accompanying consolidated balance sheets of Century
Electronics Manufacturing, Inc. and subsidiaries as of June 30, 1997 and 1998,
and the related consolidated statements of operations, stockholders' equity and
comprehensive income, and cash flows for the year ended October 31, 1995, the
eight months ended June 30, 1996, and the years ended June 30, 1997 and 1998.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Century Electronics
Manufacturing, Inc. and subsidiaries as of June 30, 1997 and 1998, and the
results of their operations and their cash flows, for the year ended October 31,
1995, the eight months ended June 30, 1996, and the years ended June 30, 1997
and 1998 in conformity with generally accepted accounting principles.
KPMG LLP
November 13, 1998
Boston, Massachusetts
F-2
<PAGE>
CENTURY ELECTRONICS MANUFACTURING, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, MARCH 31,
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
UNAUDITED
ASSETS
Current assets:
Cash................................................. $ 2,556,345 $ 1,629,655 $ 2,715,334
Trade accounts receivable, net of allowance for
doubtful receivables of approximately $680,000,
$320,000 and $165,618 in 1997, 1998 and 1999,
respectively (note 10)............................. 10,127,021 11,526,110 22,110,172
Other receivables.................................... 306,940 -- --
Inventories (notes 2 and 5).......................... 13,780,971 6,433,521 12,717,350
Prepaid expenses..................................... 131,438 520,514 777,399
Related party note receivable........................ 60,978 451,346 322,830
Deferred income taxes (note 7)....................... 60,713 98,622 98,622
----------- ----------- -----------
Total current assets............................... 27,024,406 20,659,768 38,741,707
Property, plant and equipment, net of accumulated
depreciation and amortization (notes 3, 5 and 6)..... 11,077,549 15,143,382 16,755,686
Goodwill, net of accumulated amortization (note 11).... 7,488,942 123,678 460,666
Other assets (note 5).................................. 756,713 893,884 1,073,070
----------- ----------- -----------
Total assets....................................... $46,347,610 36,820,712 57,031,129
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving note payable (note 5)...................... $ -- $ 3,811,798 $10,098,261
Related party note payable (note 13)................. 4,129,099 -- --
Current portion of term notes payable, bank (note
5)................................................. -- 200,000 472,122
Current portion of capital leases (notes 6 and 13)... 2,061,915 1,860,341 1,092,853
Accounts payable..................................... 17,412,535 11,843,200 22,158,233
Income taxes payable (note 7)........................ 1,082,080 718,162 373,417
Accrued expenses and other current liabilities (note
4)................................................. 3,430,357 1,823,243 1,510,753
----------- ----------- -----------
Total current liabilities.......................... 28,115,986 20,256,744 35,705,639
Long-term note payable (note 5)........................ 1,934,981 2,556,200 3,304,578
Capital lease payable, less current installments (notes
6 and 13)............................................ 2,158,248 1,422,178 964,827
Deferred income taxes (note 7)......................... 237,153 457,968 457,968
----------- ----------- -----------
Total liabilities.................................. 32,446,368 24,693,090 40,433,012
----------- ----------- -----------
Stockholders' equity (notes 9 and 13):
Series A preferred stock, $.01 par value, 2,739,726
and 3,671,233 shares issued and outstanding at June
30, 1998 and March 31, 1999, respectively.
Aggregate liquidation value of $20,000,000......... -- 9,900,000 13,300,001
Series B preferred stock, $.01 par value, 666,667
shares issued and outstanding at June 30, 1998.
Aggregate liquidation value of $4,000,000.......... -- 4,000,000 4,000,000
Common stock $.01 par value. Authorized 20,000,000
shares, 11,595,088, 6,521,877 and 6,321,877 issued
and outstanding in 1997, 1998 and 1999,
respectively....................................... 115,951 65,219 63,219
Additional paid-in capital........................... 17,195,458 12,093,574 11,695,574
Accumulated deficit.................................. (3,460,535) (13,914,396) (12,371,920)
Accumulated other comprehensive income............... 50,368 (16,775) (88,757)
----------- ----------- -----------
Total stockholders' equity......................... 13,901,242 12,127,622 16,598,117
----------- ----------- -----------
Commitments and contingencies (notes 6, 8, 10 and 12)
Subsequent events (note 14)
Total liabilities and stockholders' equity......... $46,347,610 $36,820,712 $57,031,129
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE>
CENTURY ELECTRONICS MANUFACTURING, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED NOVEMBER 1, YEAR ENDED JUNE 30, MARCH 31,
OCTOBER 31, 1995 TO ------------------------- ------------------------
1995 JUNE 30, 1996 1997 1998 1998 1999
------------ ------------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
Net sales............................... $ 9,069,993 $11,450,016 $70,744,344 $ 69,944,592 $49,619,308 $84,045,144
Cost of sales........................... 8,814,282 10,782,440 63,427,776 65,078,570 46,425,764 75,178,422
------------ ------------- ----------- ------------ ----------- -----------
Gross Profit........................ 255,711 667,576 7,316,568 4,866,022 3,193,544 8,866,722
Selling, marketing, general and
administrative expenses............... 1,244,165 1,108,575 3,281,061 6,006,707 4,282,375 5,293,429
Stock compensation (notes 1, 9 and
13)................................... 98,000 -- 1,775,000 1,186,000 1,186,000 --
Write-off of goodwill (note 11)......... -- -- -- 7,488,942 7,488,942 --
------------ ------------- ----------- ------------ ----------- -----------
(1,086,454) (440,999) 2,260,507 (9,815,627) (9,763,773) 3,573,293
Other deductions (income):
Interest expense, net................. 347,042 201,845 557,926 1,136,782 769,749 1,271,279
Other, net............................ (219) (2,459) (26,049) (280,109) (133,776) (185,851)
------------ ------------- ----------- ------------ ----------- -----------
Income (loss) before income tax
expense (benefit)................. (1,433,277) (640,385) 1,728,630 (10,672,300) (10,399,746) 2,487,865
Income tax expense (benefit) (note 7)... (15,603) -- 1,451,445 (218,439) (208,995) 945,389
------------ ------------- ----------- ------------ ----------- -----------
Net income (loss)................... $(1,417,674) $ (640,385) $ 277,185 $(10,453,861) $(10,190,751) $ 1,542,476
------------ ------------- ----------- ------------ ----------- -----------
------------ ------------- ----------- ------------ ----------- -----------
Net income (loss) per share-basic....... ($ 0.23) ($ 0.10) $ 0.03 $ (1.33) $ (1.14) $ 0.24
------------ ------------- ----------- ------------ ----------- -----------
------------ ------------- ----------- ------------ ----------- -----------
Net income (loss) per share-diluted..... ($ 0.23) ($ 0.10) $ 0.03 $ (1.33) $ (1.14) $ 0.13
------------ ------------- ----------- ------------ ----------- -----------
------------ ------------- ----------- ------------ ----------- -----------
Weighted average common shares
outstanding-basic..................... 6,256,000 6,256,000 9,889,000 7,870,000 8,956,000 6,489,000
------------ ------------- ----------- ------------ ----------- -----------
------------ ------------- ----------- ------------ ----------- -----------
Weighted average common shares
outstanding-diluted................... 6,256,000 6,256,000 9,889,000 7,870,000 8,956,000 11,592,000
------------ ------------- ----------- ------------ ----------- -----------
------------ ------------- ----------- ------------ ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE>
CENTURY ELECTRONICS MANUFACTURING, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
PREFERRED PREFERRED PREFERRED ADDITIONAL
STOCK STOCK STOCK COMMON PAID-IN
SERIES A SERIES B SERIES C STOCK CAPITAL
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Balance at October 31, 1994.................. $ -- 2 -- 3 3,254,377
Series C preferred stock issued in private
offering net of issuance cost (note
13)...................................... -- -- 4 -- 969,822
Issuance of compensatory employee stock
options.................................. -- -- -- -- 98,000
Exercise of common stock options........... -- -- -- -- 925
Acquisitions of treasury stock............. -- -- -- -- --
Comprehensive income
Net loss................................. -- -- -- -- --
Foreign currency translation
adjustment.............................. -- -- -- -- --
---------- ---------- ---------- ---------- -----------
Total comprehensive income................. -- -- -- -- --
---------- ---------- ---------- ---------- -----------
Balance at October 31, 1995.................. -- 2 4 3 4,323,124
Issuance of Class C preferred (note 13).... -- -- 1 -- 199,999
Re-purchase of treasury shares............. -- -- -- -- --
Comprehensive income
Net loss................................. -- -- -- -- --
Foreign currency translation
adjustment.............................. -- -- -- -- --
---------- ---------- ---------- ---------- -----------
Total comprehensive income................. -- -- -- -- --
---------- ---------- ---------- ---------- -----------
Balance at June 30, 1996..................... -- 2 5 3 4,523,123
Capital contributions by stockholder to
fund payment of stock options buy out and
debt repayment........................... -- -- -- -- 3,868,455
Recapitalization of DCI into Century....... -- (2) (5) 62,560 (689,621)
Issuance of common stock to Centennial
(note 1)................................. -- -- -- 30,732 4,991,439
Issuance of common stock for acquisition of
Triax (note 1)........................... -- -- -- 22,395 4,456,605
Exercise of options........................ -- -- -- 261 45,457
Comprehensive income
Net income............................... -- -- -- -- --
Foreign currency translation
adjustment.............................. -- -- -- -- --
---------- ---------- ---------- ---------- -----------
Total comprehensive income................. -- -- -- -- --
---------- ---------- ---------- ---------- -----------
Balance as of June 30, 1997.................. -- -- -- 115,951 17,195,458
July 1, 1997 repurchase and retirement of
3,000,000 shares of common stock
including legal costs of $61,364 and
75,000 common shares issued to a
financial intermediary (note 13)......... -- -- -- (29,250) (3,498,741)
Issuance of common stock in connection with
acquisition of Century Thailand (note
13)...................................... -- -- -- 7,500 1,856,500
Issuance of 80,000 common shares in
settlement of legal claim................ -- -- -- 800 223,200
February 1998 repurchase and retirement of
3,683,635 shares of common stock (note
13)...................................... -- -- -- (36,836) (1,792,039)
Issuance of 2,739,726 shares of Series A
preferred stock net of issuance costs of
$100,000 (note 13)....................... 9,900,000 -- -- -- --
Issuance of 666,767 shares of Series B
preferred stock in connection with
February 1998 repurchase and retirement
of common stock (note 13)................ -- 4,000,000 --(4) -- (4,000,000)
Conversion of notes payable to 705,424
shares of common stock (note 13)......... -- -- -- 7,054 2,109,196
Comprehensive income
Net loss................................. -- -- -- -- --
Foreign currency translation
adjustment.............................. -- -- -- -- --
---------- ---------- ---------- ---------- -----------
Total comprehensive income................. -- -- -- -- --
---------- ---------- ---------- ---------- -----------
Balance as of June 30, 1998.................. 9,900,000 4,000,000 -- 65,219 12,093,574
Issuance of Series A preferred stock....... 3,400,001 -- -- -- --
Pay-off of 200,000 shares of Common Stock
to Ray Stanley and Ian McEwan at $2 per
share -- -- (2,000) (398,000)
Comprehensive income
Net income............................... -- -- -- -- --
Foreign currency translation
adjustment.............................. -- -- -- -- --
---------- ---------- ---------- ---------- -----------
Total comprehensive income................. -- -- -- -- --
---------- ---------- ---------- ---------- -----------
Balance as of March 31, 1999................. 13,300,001 4,000,000 -- 63,219 11,695,574
---------- ---------- ---------- ---------- -----------
---------- ---------- ---------- ---------- -----------
<CAPTION>
ACCUMULATED
OTHER
ACCUMULATED COMPREHENSIVE TREASURY
DEFICIT INCOME STOCK TOTAL
----------- ------------- --------- -----------
<S> <C> <C> <C> <C>
Balance at October 31, 1994.................. (1,679,661 ) -- (322,500) 1,252,221
Series C preferred stock issued in private
offering net of issuance cost (note
13)...................................... -- -- -- 969,826
Issuance of compensatory employee stock
options.................................. -- -- -- 98,000
Exercise of common stock options........... -- -- -- 925
Acquisitions of treasury stock............. -- -- (304,252) (304,252)
Comprehensive income
Net loss................................. (1,417,674 ) -- -- (1,417,674)
Foreign currency translation
adjustment.............................. -- -- -- --
----------- ------------- --------- -----------
Total comprehensive income................. -- -- -- (1,417,674)
----------- ------------- --------- -----------
Balance at October 31, 1995.................. (3,097,335 ) -- (626,752) 599,046
Issuance of Class C preferred (note 13).... -- -- -- 200,000
Re-purchase of treasury shares............. -- -- (316) (316)
Comprehensive income
Net loss................................. (640,385 ) -- -- (640,385)
Foreign currency translation
adjustment.............................. -- -- -- --
----------- ------------- --------- -----------
Total comprehensive income................. -- -- -- (640,385)
----------- ------------- --------- -----------
Balance at June 30, 1996..................... (3,737,720 ) -- (627,068) 158,345
Capital contributions by stockholder to
fund payment of stock options buy out and
debt repayment........................... -- -- -- 3,868,455
Recapitalization of DCI into Century....... -- -- 627,068 --
Issuance of common stock to Centennial
(note 1)................................. -- -- -- 5,022,171
Issuance of common stock for acquisition of
Triax (note 1)........................... -- -- -- 4,479,000
Exercise of options........................ -- -- -- 45,718
Comprehensive income
Net income............................... 277,185 -- -- 277,185
Foreign currency translation
adjustment.............................. -- 50,368 -- 50,368
----------- ------------- --------- -----------
Total comprehensive income................. -- -- -- 327,553
----------- ------------- --------- -----------
Balance as of June 30, 1997.................. (3,460,535 ) 50,368 -- 13,901,242
July 1, 1997 repurchase and retirement of
3,000,000 shares of common stock
including legal costs of $61,364 and
75,000 common shares issued to a
financial intermediary (note 13)......... -- -- -- (3,527,991)
Issuance of common stock in connection with
acquisition of Century Thailand (note
13)...................................... -- -- -- 1,864,000
Issuance of 80,000 common shares in
settlement of legal claim................ -- -- -- 224,000
February 1998 repurchase and retirement of
3,683,635 shares of common stock (note
13)...................................... -- -- -- (1,828,875)
Issuance of 2,739,726 shares of Series A
preferred stock net of issuance costs of
$100,000 (note 13)....................... -- -- -- 9,900,000
Issuance of 666,767 shares of Series B
preferred stock in connection with
February 1998 repurchase and retirement
of common stock (note 13)................ -- -- -- --
Conversion of notes payable to 705,424
shares of common stock (note 13)......... -- -- -- 2,116,250
Comprehensive income
Net loss................................. (10,453,861) -- -- (10,453,861)
Foreign currency translation
adjustment.............................. -- (67,143) -- (67,143)
----------- ------------- --------- -----------
Total comprehensive income................. -- -- -- (10,521,004)
----------- ------------- --------- -----------
Balance as of June 30, 1998.................. (13,914,396) (16,775) -- 12,127,622
Issuance of Series A preferred stock....... -- -- -- 3,400,001
Pay-off of 200,000 shares of Common Stock
to Ray Stanley and Ian McEwan at $2 per
share -- -- -- (400,000)
Comprehensive income
Net income............................... 1,542,476 -- -- 1,542,476
Foreign currency translation
adjustment.............................. -- (71,982) -- (71,982)
----------- ------------- --------- -----------
Total comprehensive income................. -- -- -- 1,470,494
----------- ------------- --------- -----------
Balance as of March 31, 1999................. (12,371,920) (88,757) -- 16,598,117
----------- ------------- --------- -----------
----------- ------------- --------- -----------
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE>
CENTURY ELECTRONICS MANUFACTURING, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED NOVEMBER 1 YEARS ENDED JUNE 30, MARCH 31,
OCTOBER 31, 1995 TO ------------------------- ---------------------------
1995 JUNE 30, 1996 1997 1998 1998 1999
------------ ------------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net income (loss)..................... $(1,417,674) $(640,385) $ 277,185 $(10,453,861) $(10,432,436) $ 1,542,475
Adjustments to reconcile net income
(loss) to net cash used in operating
activities
Depreciation and amortization......... 346,184 246,998 1,846,575 2,218,416 1,461,965 2,279,404
Write-off of Triax goodwill (note
11)................................. -- -- -- 7,488,942 7,488,942 --
Provision for doubtful accounts....... 45,000 57,197 -- 40,000 40,000 64,860
Loss (gain) on disposal of assets..... (218) 169,022
Change in assets and liabilities, net
of effects of acquisition:
(Increase) decrease in accounts
receivable........................ 163,674 (331,416) (2,456,658) (1,144,068) (590,478) (10,657,046)
Increase in other receivables....... -- -- (250,631) -- -- --
Decrease (increase) in
inventories....................... (1,784,509) 294,669 (3,408,811) 7,418,379 5,005,065 (6,328,026)
(Increase) decrease in prepaid
expenses and other assets......... 47,084 1,895 (99,001) (260,015) (126,899) (758,019)
Increase (decrease) in accounts
payable........................... 1,720,188 339,755 (148,804) (5,484,810) (4,154,931) 12,718,613
(Decrease) increase in income taxes
payable........................... (132,256) (2,237) 1,077,573 (759,596) (288,743) (331,826)
Increase (decrease) in accrued
expenses and other current
liabilities....................... 217,531 (70,943) 1,258,688 (1,331,496) (734,807) (158,878)
Change in deferred taxes............ 100,000 -- 304,786 326,591 251,885 7,592
------------ ------------- ----------- ------------ ------------ ------------
Net cash used in operating
activities...................... (694,996) 64,555 (1,599,098) (1,941,518) (2,080,437) (1,620,851)
------------ ------------- ----------- ------------ ------------ ------------
Cash flows from investing activities
Capital expenditures.................. (71,875) (72,324) (2,680,900) (2,523,384) (2,542,767) (2,616,919)
Proceeds from sale of assets.......... 3,250 -- -- --
Cash paid for acquisition of Triax,
less cash acquired.................. -- -- (4,483,383) -- -- --
Cash assumed from acquirees, net of
cash paid for acquisitions.......... -- -- -- 891,076 1,160,274 (306,631)
Increase (decrease) in other long-term
assets.............................. 5,704 -- (183,473) (7,188) (8,040) (104,302)
------------ ------------- ----------- ------------ ------------ ------------
Net cash used in investing
activities........................ (62,921) (72,324) (7,347,756) (1,639,496) (1,390,533) (3,027,852)
------------ ------------- ----------- ------------ ------------ ------------
Cash flows from financing activities:
Net proceeds (payments) from revolving
note payable........................ (109,179) 256,460 (1,936,655) 3,731,298 5,876,286 6,366,963
Net proceeds from term and convertible
notes payable....................... -- -- -- 3,000,000 2,000,000 402,334
Principal payments on notes payable... -- -- -- (238,576) -- (137,490)
Proceeds from subordinated notes
payable............................. 235,052 350,000 -- --
Repayments of subordinated notes
payable............................. (60,771) (235,052) -- --
Principal payments on capital lease
obligation.......................... (175,936) (116,536) -- (3,578,499) (3,408,898) (2,122,266)
Proceeds from issuance of preferred
stock
(note 13)........................... 969,826 200,000 -- 9,900,000 9,900,000 3,400,001
Repurchase and retirement of common
stock (note 13)..................... -- (316) -- (5,663,875) (5,663,875) (400,000)
Change in note receivable from
officer............................. -- -- (60,978) (397,958) (413,959) 102,116
Collection of notes
receivable--related parties......... 90,015 6,508
Principal repayments on long-term
debt................................ (217,732) (73,815) -- -- -- (1,783,712)
Proceeds from issuance of (payment of)
related party note payable.......... -- -- 4,129,099 (4,129,099) (4,129,099) --
Capital contributions from shareholder
(note 1)............................ -- -- 3,868,455 -- -- --
Issuance of common stock to Centennial
for acquisition of Triax (note 1)... -- -- 5,025,190 -- -- --
Proceeds from issuance of common
stock............................... 925 -- 45,718 -- -- --
------------ ------------- ----------- ------------ ------------ ------------
Net cash provided by financing
activities........................ 732,200 387,249 11,070,829 2,623,291 4,160,455 5,827,946
------------ ------------- ----------- ------------ ------------ ------------
Effect of exchange rate changes on
cash.................................. -- -- 50,368 31,033 130,533 (93,564)
------------ ------------- ----------- ------------ ------------ ------------
Net (decrease) increase in cash....... (25,717) 379,480 2,174,343 (926,690) 820,018 1,085,679
Cash at beginning of year............... 28,239 2,522 382,002 2,556,345 2,556,345 1,629,655
------------ ------------- ----------- ------------ ------------ ------------
Cash at end of year..................... $ 2,522 382,002 2,556,345 1,629,655 3,376,363 2,715,334
------------ ------------- ----------- ------------ ------------ ------------
------------ ------------- ----------- ------------ ------------ ------------
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest............................ $ 312,416 -- $ 629,838 $ 870,430 $ 448,670 $ 1,004,233
------------ ------------- ----------- ------------ ------------ ------------
------------ ------------- ----------- ------------ ------------ ------------
Income taxes........................ $ 32,256 -- -- $ 107,279 $ 75,139 $ 1,376,539
------------ ------------- ----------- ------------ ------------ ------------
------------ ------------- ----------- ------------ ------------ ------------
Property, plant and equipment;
acquired through capital lease.... $ 423,516 167,346 -- $ 1,140,770 $ 1,932,545 --
------------ ------------- ----------- ------------ ------------ ------------
------------ ------------- ----------- ------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE>
CENTURY ELECTRONICS MANUFACTURING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) ORGANIZATION AND BUSINESS
The consolidated financial statements present the operations of Century
Electronics Manufacturing, Inc. ("Century"), formerly known as Century
Industries, Inc., and its wholly-owned subsidiaries Century Electronics
Manufacturing (NE) Inc. ("Century New England"), formerly known as Design
Circuits, Inc. ("DCI"), TRIAX Technology Group, Ltd. ("TRIAX"), Century Thailand
(see note 13), Quality Manufacturing Services, Inc. (see note 13) ("QMS") and
YMC Manufacturing Services, Inc. (see note 13) ("YMC"), collectively referred to
as the "Company". The Company is a worldwide provider of electronics
manufacturing services to leading original equipment manufacturers principally
in the communications and networking markets. The Company offers a broad range
of integrated electronics manufacturing services from product design and
prototyping through volume production and order fulfillment.
The financial results for 1997 include the results of operations of Century
from July 24, 1996 (date of inception) to June 30, 1997, as well as the results
of operations of DCI for the year ended June 30, 1997. The financial statements
of DCI for the eight month period ended June 30, 1996 and the year ended October
31, 1995 have been provided as the financial statements of Century prior to its
creation and its acquisition by Centennial Technologies, Inc. ("Centennial") as
discussed below.
On July 10, 1996, Centennial and other outside investors acquired all of the
outstanding common stock of DCI, and redeemed all of the outstanding preferred
stock, common stock warrants, and common stock options then outstanding. A
portion of the total consideration paid by Centennial and the other outside
investors for the DCI acquisition was paid to DCI employees by DCI in
consideration for their stock options. The cash for these payments,
approximating $1.8 million, was contributed by Centennial and the outside
investors and has been included as additional paid-in capital and as stock
compensation expense in the year ended June 30, 1997. Concurrent with and
shortly after the acquisition of DCI, Centennial repaid a portion of DCI's
third-party debt of approximately $2.1 million, which has been reflected as
additional paid-in capital at July 10, 1996. As a result of these transactions,
Centennial's ownership of DCI shares outstanding was approximately 75%.
On July 24, 1996, Centennial formed Century and on October 18, 1996,
Centennial and the outside investors transferred their shares in DCI to Century
in exchange for shares of Century. Consequently, Century became the parent
company of DCI. DCI was then later renamed Century Electronics Manufacturing
(NE) Inc.
On November 5, 1996 Century purchased all of the outstanding class "A"
ordinary stock of TRIAX in exchange for 2,239,500 shares of Century's common
stock valued at approximately $4.5 million, and approximately $5.0 million in
cash, including transaction costs. Century also purchased $492,400 of preferred
stock in TRIAX. The cash to purchase TRIAX, as well as payment of certain
transaction costs, was obtained from Centennial through the issuance of
3,073,130 shares of Century common stock to Centennial, valued at approximately
$5.0 million. The transaction was accounted for under the purchase method of
accounting and consequently goodwill of $8.3 million was recorded on the
transaction. Amortization of goodwill was approximately $788,000 in 1997. There
was no amortization recorded in 1998 as the goodwill was considered impaired and
was written off entirely in July 1997. (See note 11). The results of operations
of TRIAX have been included from its acquisition date.
F-7
<PAGE>
CENTURY ELECTRONICS MANUFACTURING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The following table presents pro forma summary results of operations as if
the TRIAX acquisition had occurred on July 1, 1996, and accordingly, includes
adjustments for additional goodwill amortization and related income taxes. It
does not purport to be indicative of what would have actually occurred had the
acquisition occurred on July 1, 1996 nor is it indicative of results which may
occur in the future:
<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED JUNE 30,
1997
-----------------------
(IN THOUSANDS EXCEPT
PER SHARE DATA)
<S> <C>
Net sales...................................................................... $ 80,861
Net income..................................................................... $ 487
Net income per share--basic and diluted........................................ $ 0.05
</TABLE>
(b) BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Century
Electronics Manufacturing, Inc. and its wholly-owned subsidiaries, Century New
England, TRIAX, Century Thailand, QMS and YMC. All intercompany balances and
transactions have been eliminated in consolidation.
The financial statements of the Company's non-U.S. subsidiaries are
translated into U.S. dollars in accordance with Statement of Financial
Accounting Standards No. 52, FOREIGN CURRENCY TRANSLATION. Net assets of
non-U.S. subsidiaries whose "functional" currencies are other than the U.S.
dollar are translated at current rates of exchange. Income and expense items are
translated at the average exchange rate for the period. The resulting
translation adjustments are recorded directly into a separate component of
stockholders' equity.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(c) STATEMENT OF CASH FLOWS
In accordance with Statement of Financial Accounting Standards No. 95,
Statement of Cash Flows, cash flows from the Company's non-U.S. subsidiaries are
calculated based on their reporting currency. As a result, amounts related to
assets and liabilities reported on the statement of consolidated cash flows will
not necessarily agree to changes in the corresponding balances on the statement
of consolidated financial position. The effect of exchange rate changes on cash
balances held in foreign currencies is reported on a separate line below cash
from financing activities.
F-8
<PAGE>
CENTURY ELECTRONICS MANUFACTURING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(d) REVENUE RECOGNITION
The Company recognizes revenue from product sales and accrues for
anticipated warranty returns at time of shipment.
(e) INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market
(net realizable value).
(f) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation of property,
plant and equipment is provided over the estimated useful lives of the
respective assets using the straight-line method. Amortization of leased capital
equipment is provided for over the estimated useful life of the assets, or the
lease term for assets under leases which do not provide for title to pass at the
end of the lease, if shorter. Estimated useful lives are as follows:
<TABLE>
<S> <C>
Buildings......................................................... 50 years
Machinery and equipment........................................... 7-10
Furniture, fixtures and office equipment.......................... 3-5
Leasehold improvements............................................ 3
Motor vehicles.................................................... 4-5
</TABLE>
(g) OTHER ASSETS
Other assets consists primarily of the cash surrender value of an insurance
policy in support of the long-term mortgage note on the building housing the
TRIAX facility as well as various lease deposits on buildings and equipment as
well as utility deposits.
(h) INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(i) GOODWILL
Goodwill relating to the Company's acquisitions represents the excess of
cost over the fair value of net assets acquired and is amortized on a
straight-line basis over the period of expected benefit. Determination of the
straight-line period is dependent on the nature of the operations acquired. For
acquisitions completed to date, the Company is utilizing periods of five to
fifteen years. The Company evaluates the recoverability of goodwill on a
periodic basis to assure that changes in facts and
F-9
<PAGE>
CENTURY ELECTRONICS MANUFACTURING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
circumstances do not suggest that recoverability has been impaired. This
analysis relies on a number of factors, including operating results, business
plans, budgets, economic projections, and changes in management's strategic
direction or market emphasis. The test of recoverability for goodwill is a
comparison of the unamortized balance to expected forecasted undiscounted cash
flows of the acquired business or enterprise over the remaining portion of the
amortization period. If the book value of goodwill exceeds undiscounted future
operating cash flows, the writedown is computed as the excess of the unamortized
balance of the asset over the present value of operating cash flows discounted
at the Company's weighted average cost of capital over the remaining
amortization period.
(j) LONG-LIVED ASSETS
Long-lived assets are reviewed for impairment, based upon undiscounted
future cash flows, and appropriate losses are recognized whenever the carrying
amount of an asset may not be recovered in accordance with Statement of
Financial Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS TO BE DISPOSED OF. Impairment is measured by the amount by
which the carrying amount of the assets exceed the fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying amount or
fair value less costs to sell.
(k) NET INCOME (LOSS) PER SHARE
Basic income (loss) per share is computed by dividing net income (loss) by
the weighted average number of common shares outstanding during the period.
Diluted net income (loss) per share is computed by dividing net income (loss) by
the weighted average number of common shares and dilutive potential common
shares outstanding, including convertible preferred stock assumed converted,
during the period. Under the treasury stock method, unexercised options and
warrants are assumed to be exercised at the beginning of the period or at
issuance, if later. The assumed proceeds are then used to purchase common shares
at the average market price during the period. Dilutive potential common shares
outstanding at March 31, 1999 consisted of approximately 737,000 from
unexercised options and warrants and 4.3 million of convertible preferred stock.
Potential common shares for all other periods have been excluded from income
(loss) per share as their inclusion would have the effect of increasing or
decreasing diluted income or loss, respectively, per share (i.e.,
anti-dilutive). The weighted average shares outstanding for periods prior to
June 30, 1997 have been restated to reflect the recapitalization of DCI into
Century on July 24, 1996, as discussed in note 1.
(l) NEW ACCOUNTING PRONOUNCEMENTS
On July 1, 1998, the Company adopted SFAS No. 130, REPORTING COMPREHENSIVE
INCOME. SFAS No. 130 establishes standards for reporting and presentation of
comprehensive income and its components in a full set of financial statements.
Comprehensive income consists of net income and foreign currency translation
adjustment and is presented in the consolidated statements of stockholder's
equity and comprehensive income. The Statement requires only additional
disclosures in the consolidated financial statements; it does not affect the
Company's financial position or results of operations. Prior year financial
statements have been reclassified to conform to the requirements of SFAS No.
130.
F-10
<PAGE>
CENTURY ELECTRONICS MANUFACTURING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In June 1997, the Financial Accounting Standards Board issued SFAS 131,
"Disclosures about Segments of an Enterprise and Related Information," which
establishes standards for the way that public business enterprises report
selected information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports to shareholders. It also establishes
standards for related disclosures about products and services, geographic areas
and major customers. SFAS 131, which becomes effective for the Company in its
year ending June 30, 1999, is currently not expected to have a material impact
on the Company's consolidated financial statements and footnote.
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Financial Instruments and Hedging Activities." This
statement establishes accounting and reporting standards for derivative
instruments and hedging, requiring recognition of all derivatives as either
assets or liabilities in the statement of financial position measured at fair
value. This statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. The effects of adopting SFAS 133 are not expected
to have a material impact on the Company's financial condition, results of
operations or cash flows.
(2) INVENTORIES
The components of inventories at June 30, 1997 and 1998 were as follows:
<TABLE>
<CAPTION>
1997 1998
------------- ----------
<S> <C> <C>
Finished goods.................................................... $ -- 65,933
Work-in-process................................................... 4,374,383 933,083
Raw materials..................................................... 9,406,588 5,434,505
------------- ----------
$ 13,780,971 6,433,521
------------- ----------
------------- ----------
</TABLE>
(3) PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment at June 30, 1997 and 1998
were as follows:
<TABLE>
<CAPTION>
1997 1998
------------- ------------
<S> <C> <C>
Buildings........................................................ $ 2,494,079 2,381,329
Machinery and equipment.......................................... 9,903,060 14,597,210
Computer equipment............................................... 474,311 989,510
Furniture and fixtures........................................... 167,603 325,743
Leasehold improvements........................................... 182,543 953,422
Motor vehicles................................................... 199,429 217,244
------------- ------------
13,421,025 19,464,458
Less accumulated depreciation and amortization................... 2,343,476 4,817,743
------------- ------------
$ 11,077,549 14,646,715
------------- ------------
------------- ------------
</TABLE>
F-11
<PAGE>
CENTURY ELECTRONICS MANUFACTURING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
(4) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities at June 30, 1997 and 1998
were as follows:
<TABLE>
<CAPTION>
1997 1998
------------ ----------
<S> <C> <C>
VAT payable........................................................ $ 1,549,795 116,739
Accrued expenses................................................... 1,313,475 1,216,281
Accrued payroll.................................................... 221,312 490,223
Due to Centennial.................................................. 345,775 --
------------ ----------
Total.............................................................. $ 3,430,357 1,823,243
------------ ----------
------------ ----------
</TABLE>
(5) LONG-TERM NOTES PAYABLE
The Company has a long-term note payable to a lender in the United Kingdom
with an outstanding balance converted in U.S. dollars of $1,939,534 at June 30,
1998, which is secured by the building housing one of the TRIAX facilities.
Interest on the note is payable monthly at approximately 12% per annum. The note
does not require monthly principal payments but is due in full in December 2007.
The Company currently makes monthly payments into an insurance/investment
vehicle designed to accumulate monthly payments and investment earnings thereon
which are intended to be sufficient to retire the note in full upon its
maturity. At June 30, 1997 and 1998, the accumulated cash value of the
investment was approximately $595,000 and $732,000, respectively. In addition,
TRIAX has a cash overdraft facility with a United Kingdom bank which provides
for advances based upon eligible accounts receivable and inventory and is
secured by substantially all the assets of TRIAX. The current loan agreement
underlying this facility expired in October 1998. At June 30, 1998, the
outstanding balance had exceeded the maximum borrowing limit. In December 1998,
the outstanding balance on this facility was repaid.
In July 1997 and as discussed in note 13, Century New England entered into a
loan facility with Congress Financial (the "Loan Agreement") which provided for
a $1.0 million term loan at prime plus 1.5%, payable in 60 installments, and a
$6.0 million revolving facility at prime plus 1.5% and a $3.0 million letter of
credit facility. The amount of credit available under the revolving facility was
based upon the levels of eligible receivables and raw materials inventory. The
total availability of the loans and letter of credit facility could not exceed
$7.0 million, and the total of the revolving and letter of credit facilities
could not exceed $6.75 million. At June 30, 1998, the amount outstanding on the
revolving facility and the term loan were $3,731,298 and $816,666, respectively.
The aggregate maturities of the term loan for the five years subsequent to June
30, 1998 were as follows: 1999, $200,000; 2000, $200,000; 2001, $200,000; 2002,
$200,000 and 2003, $16,666. The loan and credit facility was secured by
substantially all the assets of Century and was cross collateralized and secured
by substantially all assets of Century New England. However, the security did
not extend to the assets of the other subsidiaries of Century. Also, the loan
agreement contains various restrictive covenants which were measured at the
Century New England level. At June 30, 1998, Century New England was not in
compliance with a covenant to maintain at all times a certain level of adjusted
net worth; however, a waiver was obtained from the bank through October 30,
1998. Effective October 31, 1998, the adjusted net worth covenant was revised
and now requires Century New England to maintain minimum net worth of $3.25
million.
F-12
<PAGE>
CENTURY ELECTRONICS MANUFACTURING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
(5) LONG-TERM NOTES PAYABLE (CONTINUED)
In December, 1998, Century New England, YMC and QMS collectively entered
into a three year loan facility with Fidelity Funding, Inc., the proceeds of
which were utilized to payoff the Congress Financial facility and provide
further working capital. The Fidelity facility provides for up to a $2.0 million
term loan at prime plus 1%, with all advances payable in 48 equal monthly
principle installments with final payment of outstanding balances no later than
November 30, 2001, and a $12.0 million revolving facility at prime plus 1%. The
amount of credit available under the revolving facility is based upon the levels
of eligible receivables and inventory. The total outstanding loans may not
exceed $14.0 million. At March 31, 1999, the amounts outstanding on the
revolving facility and the term loan were approximately $10.1 million and $1.9
million, respectively. The facility is secured by substantially all the assets
of Century, YMC and QMS. In addition, the loan agreement contains various
restrictive covenants with respect to net worth, debt service coverage and net
profit requirements which are measured against Century New England, YMC and QMS
collectively. At March 31, 1999, the Company was in compliance with these
covenants.
As of June 30, 1998, one of the Company's subsidiaries, QMS, had a line of
credit agreement with a bank that is guaranteed by the Small Business
Administration. The line provides for a maximum credit availability of $50,000
with interest on the outstanding balance charged at the bank's prime rate plus
2.25%. The rate of interest charged on the outstanding balance of $37,500 at
June 30, 1998 was 10.9%. The credit agreement expires in November 2002 and is
secured by all the assets of QMS and is personally guaranteed by the officers of
QMS. Additionally, QMS has another line of credit facility at June 30, 1998 with
an outstanding balance of $43,000. Under this facility, QMS has a total
availability of $60,000. Interest is charged at the bank's prime rate plus
2.25%. During the nine months ended March 31, 1999, both of the QMS facilities
were paid off and canceled.
(6) LEASES
The Company leases various machinery and equipment pursuant to capital
leases. As of June 30, 1997, certain machinery and equipment was sub-leased from
Centennial for a three year term at lease rates which approximated fair market
rates. These sub-leases were bought out by the Company on July 1, 1997 as
discussed in note 13. The Company has also entered into operating leases for
plant and office space. The lease commitments for the plant and office space are
for terms of up to 15 years at aggregate annual costs as shown below.
F-13
<PAGE>
CENTURY ELECTRONICS MANUFACTURING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
The future minimum lease payments related to these leases are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDED JUNE 30: LEASES LEASES
- -------------------------------------------------------------------------------------- ------------ ------------
<S> <C> <C>
1999............................................................................ $ 2,169,946 984,000
2000............................................................................ 1,312,711 1,016,000
2001............................................................................ 302,080 1,033,000
2002............................................................................ 50,774 1,051,000
2003............................................................................ 1,569 1,067,000
Thereafter...................................................................... -- 8,638,000
------------ ------------
Total minimum lease payments.......................................................... 3,837,080 13,789,000
------------
------------
Less amount representing interest..................................................... 554,561
------------
Net minimum lease payments............................................................ 3,282,519
Less current installments............................................................. 1,860,341
------------
Obligations under capital leases, excluding current installments...................... $ 1,422,178
------------
------------
</TABLE>
The total cost capitalized and accumulated amortization for assets under
capital leases at June 30, 1998 was approximately $6.5 million and $1.8 million,
respectively.
Total rent expense for the year ended October 31, 1995, the eight months
ended June 30, 1996 and the years ended June 30, 1997 and 1998 was approximately
$254,000, $167,00, $250,000 and $483,000, respectively.
F-14
<PAGE>
CENTURY ELECTRONICS MANUFACTURING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
(7) INCOME TAXES
Income tax expense consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------------ ---------- ----------
<S> <C> <C> <C>
1995:
Federal.................................................................. $ (115,603) 103,000 (12,603)
State.................................................................... -- (3,000) (3,000)
------------ ---------- ----------
$ (115,603) 100,000 (15,603)
------------ ---------- ----------
------------ ---------- ----------
1996 (eight months):
Federal.................................................................. $ -- -- --
------------ ---------- ----------
State.................................................................... -- -- --
------------ ---------- ----------
1997:
Federal.................................................................. $ -- -- --
------------ ---------- ----------
State.................................................................... -- -- --
------------ ---------- ----------
Foreign.................................................................. 1,082,080 369,365 1,451,445
------------ ---------- ----------
$ 1,082,080 369,365 1,451,445
------------ ---------- ----------
------------ ---------- ----------
1998:
Federal.................................................................. $ 316,864 -- 316,864
State.................................................................... 110,985 -- 110,985
Foreign.................................................................. (829,199) 182,911 (646,288)
------------ ---------- ----------
$ (401,350) 182,911 (218,439)
------------ ---------- ----------
------------ ---------- ----------
</TABLE>
The effective tax rate differs from the "expected" tax rate (computed as the
U.S. Federal corporate income tax rate of 34%) as follows:
<TABLE>
<CAPTION>
1995 1996 1997 1998
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Computed "expected"........................................... $ (487,314) (217,731) 587,734 (3,628,582)
State tax, net of federal benefit............................. (1,980) -- -- 73,250
Non-deductible goodwill amortization.......................... -- -- 268,025 2,610,408
Stock Compensation............................................ -- -- -- 403,240
Change in valuation allowance................................. 467,192 216,780 687,312 (248,856)
Foreign losses not benefited.................................. -- -- -- 202,730
Difference in foreign statutory tax rate...................... -- -- (72,427) 246,097
Other, net.................................................... 6,499 951 (19,199) 123,274
----------- ---------- ---------- -----------
Income tax expense (benefit)................................ $ (15,603) -- 1,451,445 (218,439)
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
</TABLE>
F-15
<PAGE>
CENTURY ELECTRONICS MANUFACTURING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
(7) INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at June 30,
1997, 1998 are presented below:
<TABLE>
<CAPTION>
1997 1998
------------ ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards..................................................... $ 2,000,489 1,487,126
Intercompany profit.................................................................. -- 207,602
Inventory reserves................................................................... 179,245 160,285
Inventory principally due to additional cost for tax purposes........................ 162,784 85,580
Accounts receivable reserves......................................................... 30,364 60,000
Accrued liabilities.................................................................. 52,035 59,300
Tax credits.......................................................................... 98,254 145,256
Other................................................................................ 631 42,808
------------ ----------
Total gross deferred tax assets.................................................... 2,523,802 2,247,957
Less valuation allowance............................................................... 2,163,284 1,600,589
------------ ----------
Net deferred tax assets................................................................ 360,518 647,368
------------ ----------
Deferred tax liabilities:
Property, plant and equipment, principally due to differences in depreciation........ 536,953 1,006,714
------------ ----------
Total gross deferred tax liabilities............................................... 536,953 1,006.714
------------ ----------
Net deferred tax liability......................................................... $ 176,435 359,346
------------ ----------
------------ ----------
</TABLE>
The valuation allowance for deferred tax assets as of July 1, 1996 was
approximately $1.5 million.
On December 25, 1996 the Company's operation in Thailand, Century Thailand,
was granted an exemption from income taxes for a period of seven years from the
date operating income is first derived. For the year ended June 30, 1998,
Century Thailand generated a net loss of approximately $600,000.
In assessing the realizability of deferred tax assets, the Company considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which these temporary differences become deductible. The Company considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable income over which
the deferred tax assets are deductible, the Company believes that the ultimate
realization of a portion of net deferred tax assets for federal and state tax
purposes appear to be more likely than not.
At June 30, 1998, the Company has net operating loss carryforwards for U.S.
and state income tax purposes of approximately $3.9 million and $2.4 million,
respectively, which are available to offset future taxable income, if any,
through 2111 and 2001, respectively; however, the total amount that can be
utilized on an annual basis is limited to approximately $516,000 per year due to
a change in ownership of the Company.
F-16
<PAGE>
CENTURY ELECTRONICS MANUFACTURING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
(8) EMPLOYEE BENEFIT PLAN
Beginning January 1, 1996, the Company sponsors a 401(k) Retirement Plan
under which substantially all employees of the Company's U.S. subsidiaries are
eligible to participate in the Plan. Under the Plan, employees may contribute up
to the lesser of 15% of their compensation or $10,000. The Company, at its
discretion, may contribute an amount up to 7 1/2% of employees' compensation,
and may also, at its discretion, contribute a bonus, which would be determined
using a uniform percentage of the compensation of each employee. No
discretionary contributions were made by the Company in 1997 or 1998.
(9) STOCK OPTIONS
During the year ended October 31, 1995, the Board of Directors of DCI
approved the cancellation of all stock options under the 1994 Option Plan and
reserved 40,000 shares of DCI common stock for issuance under the 1995 Option
Plan. All option holders with vested options in the 1994 Plan received new
options in the 1995 Plan. The 1995 Option Plan was a non-qualified compensatory
stock option plan for certain employee groups. Options issued under the 1995
Option Plan vested immediately upon issuance and had an exercise price of $0.50
per share. The options expired ten years from the date of grant. Compensation
expense related to the 1995 Option Plan charged to operations in 1995 was
$98,000 and is included in the accompanying consolidated statements of
operations.
On July 10, 1996, all of the outstanding options issued pursuant to this
option plan were repurchased by DCI in connection with the acquisition of all
the outstanding common shares of DCI by Centennial and other outside investors
as discussed in note 1. The total cost of buying out these options of
approximately $1.8 million has been recorded as stock compensation expense in
the accompanying consolidated statements of operations.
Pursuant to an agreement ratified in August 1996, the Company established
the 1996 Stock Option Plan (the "Plan"), which permits the grant of options to
acquire common stock to officers and key employees of the Company. At June 30,
1997 and 1998, 1,450,000 shares of common stock were reserved for issuance
pursuant to the Plan. The Plan includes various vesting criteria, including
service time and change of control.
During the period from July 1, 1996 to June 30, 1997, the Company granted
782,500 options with exercise prices of between $1.75 and $2.00, which
approximated the fair value per share on the grant dates. 26,125 options were
exercised and 6,875 options were canceled during the period from July 1, 1996 to
June 30, 1997. During the year ended June 30, 1998, options to acquire 221,000
shares were granted to employees with exercise prices ranging from $2.00 to
$4.00. 563,000 and 626,000 options were exercisable at June 30, 1997 and 1998,
respectively.
The Company applies Accounting Principles Board Opinion No 25, ACCOUNTING
FOR STOCK ISSUED TO EMPLOYEES "APB 25"), and related Interpretations in
accounting for its Plan.
Had compensation expense for the options granted been determined based on
the fair value of the options at the grant date consistent with the optional
fair value based method of Statement of Financial Accounting Standards Statement
No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION "SFAS 123"), the Company's net
income (loss) for the year ended June 30, 1997 and 1998 would have been
approximately $107,000 and ($10,472,000) on a pro forma basis. The fair value of
each option
F-17
<PAGE>
CENTURY ELECTRONICS MANUFACTURING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
(9) STOCK OPTIONS (CONTINUED)
grant is estimated on the date of grant using the Black-Scholes option pricing
model with the following assumptions: no dividend yield, risk-free interest rate
of between 6.05% and 6.61%, expected life of options of 4 years, and fair value
of the Company's shares between $1.75 and $2.00. The fair market value of
options granted in 1997 and 1998 under this method was between $0.46 and $0.37
and between $0.45 and $0.40 per option, respectively.
(10) CONCENTRATION OF RISK
SUMMARY GEOGRAPHICAL INFORMATION
Information about the Company's operations in different geographic areas,
determined by the location of the subsidiary or unit, for the fiscal years ended
October 31, 1995, June 30, 1996, 1997 and 1998 follows. The Company's primary
operations in areas outside the United States include the United Kingdom and
Thailand.
<TABLE>
<CAPTION>
1995 1996 1997 1998
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Net revenues:
United States......................................... $ 9,069,993 11,450,016 29,539,433 45,745,101
International......................................... -- -- 41,204,911 24,199,491
------------- ------------ ------------ -------------
$ 9,069,993 11,450,016 70,744,344 69,944,592
------------- ------------ ------------ -------------
------------- ------------ ------------ -------------
Operating profit:
United States......................................... $ (1,433,277) (640,385) (1,462,170) (32,300)
International......................................... -- -- 3,190,800 (10,640,000)
------------- ------------ ------------ -------------
$ (1,433,277) (640,385) 1,728,630 (10,672,300)
------------- ------------ ------------ -------------
------------- ------------ ------------ -------------
Identifiable assets:
United States......................................... $ 6,136,470 6,285,747 16,980,800 21,765,680
International......................................... -- -- 29,366,810 15,055,032
------------- ------------ ------------ -------------
$ 6,136,470 6,285,747 46,347,610 36,820,712
------------- ------------ ------------ -------------
------------- ------------ ------------ -------------
</TABLE>
OTHER INFORMATION
In 1998, three customers (Nortel, 3Com and Polaroid), all of which are
recognized as leading telecommunications technology companies, accounted for
42%, 31%, and 6%, respectively, of net worldwide sales. Accounts receivable from
these three customers were approximately $6.5 million, $3.4 million and $351,000
at June 30, 1998, respectively.
Of net worldwide sales, 55% and 33% of the revenue for fiscal 1997 and 1998,
respectively, was generated by Triax, the Company's United Kingdom operation.
Substantially all of these amounts represented sales under a contract with 3Com
in Israel. In July of 1997, management of Triax was notified by 3Com that
production of products for 3Com under this contract would be greatly reduced
F-18
<PAGE>
CENTURY ELECTRONICS MANUFACTURING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
(10) CONCENTRATION OF RISK (CONTINUED)
from fiscal 1997 levels and would end by March 1998. Shortly before June 30,
1998, such production for 3Com ended.
In 1997 and 1998, certain Asia Pacific countries, including Thailand, the
location for Century Thailand, were experiencing economic difficulties relating
to currency devaluation and slowdown in growth. Accordingly, the Thai government
sought assistance from the International Monetary Fund to alleviate the economic
crisis and improve the economy over time. At June 30, 1998, total assets and
equity for Century Thailand were approximately $4.6 million and $4.0 million,
respectively. Sales and net loss for the year ended June 30, 1998 for Century
Thailand were approximately $900,000 and $600,000, respectively.
(11) GOODWILL IMPAIRMENT
Upon being notified in July 1997 of the loss of TRIAX's significant
customer, 3Com, the Company performed an analysis of Triax's undiscounted future
cash flows without this significant customer to determine if the reforecasted
cash flows would be sufficient to cover all or part of the remaining carrying
value of the goodwill. Based on this analysis, the Company concluded that the
entire remaining carrying value of Triax goodwill of approximately $7.5 million
was impaired. Consequently, the entire remaining carrying value of $7.5 million
was written off in July 1997.
(12) CONTINGENCIES
On February 11, 1998, the Company received a notice from the United Kingdom
Inland Revenue ("Inland Revenue") stating that the Company's operation in St.
Albans had violated various customs, duty and value-added tax ("VAT")
regulations. The Inland Revenue claimed that the amounts due to be paid by the
Company were approximately $740,000 and $3,300,000, plus interest for customs
and duty, and for VAT, respectively, for the period from February 1996 to
January 1998.
During fiscal 1998, the Company conducted a detailed review of its import
procedures with the help of its importer, its primary customer 3Com, and in
conjunction with Inland Revenue as part of a process of determining the ultimate
liability and negotiating a settlement with the Inland Revenue.
Late in fiscal 1998, after completing a review of its import procedures and
reviewing the results with Inland Revenue, the Company concluded that there was
a liability to Inland Revenue for customs and duty. No final assessment has been
made by Inland Revenue to date; however, based on negotiations with Inland
Revenue, the Company estimates such liability to be approximately $623,000. This
amount has been recorded in cost of sales in the June 30, 1998 consolidated
statement of operations. However, the Company continues to appeal this amount.
At this time, the Company continues to negotiate with Inland Revenue
regarding the amount and payment of VAT. As the final amount payable has not
been determined and because any amount paid to Inland Revenue would be
refundable to the Company by Inland Revenue under the VAT regulations, no amount
has been accrued.
F-19
<PAGE>
CENTURY ELECTRONICS MANUFACTURING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
(12) CONTINGENCIES (CONTINUED)
During the nine months ended March 31, 1999, the Company was notified by
Inland Revenue of the final assessment for customs and duty. Based on this final
notification, the Company accrued additional liability of approximately
$100,000.
The Company is party to various claims, legal actions and complaints arising
in the ordinary course of business. In the opinion of management, all such
matters are adequately covered by insurance or, if not so covered, are without
merit or are of such kind, or involve such amounts, that unfavorable disposition
would not have a material effect on the consolidated financial position of the
Company.
(13) EQUITY TRANSACTIONS AND ACQUISITIONS
In August 1995, the Board of Directors and stockholders of DCI authorized
50,000 shares of Series C convertible preferred stock, $.0001 par value per
share. During 1995, DCI issued 39,711 shares of Series C convertible preferred
stock in a private placement. Net proceeds total to $969,826, net of issuance
costs of $22,937. The proceeds were used to make capital expenditures, to repay
certain trade accounts payable, and to provide working capital. On November 6,
1995, DCI issued 8,000 shares of Series C convertible preferred stock for net
proceeds of $200,000. The proceeds were used to provide working capital.
Each share of Series C convertible preferred stock was convertible at any
time into the number of shares of common stock of DCI obtained by dividing
$25.00 by the conversion price in effect at the time of conversion. On July 10,
1996, all of the outstanding shares of Series C and Series B convertible
preferred stock were repurchased as part of the acquisition of all the
outstanding common shares of DCI by Centennial and other outside investors as
discussed in note 1.
On July 1, 1997, the Company consummated a series of related transactions
pursuant to a Stock Purchase Agreement between the Company and Centennial dated
May 6, 1997, and as amended on June 25, 1997 (the "Stock Agreement"). Pursuant
to this agreement, the Company repurchased and retired 3,000,000 shares of
Century common stock held by Centennial in exchange for a $6 million 6%
convertible debenture due June 30, 2007 and acquired Centennial's 51% interest
in Centennial Thailand, later renamed Century Thailand for a cash payment of
$1,250,000. The Company also purchased certain assets under capital sub-leases
between the Company and Centennial with an estimated fair market value of $2.2
million. An additional 928,000 shares of the Century stock was transferred
directly from Centennial to former stockholders of TRIAX to settle potential
litigation. A charge of approximately $1.2 million is included in the statement
of operations for the year ended June 30, 1998. In addition, 75,000 shares of
Century stock were issued to a shareholder acting as a financial intermediary
for structuring the transaction. The value of these shares was recorded as a
cost of the shares reacquired. Century also repaid its $4.13 million note to
Centennial prior to the transaction.
The acquisition of the 51% interest in Century Thailand was recorded under
the purchase method of accounting and resulted in the consolidation of Century
Thailand from the date of acquisition.
To fund the cash requirements in the transaction, the Company entered into
the following financing activities.
F-20
<PAGE>
CENTURY ELECTRONICS MANUFACTURING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
(13) EQUITY TRANSACTIONS AND ACQUISITIONS (CONTINUED)
- The Company issued a note payable to Centennial with a face value of $1.89
million due December 31, 1998. The note carries interest at 9%, and has
prepayment requirements based on certain future equity financings. In
addition, the Company provided warrants to Centennial for the purchase of
250,000 Century common shares at $3 per share. The number of warrants is
reduced based on pre-payment of the related note. These warrants were
re-acquired by the Company in February 1998 as a part of the preferred
stock transaction discussed below.
- The Company issued $2.0 million of convertible notes to unrelated
investors with an interest rate of 7.5% due at maturity, which was June
30, 1998. The notes were convertible into Century common shares at a
conversion of $3 per share. As of June 30, 1998, the notes have been fully
converted into common shares. A total of 705,424 shares have been issued
as of June 30, 1998.
- DCI entered into the Loan Agreement discussed in Note 5.
In September 1997, the Company entered into a purchase and sales agreement
to acquire the remaining 49% interest in Century Thailand for 750,000 shares of
Century common stock and 100,000 warrants for the purchase of Century common
stock at $5 per share. This transaction was accounted for under the purchase
method of accounting.
In February 1998, a venture fund invested $10 million for 2,739,726 shares
of Series A Convertible Preferred stock ("Series A"). Series A stock has voting
rights equal to the number of shares upon which the stock may convert into, as
well as a liquidation preference of $20 million. Series A stock also has
conversion priviledges upon any public offering of common stock of the Company.
The Company utilized the proceeds of the Series A offering, as well as the
issuance of 666,667 shares of Series B Convertible Preferred stock ("Series B")
to Centennial, to repurchase and retire 3,683,635 shares of Century common stock
held by Centennial. Also pursuant to this transaction, the Company repaid the
$1.89 million note to Centennial, reacquired the related 250,000 common stock
warrants, and repaid the $6 million convertible debenture to Centennial. Of the
total 3,858,634 shares held by Centennial on the date of the transaction,
175,000 shares were distributed by Centennial to a shareholder acting as a
financial intermediary as a brokerage fee.
Subsequent to this transaction, Centennial held only Series B stock. Series
B stock is convertible into common shares of the Company. The stock has no
dividend, and is non-voting. It has liquidation preferences of $4 million senior
to the common shareholders and subordinate to the Series A holders as well as
conversion priviledges.
On April 15, 1998, the Company completed the acquisition of all of the
outstanding capital stock of Quality Manufacturing Services, Inc., a California
contract manufacturing company. The total purchase price consists of $300,000
and the issuance of 200,000 common stock options at an exercise price of $4.00
per share. This transaction was recorded under the purchase method of accounting
and the statement of operations includes the results of this entity's operations
from the date of acquisition. Goodwill of approximately $140,000 was recorded
from the transaction and will be amortized over a period of five years. The
Company is contingently obligated to make additional payments to the former
shareholders of QMS of no more than $400,000. Payment of this amount is
contingent upon the value of the Company's common stock underlying stock options
granted to the former shareholders and will
F-21
<PAGE>
CENTURY ELECTRONICS MANUFACTURING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
(13) EQUITY TRANSACTIONS AND ACQUISITIONS (CONTINUED)
only be paid if these individuals are employees of the Company on the third
anniversary of the QMS acquisition. These payments will be accounted for as
compensation expense over the three year service period.
On August 27, 1998, the Company completed the acquisition of all of the
outstanding capital stock of YMC Manufacturing Inc., a contract manufacturing
company located in California. The purchase price consists of approximately
$250,000 cash. Goodwill of approximately $390,000 was recorded from the
transaction and will be amortized over five years.
In December 1998, the venture fund noted above invested an additional $3.4
million for an additional 931,507 shares of Series A Convertible Preferred
stock. As noted above, Series A stock has voting rights equal to the number of
shares upon which the stock may convert into, as well as a liquidation
preference for these shares of $6.8 million, bringing the total liquidation
value on Series A shares to $26.8 million. Series A stock also has preference in
conversion upon any public offering of common stock of the Company. Proceeds of
this offering were used to retire $1.4 million of bridge financing, plus accrued
interest, provided by the venture fund to the Company in August and November
1998. The remaining proceeds were transferred to Triax as a capital contribution
to fund this subsidiary's operations.
During the nine months ended March 31, 1999, the Company repurchased and
retired 200,000 of its common shares from two employees at a total cost of
$400,000.
(14) SUBSEQUENT EVENT
In July 1999, the Company acquired all of the outstanding common stock of
Amitek Corporation ("Amitek"). The acquisition will be accounted for using the
purchase method of accounting. The purchase price is $5.7 million in cash, $7.2
million in notes, $724,000 in vested options and 2.1 million shares of Century
common stock, subject to adjustment in certain circumstances. In addition, the
Company will assume approximately $13.6 million of indebtedness (based on
Amitek's March 31, 1999 balance sheet). The notes payable to former Amitek
shareholders bear interest at prime plus 1% and are payable on a quarterly basis
over a 5 year period or, if sooner, upon the completion of an initial public
offering by the Company. The indebtedness assumed is under a $14.0 million
revolving credit agreement with National Bank of Canada that will remain in
place to fund the operations of Amitek. The amount of credit available under the
revolving credit facility is based upon the levels of eligible receivables and
inventory. Borrowings under the facility bear interest at prime plus 1.5% and
are secured by substantially all of the assets of Amitek. The loan agreement
contains various restrictive covenants with respect to certain financial ratios
and restrict the payment of dividends.
Also in July, 1999, in connection with the acquisition of Amitek, the
Company amended its loan facility with Fidelity Funding to increase the
revolving credit facility to $15 million. In addition, the Company entered into
a $3.5 million term loan with Suntrust Bank. The term loan bears interest at
prime plus 1% and is payable over two years. Proceeds from the term loan and
additional borrowings on the revolving credit facility were utilized to make the
cash payment for the acquisition.
F-22
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Amitek Corporation
In our opinion, the accompanying balance sheets and the related statements
of operations, of changes in stockholders' equity and of cash flows present
fairly, in all material respects, the financial position of Amitek Corporation
at December 31, 1998 and 1997, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above. The financial statements for the Company for the year ended December 31,
1996 were audited by other auditors, whose report dated March 20, 1997 expressed
an unqualified opinion.
The Company is a member of a group of affiliated entities and, as disclosed
in Notes 5 and 7 to the accompanying financial statements, has extensive
transactions and relationships with members of the group. Because of these
relationships, it is possible that the terms of these transactions are not the
same as those that would result from transactions among wholly unrelated
parties.
/s/ PRICEWATERHOUSECOOPERS LLP
- ---------------------------------------------
PricewaterhouseCoopers LLP
June 15, 1999, except as to the fifth paragraph of Note 5,
which is as of June 25, 1999
F-23
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Directors and Stockholders of
Amitek Corporation
Boca Raton, Florida
I have audited the accompanying balance sheet of Amitek Corporation (an S
Corporation) as of December 31, 1996, and the related statements of operations,
accumulated deficit, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. My responsibility
is to express an opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Amitek Corporation as of
December 31, 1996, and the results of its operations and its cash flows for the
year then ended in conformity with general accepted accounting principles.
The Company is a member of a group of affiliated entities and, as disclosed
in Notes C and I to the financial statements, has extensive transactions and
relationship with members of the group. Because of these relationships, it is
possible that the terms of these relationships are not the same as those that
would result from transactions among wholly unrelated parties.
As discussed in Note J to the financial statements, the Company's December
31, 1996 inventory, as previously reported, was $1,080,667; however, this amount
should have been $1,272,000. Additionally, the Company's previously reported
accumulated deficit as of January 1, 1996 was $2,218,408; however, this amount
should have been $2,043,408. This discovery was made subsequent to the issuance
of the financial statements. The financial statements have been restated to
reflect this correction.
/s/ Lawrence N. Legg CPA, PA
Hollywood, Florida
March 20, 1997, except for Notes J and K, as to which the date is June 30, 1999
F-24
<PAGE>
AMITEK CORPORATION
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31, 1999
1997 1998 (UNAUDITED)
--------- --------- --------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................. $ 277 $ -- $ 930
Accounts receivable, net of allowance for doubtful accounts of $64 in
1997, 1998 and March 31, 1999........................................... 3,638 6,657 9,275
Due from affiliates....................................................... 517 1,197 1,556
Inventories............................................................... 2,137 3,100 10,307
Prepaid expenses and other current assets................................. 161 71 14
--------- --------- --------------
Total current assets...................................................... 6,730 11,025 22,082
Due from affiliates......................................................... 532 -- --
Property and equipment, net................................................. 2,393 4,182 4,530
Other....................................................................... 33 117 168
--------- --------- --------------
Total assets.............................................................. $ 9,688 $ 15,324 $ 26,780
--------- --------- --------------
--------- --------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses, including bank overdraft of $16 in
1998.................................................................... $ 672 $ 702 $ 785
Due to affiliates......................................................... 2,155 4,872 7,121
Borrowings under lines of credit.......................................... 2,516 4,293 13,123
Current portion of capital lease obligations.............................. 630 709 667
Current portion of long term debt......................................... -- 96 62
--------- --------- --------------
Total current liabilities................................................. 5,973 10,672 21,758
Long term debt.............................................................. -- 267 443
Capital lease obligations................................................... 655 1,005 999
Note payable to stockholder................................................. 1,641 1,641 1,641
--------- --------- --------------
Total liabilities......................................................... 8,269 13,585 24,841
--------- --------- --------------
Commitments and contingencies (Note 6)...................................... -- -- --
--------- --------- --------------
Stockholders' equity:
Common stock $1 par, 1,000 shares authorized issued and outstanding....... 1 1 1
Additional paid in capital................................................ 3,229 2,700 2,678
Accumulated deficit....................................................... (1,811) (962) (740)
--------- --------- --------------
Total stockholders' equity.............................................. 1,419 1,739 1,939
--------- --------- --------------
Total liabilities and stockholders' equity.............................. $ 9,688 $ 15,324 $ 26,780
--------- --------- --------------
--------- --------- --------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-25
<PAGE>
AMITEK CORPORATION
STATEMENTS OF OPERATIONS
FOR YEARS ENDED
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
DECEMBER 31, ENDED
------------------------------- MARCH 31, 1999
1996 1997 1998 (UNAUDITED)
--------- --------- --------- --------------
<S> <C> <C> <C> <C>
Net sales......................................................... $ 7,849 $ 23,796 $ 45,181 $ 13,885
Costs of sales.................................................... (7,577) (20,743) (42,456) (12,876)
--------- --------- --------- -------
Gross Profit...................................................... 272 3,053 2,725 1,009
Selling, general and administrative expenses...................... (654) (1,848) (1,258) (452)
--------- --------- --------- -------
(Loss) income from operations..................................... (382) 1,205 1,467 557
Other income (expense):
Interest expense................................................ (218) (317) (621) (335)
Other income (expense).......................................... (54) -- 3 --
--------- --------- --------- -------
Net (loss) income................................................. $ (654) $ 888 $ 849 $ 222
--------- --------- --------- -------
--------- --------- --------- -------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-26
<PAGE>
AMITEK CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
FOR THE YEARS ENDED
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------------------- PAID ACCUMULATED
SHARES AMOUNT IN CAPITAL DEFICIT TOTAL
----------- ------------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995................................. 1000 $ 1 $ 3,368 $ (2,045) $ 1,324
Net Loss................................................... -- -- -- (654) (654)
Dividends and distributions................................ -- -- (1) -- (1)
--
----- ----------- ------------ ---------
Balance, December 31, 1996................................. 1,000 1 3,367 (2,699) 669
Net Income................................................. -- -- -- 888 888
Dividends and distributions................................ -- -- (138) -- (138)
--
----- ----------- ------------ ---------
Balance, December 31, 1997................................. 1,000 1 3,229 (1,811) 1,419
Net Income................................................. -- -- -- 849 849
Dividends and distributions................................ -- -- (529) -- (529)
--
----- ----------- ------------ ---------
Balance, December 31, 1998................................. 1,000 1 2,700 (962) 1,739
Net Income (Unaudited)..................................... -- -- -- 222 222
Dividends and distributions (Unaudited).................... -- -- (22) -- (22)
--
----- ----------- ------------ ---------
Balance, March 31, 1999 (Unaudited)........................ 1,000 $ 1 $ 2,678 $ (740) $ 1,939
--
----- ----------- ------------ ---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-27
<PAGE>
AMITEK CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
DECEMBER 31, ENDED
------------------------------- MARCH 31, 1999
1996 1997 1998 (UNAUDITED)
--------- --------- --------- --------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income.............................................. $ (654) $ 888 $ 849 $ 222
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization................................ 207 292 532 196
Loss on disposal of fixed assets............................. 65 -- 26 --
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable, net.............. 40 (2,728) (3,019) (2,618)
Increase in inventory, net................................... (181) (865) (963) (7,207)
Increase in receivables from affiliated companies............ (61) (502) (148) (359)
Decrease (increase) in prepaid expenses and other assets..... (7) (116) 6 6
Increase in accounts payable, accrued expenses and
commissions payable........................................ 1,250 541 30 83
Increase in due to affiliates................................ 44 214 2,717 7,390
--------- --------- --------- -------
Net cash provided by (used in) operating activities.............. 703 (2,276) 30 (2,287)
--------- --------- --------- -------
Cash flows from investing activities:
Purchases of property and equipment.............................. (85) (296) (700) (402)
--------- --------- --------- -------
Net cash used in investing activities............................ (85) (296) (700) (402)
--------- --------- --------- -------
Cash flows from financing activities:
Net increase (decrease) in line of credit...................... (250) 1,825 1,777 3,689
Proceeds from note payable to stockholder...................... -- 1,600 -- --
Payments on stockholder note payable........................... (39) -- -- --
Repayment of capital lease obligations......................... (395) (450) (855) (48)
Dividends and other distributions.............................. (1) (138) (529) (22)
--------- --------- --------- -------
Net cash (used in) provided by financing activities.............. (685) 2,837 393 3,619
--------- --------- --------- -------
Net (decrease) increase in cash and cash equivalents............. (67) 265 (277) 930
Cash and cash equivalents, beginning of year..................... 79 12 277 --
--------- --------- --------- -------
Cash and cash equivalents, end of year........................... $ 12 $ 277 $ -- $ 930
--------- --------- --------- -------
--------- --------- --------- -------
Supplemental disclosure of cash flow information:
Cash paid during the year for interest......................... $ 220 $ 377 $ 792 $ 334
--------- --------- --------- -------
--------- --------- --------- -------
Supplemental disclosure of non cash investing and financing
activities:
Property and equipment acquired through debt financing......... $ -- $ -- $ 363 $ 142
--------- --------- --------- -------
--------- --------- --------- -------
Property and equipment acquired under capital leases........... $ -- $ 1,237 $ 1,284 $ --
--------- --------- --------- -------
--------- --------- --------- -------
Transfer of debt from affiliate................................ -- -- -- $ 5,141
--------- --------- --------- -------
--------- --------- --------- -------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-28
<PAGE>
AMITEK CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
1. PRINCIPAL BUSINESS ACTIVITIES
Amitek Corporation (the "Company") was formed on June 30, 1987 as a Florida
corporation and is primarily engaged in technology manufacturing, specializing
in turnkey contract manufacturing of instrumentation, communications, computer,
industrial, government and consumer electronics. The Company conducts business
activities, mainly in the United States, with communications, computer,
industrial, government and consumer electronics customers.
The Company is a member of a group of affiliated entities under common
control and management. The Company purchases the majority of its raw materials
requirements from, and has certain borrowing relationships with, M&K
Technologies, Inc. ("M&K"), an entity owned by the Company's stockholders. See
Notes 5 and 7.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
INVENTORY
Inventory is stated at the lower of cost or market using a first-in,
first-out basis. As the Company manufactures custom products according to
customer specifications only after orders for such products have been secured,
the Company's reserves for obsolete inventory have historically been
insignificant.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is computed using
the straight line and accelerated methods over the estimated useful lives of the
assets. When assets are sold, replaced or otherwise retired, the costs and
related accumulated depreciation are removed from the accounts and any related
gains or losses are included in operations. Leased manufacturing equipment
meeting certain criteria is capitalized and the present value of the minimum
lease payments is recorded as a liability. Amortization of capitalized leased
assets is computed using the straight line method over the shorter of the lease
term or the estimated useful lives of the assets.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company records impairment losses on long-lived assets used in
operations when events or changes in circumstances indicate that, based on
estimated future cash flows, the carrying amount of an asset may not be
recoverable. Management reviews long-lived assets for impairment whenever events
or changes in circumstances indicate the assets may be impaired.
REVENUE RECOGNITION
The Company recognizes revenue from product sales at the time of shipment in
accordance with the terms agreed upon by the parties. The Company records a
provision for estimated returns which has historically been insignificant.
F-29
<PAGE>
AMITEK CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ALLOCATION OF EXPENSES
The Company had an informal agreement with M&K to acquire management
services from month to month until current management could assume all
administrative functions on its own. During 1996, total charges for these
services totaled approximately $86. The Company assumed all administrative
functions in 1997.
The Company allocates a portion of its salaries, fringe benefits, utilities
and other expenses to certain of its affiliates based on the level of effort and
amount of resources dedicated to support the operations of these affiliates.
During 1997, the Company allocated approximately $110 of the previously
described expenses to its affiliates. During 1998, these expenses were properly
assumed and recorded by the Company's affiliates.
The Company is allocated freight and interest expenses by M&K based on
charges incurred by M&K relating to purchases of raw materials for the Company's
contract manufacturing operation. See notes 5 and 7.
USE OF ESTIMATES
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
INCOME TAXES
The Company has elected S Corporation status under the Internal Revenue
Code. As an S Corporation, the Company is generally not subject to federal
income taxes since its operating results are included in the tax returns of its
individual stockholders. The Company is directly liable for state income and
franchise taxes in certain jurisdictions.
INTERIM FINANCIAL DATA
The interim financial data of the Company is unaudited; however, in the
opinion of the Company's management, the interim financial data includes all
adjustments, consisting of only normal recurring adjustments, necessary for a
fair statement of results of the interim periods. The results of operations for
the period ended March 31, 1999 are not necessarily indicative of the results
that could be expected for the entire fiscal year ending December 31, 1999.
F-30
<PAGE>
AMITEK CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
3. INVENTORIES
Inventory consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31, 1999
1997 1998 (UNAUDITED)
--------- --------- --------------
<S> <C> <C> <C>
Raw materials............................................. $ -- $ -- $ 6,843
Work in process........................................... 2,037 2,492 2,876
Finished goods............................................ 100 608 588
--------- --------- -------
Total..................................................... $ 2,137 $ 3,100 $ 10,307
--------- --------- -------
--------- --------- -------
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, ESTIMATED
-------------------- USEFUL
1997 1998 LIVES
--------- --------- -----------
<S> <C> <C> <C>
Manufacturing equipment.......................................................... $ 873 $ 1,602 5-10 years
Manufacturing equipment under capital lease...................................... 2,105 3,433 5-10 years
Leasehold improvements........................................................... 38 177 7 years
Furniture and fixtures........................................................... 86 93 5-7 years
Office equipment................................................................. 39 61 5-7 years
--------- --------- -----------
3,141 5,366
Less accumulated depreciation and amortization................................... (748) (1,184)
Total property and equipment, net................................................ $ 2,393 $ 4,182
</TABLE>
Depreciation expense for the years ended December 31, 1996, 1997 and 1998
totaled $223, $139 and $207, respectively. Accumulated amortization of capital
lease assets totaled $276 and $567 at December 31, 1997 and 1998, respectively,
and amortization of capitalized leases for the years ended December 31, 1997 and
1998 totaled $153 and $291, respectively.
5. DEBT
At December 31, 1997 the Company had borrowings outstanding of $2,516 under
an asset based revolving line of credit which the Company and M&K entered into
with a lender. Borrowings under this line of credit bore interest at prime plus
3.0%. At December 31, 1997, the Company and M&K were not in compliance with
certain covenants under the revolving line of credit and in May 1998 received a
waiver from the lender regarding the instances of noncompliance.
On June 4, 1998, the Company and M&K refinanced amounts outstanding under
the then existing line of credit with an $8,000 revolving credit agreement with
a bank. This agreement was amended on September 23, 1998 and February 8, 1999 to
increase the revolving credit agreement to $10,000 and $14,000, respectively.
The Company and M&K are allowed to borrow under the revolving credit agreement
based on eligible accounts receivable and inventory, subject to certain
restrictions. Borrowings under the revolving credit agreement bear interest at
prime plus 1.5% (9.25% at
F-31
<PAGE>
AMITEK CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
5. DEBT (CONTINUED)
December 31, 1998). The revolving credit agreement expires on June 24, 2001. At
December 31, 1998, the unused portion of the revolving credit agreement totaled
approximately $566.
Borrowings under the revolving credit agreement are collateralized by the
inventory, accounts receivable and substantially all other assets of the Company
and M&K and by a personal guarantee of the stockholders of the Company. The
Company and M&K have a combined borrowing base of $10,888 at December 31, 1998
of which $6,541 relates to assets recorded in the accounts of the Company and
$4,347 to those in the accounts of M&K. Borrowings by M&K totaled $5,141 at
December 31, 1998. The borrowing bases were calculated by dividing the borrowing
base between the Company and M&K based on their respective eligible inventory
and accounts receivable levels as of December 31, 1998. The revolving credit
agreement further states that if either the Company or M&K become insolvent that
the property of either may be set-off and applied towards the payment of
indebtedness.
The Company agreed to absorb $200 and $78 of interest charges for the years
ended December 31, 1998 and 1997, respectively, related to borrowings by M&K.
These interest costs are included in cost of sales as they are considered to be
related to the inventory which the Company purchases from M&K (see Note 7).
The Company's revolving credit agreement is subject to certain restrictive
financial covenants, which among others, require the Company and M&K, in the
aggregate, to maintain certain financial ratios and restrict the payment of
dividends to shareholders and loans to officers, directors and employees. At
December 31, 1998, the Company and M&K were not in compliance with certain of
the financial covenants under their revolving credit agreement. On June 25,
1999, the Company and M&K obtained a waiver from the lender stating that the
instances of noncompliance were waived through the earlier of January 1, 2000 or
such time as the lender and the Company enter into an amended and restated
revolving credit agreement.
Long-term debt consists of the following at December 31, 1998:
<TABLE>
<S> <C>
Capital expenditures line of credit, interest rate at 1.75% above
prime rate (9.5% at December 31, 1998), line converts to promissory
note on June 4, 1999 with a seven year amortization of principal
balance, collateralized by substantially all of the assets of the
Company. .......................................................... $ 363
Less current portion................................................. (96)
---------
$ 267
---------
---------
</TABLE>
F-32
<PAGE>
AMITEK CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
6. COMMITMENTS AND CONTINGENCIES
CAPITAL LEASES
The Company leases various manufacturing equipment under capital lease
agreements. Future minimum lease payments, by year, and in the aggregate, under
capital leases are as follows:
<TABLE>
<S> <C>
1999................................................................ $ 839
2000................................................................ 624
2001................................................................ 247
2002................................................................ 208
2003................................................................ 36
Total Minimum lease payments........................................ 1,954
Less amount representing interest................................... (240)
---------
Present value of future net minimum lease payments.................. 1,714
Less current portion................................................ (709)
---------
$ 1,005
---------
---------
</TABLE>
OPERATING LEASES
The Company has entered into operating leases for office space and
automobiles. Future minimum payments, by year and in the aggregate, under
noncancelable operating leases with initial or remaining terms in excess of one
year are as follows:
<TABLE>
<S> <C>
1999................................................................................ $ 310
2000................................................................................ 322
2001................................................................................ 335
2002................................................................................ 349
2003................................................................................ 362
Thereafter.......................................................................... 185
---------
$ 1,863
---------
---------
</TABLE>
Rent expense totaled approximately $264 and $422 for the years ended
December 31, 1997 and 1998, respectively. There was no rent expense for the year
ended December 31, 1996.
7. RELATED PARTY TRANSACTIONS
The Company is a member of a group of affiliated entities and, as disclosed
below and in Note 5, has extensive transactions and relationships with members
of the group. Because of these relationships, it is possible that the terms of
these transactions are not the same as those that would result from transactions
among wholly unrelated parties.
The Company's majority stockholder has loaned the Company $1,641 as of
December 31, 1997 and 1998. The loan is interest free and has no formal
repayment terms. Principal payments on the loan are not scheduled to begin prior
to January 2000.
F-33
<PAGE>
AMITEK CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
7. RELATED PARTY TRANSACTIONS (CONTINUED)
The Company purchases the majority of its raw materials inventory from M&K,
a member of the affiliated group, at M&K's cost plus a mark-up of five percent.
These transactions are in the normal course of business and reflect payment
terms of net 30 days. Purchases from M&K totaled $5,150, $17,711 and $34,869 for
the years ended December 31, 1996, 1997 and 1998, respectively. Amounts due to
M&K at December 31, 1997 and 1998 totaled $2,155 and $4,872, respectively.
In January 1999, the Company acquired from M&K all of the raw materials
inventory, at M&K's cost plus five percent (approximately $6,700), relating to
the Company's contract manufacturing operation. In addition, the Company assumed
M&K's portion of the Company's revolving credit agreement at December 31, 1998,
totaling approximately $5,141.
During 1997 and 1998, the Company was allocated approximately $230 and $447,
respectively, of freight costs incurred by M&K relating to purchases of raw
materials for the Company's contract manufacturing operation.
Although not significant to operations, the Company sells electronic
components to and performs services for other companies owned by the Company's
stockholders or members of their families. These transactions are in the normal
course of business and the related receivables are recorded as due from
affiliates. Sales to affiliates totaled approximately $523, $664 and $896 for
the years ended December 31, 1996, 1997 and 1998, respectively.
8. SIGNIFICANT CUSTOMER
The Company has business activities with communications, computer,
industrial, government and consumer electronics customers. The Company is
subject to a significant concentration of credit risk with respect to accounts
receivable as one customer accounted for 87% and 73% of accounts receivable at
December 31, 1997 and 1998, respectively. This customer has a long term
relationship with the Company. The Company has adopted credit policies and
standards intended to accommodate industry growth and inherent risk. The Company
performs ongoing credit evaluations of its customers' financial condition and
requires collateral as deemed necessary. There can be no assurance that the
credit quality of the customers with which the Company transacts business will
be stable or that efforts to diversify receivables will prevent the Company from
incurring material losses.
During 1996, 1997 and 1998, the previously described customer individually
accounted for approximately 61%, 80% and 88%, respectively, of the Company's net
sales.
9. SUBSEQUENT EVENT
On April 15, 1999, the Company signed a Letter of Intent to sell all the
assets and liabilities of the Company and M&K. The terms of the Letter of Intent
are currently being modified to include only those assets and liabilities
associated with the Company. In connection with the proposed transaction, all
the assets and liabilities related to the contract manufacturing portion of the
business including certain raw materials inventory, certain fixed assets and the
balance of the line of credit currently recorded in the accounts of M&K will be
assumed by the buyer. It is anticipated that the sale will be finalized during
the second quarter of 1999.
F-34
<PAGE>
Inside back cover:
[picture of a Bizfon small business phone system]
[picture of a Nortel cable modem]
[picture of a Motorola phone]
[picture of a printed circuit board]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than the
underwriting discounts and commissions. All amounts shown are estimates, except
the Securities and Exchange Commission registration fee and the National
Association of Securities Dealers, Inc. filing fee.
<TABLE>
<CAPTION>
ITEM AMOUNT
- -------------------------------------------------------------------------------- ------------
<S> <C>
Securities and Exchange Commission Registration Fee............................. $ 12,788
National Association of Securities Dealers Filing Fee........................... 5,100
Nasdaq National Market Listing Fee.............................................. 95,000
Blue Sky Fees and Expenses...................................................... 20,000
Transfer Agent and Registrar Fees............................................... 5,000
Accounting Fees and Expenses.................................................... 300,000
Legal Fees and Expenses......................................................... 350,000
Printing Expenses............................................................... 150,000
Miscellaneous................................................................... 62,112
------------
Total....................................................................... $ 1,000,000
------------
------------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Amended and Restated Certificate of Incorporation provides
that the Registrant's Directors shall not be liable to the Registrant or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except to the extent that the exculpation from liabilities is not permitted
under the Delaware General Corporation Law as in effect at the time such
liability is determined. The Amended and Restated By-Laws provide that the
Registrant shall indemnify its directors to the full extent permitted by the
laws of the State of Delaware.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In the three years preceding the filing of this Registration Statement, the
Registrant has issued the following securities which were not registered under
the Securities Act of 1933, as amended (the "Securities Act"):
In October 1996 we issued 6,256,332 shares of common stock to the following
stockholders in exchange for their shares in Design Circuits, Inc. pursuant to a
Share Exchange Agreement among us and the selling stockholders listed below:
<TABLE>
<CAPTION>
SHARES OF OUR SHARES OF
STOCKHOLDER COMMON STOCK RECEIVED DCI SURRENDERED
- ----------------------------------------------------- --------------------- ---------------
<S> <C> <C>
Thomas L. DePetrillo................................. 247,000 4,940.00
S. Marcus Finkle..................................... 271,739 5,434.78
Gibraltor Management Corp............................ 271,739 5,434.78
Centennial Technologies.............................. 4,713,504 94,270.08
Robert Cohen......................................... 135,870 2,717.39
Arthur Reichstetter.................................. 135,870 2,717.39
Anasarzi Partners.................................... 108,696 2,173.91
S. Wilson............................................ 67,935 1,358.70
James Kelly.......................................... 67,935 1,358.70
Stephanie Rubin...................................... 54,348 1,086.96
Carol Keefe.......................................... 50,000 1,000.00
Leonore Katz......................................... 27,174 543.48
Jeffrey Cohen........................................ 27,174 543.48
CP Baker Venture Fund................................ 27,174 543.48
Allyson Cohen........................................ 27,174 543.48
Paul DePetrillo...................................... 5,000 100.00
Erin DePetrillo...................................... 5,000 100.00
Thomas DePetrillo, Custodian for..................... 3,000 60.00
Amber Rose
Thomas Chadronet..................................... 2,500 50.00
Kimberly Gagne....................................... 2,500 50.00
Thomas M. DePetrillo................................. 5,000 100.00
</TABLE>
These shares were issued pursuant to Section 4(2) under the Securities Act.
In November 1996 we issued an aggregate of 2,119,500 shares of our common
stock to the following individuals as part of the purchase price in connection
with the purchase of all of the outstanding stock of TRIAX Technology Group,
Ltd.:
<TABLE>
<CAPTION>
SHARES OF OUR
STOCKHOLDER COMMON STOCK RECEIVED
- ----------------------------------------------------- ---------------------
<S> <C> <C>
Raymond Stanley...................................... 605,600
Les Sainsbury........................................ 605,600
Ian McEwan........................................... 605,600
Gerald Hayburn....................................... 302,700
</TABLE>
In addition, to help finance the cash portion of the purchase price and
certain transaction costs of the TRIAX purchase, we issued 3,073,130 shares of
our common stock, valued at approximately $5.0 million, to Centennial
Technologies, Inc. In addition, as a brokers' fee for his services in connection
with the TRIAX transaction, we issued 120,000 shares of our common stock to
Thomas DePetrillo. These shares were issued pursuant to Section 4(2) under the
Securities Act.
II-2
<PAGE>
In June 1997 we issued a convertible subordinated debenture in the amount of
$6,000,000 at a rate of 6% due June 25, 2007 to Centennial Technologies, Inc. as
payment for the repurchase of 3,000,000 shares of our common stock from
Centennial. We also issued 75,000 shares of our common stock to Thomas
DePetrillo as a brokers' fee for his services in connection with the repurchase
of shares from Centennial. These shares and the debenture were issued pursuant
to Section 4(2) under the Securities Act.
In July 1997 we issued a promissory note to Centennial in the face amount of
$1,891,125 at an interest rate of 9% due January 1999. This note was issued
pursuant to Section 4(2) under the Securities Act. In addition, we issued
175,000 shares of common stock to Thomas DePetrillo as a brokers' fee for his
services in connection with the transaction. These shares were issued pursuant
to Section 4(2) under the Securities Act.
In July 1997 we also issued 7.5% Convertible Notes due June 30, 1998 to the
following individuals in the aggregate principal amount of $2,000,000 which were
converted in June 1998 into an aggregate of 705,424 shares of common stock as
follows:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SHARES OF COMMON STOCK
OF NOTE RECEIVED UPON CONVERSION OF
NOTEHOLDER ISSUED NOTE
- ------------------------------------------------ ------------- -----------------------------
<S> <C> <C>
Robert Cohen.................................... $ 350,000 125,417
Leonore Katz.................................... $ 100,000 35,834
Ellen Cohen..................................... $ 100,000 35,834
Meryl Cohen..................................... $ 300,000 107,500
S&R Holdings.................................... $ 100,000 35,834
Gary Kaplowitz.................................. $ 100,000 35,834
Allen Rothstein................................. $ 100,000 35,834
Louis Silverman................................. $ 100,000 35,834
Stephanie Ruben................................. $ 150,000 53,750
Allen Cohen, Robert............................. $ 100,000 35,834
Cohen, Jeffrey Rubin
Jeffrey Rubin................................... $ 50,000 17,917
Richard Feldman................................. $ 100,000 33,334
Ilana Brodt..................................... $ 150,000 50,000
Abbey Cohen May................................. $ 50,000 16,667
Jennifer Cohen.................................. $ 50,000 16,667
Richard Cohen................................... $ 50,000 16,667
Edward Cohen.................................... $ 50,000 16,667
</TABLE>
These notes and shares were issued pursuant to Section 4(2) under the
Securities Act.
In March 1997 we issued 26,125 shares of our common stock to Sheik Ahmed
pursuant to the exercise of his stock options at $1.75 per share. These shares
were issued pursuant to Section 4(2) and Rule 701 under the Securities Act.
In September 1997 we issued to CTN Thailand Holdings Limited 750,000 shares
of our common stock and a warrant to purchase 100,000 shares of our common stock
at $5.00 per share in connection with the purchase of 49% of the stock of
Centennial Technologies (Thailand) Limited. These shares were issued pursuant to
Section 4(2) under the Securities Act.
In November 1997 we issued 80,000 shares of our common stock to DDL
Electronics, Inc. as part of a Settlement Agreement resulting from a failed
merger attempt. These shares were issued pursuant to Section 4(2) under the
Securities Act.
II-3
<PAGE>
In February 1998 we issued 666,667 shares of our Series B Preferred Stock to
Centennial Technologies, Inc. for a purchase price of $6.00 per share (an
aggregate purchase price of $4,000,000). We also sold 2,739,726 shares of Series
A Preferred Stock to HarbourVest Venture Partners V--Direct Fund, L.P. for a
purchase price of $3.65 per share (an aggregate purchase price of $10,000,000)
in February 1998 and another 931,507 shares of Series A Preferred Stock to
HarbourVest Partners V-- Direct Fund, L.P. for a purchase price of $3.65 per
share (an aggregate purchase price of $3,400,000.50) in December 1998. Every
one share of series A preferred stock will convert into one share of common
stock upon consummation of this offering. These shares were issued pursuant to
Section 4(2) under the Securities Act.
In February 1998 we issued 175,000 shares of common stock to Thomas
DePetrillo as a brokers' fee for his services in connection with the repurchase
of shares of common stock from Centennial. These shares were issued pursuant to
Section 4(2) under the Securities Act.
In August 1998 we issued a promissory note in the principal amount of
$400,000 at an interest rate of 10% due September 30, 1998 to HarbourVest
Venture Partners V--Direct Fund, L.P. In November, 1998, we issued to
HarbourVest Venture Partners V--Direct Fund, L.P. a promissory note in the
principal amount of $1,000,000 at an interest rate of 10% due November 1, 1999
or earlier and a warrant to purchase 27,397 shares of Series A Convertible
Preferred Stock at an exercise price of $3.65 per share. These notes were issued
pursuant to Section 4(2) under the Securities Act.
In July 1999 we issued an aggregate of 2,127,548 shares of our common stock
and notes in the aggregate principal amount of $7,219,000 to the following
individuals as part of the purchase price in connection with the purchase of all
of the outstanding stock of Amitek Corporation:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF AMOUNT OF
OUR NOTES
STOCKHOLDER COMMON STOCK RECEIVED RECEIVED
- ------------------------------------------------------ ---------------------- -------------
<S> <C> <C>
Myung Ho Park......................................... 624,119 $ 2,117,701
Yoon Jung Park........................................ 1,085,049 $ 3,681,690
Sung Woo Kwon......................................... 418,380 $ 1,419,609
</TABLE>
These shares were issued pursuant to Section 4(2) under the Securities Act.
No underwriters were involved in the foregoing sales of securities. Such
sales were made in reliance upon an exemption from the registration provisions
of the Securities Act set forth in Section 4(2) thereof relative to sales by an
issuer not involving any public offering or the rules and regulations
thereunder, or, in the case of options to purchase common stock, Rule 701 under
the Securities Act. All of the foregoing securities are deemed restricted
securities for purposes of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following is a list of exhibits filed as a part of this registration
statement.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
*1.1 Proposed Form of Underwriting Agreement
*2.1 Agreement and Plan of Merger, dated July 30, 1999 by and among the Registrant and the other parties
thereto
*3.1 Amended and Restated Certificate of Incorporation of Registrant
*3.2 Amended and Restated By-Laws of the Registrant
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
*4.1 Specimen Certificate for shares of the Registrant's Common Stock.
*5.1 Opinion of Ropes and Gray, counsel to the Registrant, regarding the legality of the shares of common
stock
*10.1 1996 Stock Option Plan
*10.2 Preferred Stock Purchase Agreement dated February 4, 1998 by and between Registrant and Centennial
Technologies, Inc.
*10.3 Preferred Stock Purchase Agreement dated February 4, 1998 by and between Registrant and HarbourVest
Partners V--Direct Fund L.P.
*10.4 Preferred Stock Purchase Agreement dated December 1, 1998 by and between Registrant and HarbourVest
Partners V--Direct Fund L.P.
*10.5 Waiver of Rights and Amendment under Purchase Agreements dated July 30, 1999 by and between Registrant
and HarbourVest Partners V--Direct Fund L.P.
*10.6 Waiver of Rights and Amendment under Purchase Agreement dated July 30, 1999 by and between Registrant and
Centennial Technologies, Inc.
*10.7 Registration Rights Agreement dated June 30, 1997 by and among the Registrant and the parties listed on
the signature page thereto.
*10.8 Registration Rights Agreement dated July 30, 1999 by and among the Registrant, and Myung Ho Park, Yoon
Jung Park and Sung Woo Kwon.
*10.9 Employment Agreement, dated November 5, 1997, by and between the Registrant and Les Sainsbury
*10.10 Employment Agreement, dated July 1999, by and between the Registrant and Mark Lombardo
*10.11 Warrant to purchase shares of Registrant's Common Stock issued to CTN Thailand Holdings Ltd dated
November, 1997.
*10.12 Warrant to purchase shares of the Registrant's Series A Preferred Stock, issued to HarbourVest
PartnersV--Direct Fund L.P. dated November 1998
*10.13 Warrant to purchase shares of the Registrant's Common Stock, issued to Guarantee Business Credit
Corporation dated July 30, 1999.
*10.14 Amended and Restated Loan Agreement dated July 30, 1999 by and between Amitek Corporation and National
Bank of Canada
*10.15 Absolute Unconditional and Continuing Guaranty dated as of July 30, 1999 executed by Registrant in favor
of National Bank of Canada
*10.16 Loan and Security Agreement dated December 22, 1998 by and among Century Electronics Manufacturing (NE),
Inc., YMC Manufacturing Company, Quality Manufacturing Services, Inc. and Fidelity Funding, Inc.
*10.17 First Amendment to Loan and Security Agreement entered into effective July 30, 1999 by and among Century
Electronics Manufacturing (NE), Inc., YMC Manufacturing Company, Quality Manufacturing Services, Inc.
and Guaranty Business Credit Corporation
*10.18 General Continuing Guaranty dated December 22, 1998 executed by Registrant
*10.19 Term Note in amount of $3,500,000 dated July 16, 1999 issued by Suntrust Bank, Atlanta.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
21.1 Subsidiaries of the Registrant
23.1 Consent of KPMG LLP
23.2 Consent of Lawrence N. Legg
23.3 Consent of PriceWaterhouse Coopers, LLP
*23.4 Consent of Ropes & Gray, counsel to the Registrant (included in Exhibit 5.1)
24.1 Power of Attorney (included in signature page to Registration Statement)
27.1 Financial Data Schedule (6/30/98) and (3/31/99)
</TABLE>
- ------------------------
* To be filed by amendment
(b) Financial Statement Schedules
All schedules are omitted because they are not applicable or the required
information is shown in the consolidated financial statements or notes to those
statements.
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under "Item 14--Indemnification
of Directors and Officers" above, or otherwise, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(b) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial BONA FIDE offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Boston, Massachusetts on this 13th
day of August, 1999.
<TABLE>
<CAPTION>
CENTURY ELECTRONICS MANUFACTURING, INC.
<S> <C> <C>
By: /s/ LESLIE J. SAINSBURY
----------------------------------------
Leslie J. Sainsbury
Chairman of the Board, Chief Executive
Officer and President
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated. Each person whose signature appears below
hereby authorizes Leslie J. Sainsbury and James M. Roller, and each of them,
acting singly, with full power to them, to execute in the name and on behalf of
such person any amendment (including any post-effective amendment) to this
Registration Statement (or any other registration statement for the same
offering that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act) and to file the same, with exhibits thereto, and other documents
in connection therewith, making such changes in this Registration Statement as
the person(s) so acting deems appropriate, and appoints each of such persons,
each with full power of substitution, attorney-in-fact to sign any amendment
(including any post-effective amendment) to this Registration Statement (or any
other registration statement for the same offering that is to be effective upon
filing pursuant to Rule 462(b) under the Securities Act) and to file the same,
with exhibits thereto, and other documents in connection therein.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------------------- ---------------------------------------------- ------------------
<C> <S> <C>
/s/ LESLIE J. SAINSBURY Chairman of the Board, Chief Executive Officer
------------------------------------ and President (Principal Executive Officer);
Leslie J. Sainsbury Director August 13, 1999
/s/ JAMES M. ROLLER Vice President of Finance (Principal Financial
------------------------------------ Officer and Principal Accounting Officer)
James M. Roller August 13, 1999
/s/ WALTER J. CONROY Director
------------------------------------
Walter J. Conroy August 13, 1999
/s/ IAN MCEWAN Director
------------------------------------
Ian McEwan August 13, 1999
/s/ OFER NEMIROVSKY Director
------------------------------------
Ofer Nemirovsky August 13, 1999
</TABLE>
II-7
<PAGE>
Exhibit 21.1
List of Subsidiaries
1.) Century Electronics Manufacturing (NE), Inc. (Incorporated in
Massachusetts)
2.) Y.M.C. Manufacturing Company (Incorporated in California)
3.) Century Electronics Manufacturing, Inc. (UK) Ltd. (Incorporated in the
United Kingdom)
a. Triax Engineering Limited (Incorporated in the United Kingdom) - a
subsidiary of Century Electronics Manufacturing, Inc. (UK) Ltd.
b. Triax Manufacturing Limited (Incorporated in the United Kingdom) - a
subsidiary of Century Electronics Manufacturing, Inc. (UK) Ltd.
4.) Century Electronics Manufacturing (Thailand) Ltd.
5.) Quality Manufacturing Services, Inc. (Incorporated in California)
D/B/A Century Electronics Manufacturing West Coast Operations, Inc.
6.) Amitek Corporation (Incorporated in Delaware)
<PAGE>
EXHIBIT 23.1
ACCOUNTANTS' CONSENT
The Board of Directors
Century Electronics Manufacturing, Inc.
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ KPMG LLP
Boston, Massachusetts
August 13, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANT
I consent to the inclusion in this Registration Statement on Form S1 of my
report dated March 20, 1997 and June 30, 1999, on my audit of Amitek
Corporation's financial statements for the year ended December 31, 1996. I also
consent to the reference to my name under the section entitled "Experts".
/s/ LAWRENCE N. LEGG
--------------------------------------
Lawrence N. Legg, CPA, PA
August 13, 1999
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated June 15, 1999, except as to the fifth paragraph of Note 5, which is
as of June 25, 1999, relating to the financial statements of Amitek Corporation,
which appear in such Registration Statement. We also consent to the reference to
us under the headings "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Miami, Florida
August 13, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JUNE 30,
1998 AND MARCH 31, 1999 AND IS QUALIFIED BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS
<FISCAL-YEAR-END> JUN-30-1998 JUN-30-1999
<PERIOD-START> JUL-01-1997 JUL-01-1998
<PERIOD-END> JUN-30-1998 MAR-31-1999
<CASH> 1,630 2,715
<SECURITIES> 0 0
<RECEIVABLES> 11,526 22,110
<ALLOWANCES> 320 166
<INVENTORY> 6,433 12,717
<CURRENT-ASSETS> 20,660 38,741
<PP&E> 15,143 16,756
<DEPRECIATION> 2,218 2,279
<TOTAL-ASSETS> 36,820 57,031
<CURRENT-LIABILITIES> 20,256 35,705
<BONDS> 0 0
0 0
2,740 3,671
<COMMON> 6,521 6,322
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 12,128 16,599
<SALES> 69,944 84,045
<TOTAL-REVENUES> 69,944 84,045
<CGS> 65,078 75,178
<TOTAL-COSTS> 14,682 5,293
<OTHER-EXPENSES> 280 185
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,137 1,271
<INCOME-PRETAX> 10,672 2,488
<INCOME-TAX> (218) 945
<INCOME-CONTINUING> 10,453 1,542
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 10,453 1,542
<EPS-BASIC> (1.33) 0.24
<EPS-DILUTED> (1.33) 0.13
</TABLE>
