Filed Pursuant to Rule 424(b)(3)
Registration No. 333-31349
DDL ELECTRONICS, INC.
Common Stock
This Prospectus relates to the resale from time to time of up
to 2,000,000 shares (the "Shares") of common stock, $.01 par value
(the "Common Stock"), of DDL Electronics, Inc. (the "Company") by
certain stockholders of the Company named herein (the "Selling
Stockholders"). "See Selling Stockholders" and "Plan of
Distribution."
The Shares may be sold from time to time by the Selling
Stockholders on the New York Stock Exchange (the "NYSE") or the
Pacific Exchange (the "PE") on terms to be determined at the time
of each sale. The Selling Stockholders also may make private sales
from time to time directly or through a broker or brokers.
Alternatively, the Selling Stockholders may offer Shares from time
to time to or through underwriters, dealers or agents, who may
receive consideration in the form of discounts and commissions.
Such compensation, which may exceed ordinary brokerage
commissions, may be paid by the Selling Stockholders and/or the
purchasers of the Shares for whom such underwriters, dealers and
agents may act. See "Selling Stockholders" and "Plan of
Distribution."
The Selling Stockholders and any dealers or agents that may
participate in the distribution of the Shares may be considered
"underwriters" within the meaning of the Securities Act of 1933,
as amended (the "Securities Act"), and any profit on the sale of
Shares offered by them and any discounts, commissions or
concessions received by any such dealers or agents may be
considered underwriting discounts and commissions under the
Securities Act.
The Company will receive no proceeds from the sale of the
Shares by the Selling Stockholders hereunder, but the Company will
pay the expenses that it incurs in connection with the
registration of the Shares with the Securities and Exchange
Commission (the "SEC"). See "Plan of Distribution" for
indemnification arrangements between the Company and the Selling
Stockholders.
The Common Stock is listed on the NYSE and on the PE under
the symbol "DDL." On November 3, 1997, the closing price per
share of the Common Stock, as reported in the consolidated
reporting system, was $0.81.
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The Shares involve a high degree of risk. See "Risk
Factors," commencing on page 3.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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The date of this Prospectus is November 4, 1997.
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the SEC a Registration Statement
on Form S-3 under the Securities Act with respect to the Shares
(the "Registration Statement"). This Prospectus does not contain
all of the information set forth in the Registration Statement and
the exhibits and schedules thereto. For further information with
respect to the Company and the Shares, reference is made to the
Registration Statement, including the exhibits and schedules filed
as part thereof. Statements contained in this Prospectus as to
the contents of any contract or any other document are not
necessarily complete, and, in each such instance, reference is
hereby made to the copy of the contract or document filed as an
exhibit to the Registration Statement, each such statement being
qualified in all respects by this reference thereto.
The Company is subject to the informational and reporting
requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith files reports,
proxy statements and other information with the SEC. The
Registration Statement and exhibits and schedules thereto, as well
as such reports, proxy statements and other information, may be
inspected and copied at the Public Reference Section of the SEC at
450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the SEC located at 7 World Trade Center, Suite
1300, New York, New York 10048, at 500 West Madison Street, Suite
1400, Chicago, Illinois 60661 and at 5670 Wilshire Boulevard, 11th
Floor, Los Angeles, California 90036. Copies of all or any part
of such materials may be obtained from any such office upon
payment of the fees prescribed by the SEC. The SEC also maintains
a World Wide Web site (http://www.sec.gov), which contains
reports, proxy and information statements and other information
filed electronically through the SEC's Electronic Data Gathering,
Analysis and Retrieval System (known as "EDGAR"). Such information
may also be inspected at the offices of the NYSE at 20 Broad
Street, New York, New York 10005 and at the offices of the PE at
233 South Beaudry Avenue, Los Angeles, California 90012.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents have been filed with the SEC by the
Company and are hereby incorporated by reference into this
Prospectus: (i) the Company's Annual Report on Form 10-K for its
fiscal year ended June 30, 1997 (the "Form 10-K"); (ii) the
Company's Annual Report on Form 10-K/A for its fiscal year ended
June 30, 1997, as filed with the SEC on October 24, 1997; (iii)
the Company's Current Reports on Form 8-K, dated the following
dates: September 29, 1997 and July 9, 1997; and (iv) the
description of the Common Stock contained in the Company's
Registration Statement on Form 8-A filed with the SEC pursuant to
Section 12 of the Exchange Act. All other documents filed
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
from the date of this Prospectus and prior to the termination of
this offering shall be deemed to be incorporated by reference
herein and shall be deemed to be a part hereof from the date of
filing thereof.
Any statement contained in a document incorporated or deemed
incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any subsequently filed document
that is also deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to
each person to whom a Prospectus is delivered, upon written or
oral request of such person, a copy of any document incorporated
herein by reference (not including exhibits to documents that have
been incorporated herein by reference unless such exhibits are
specifically incorporated by reference in the document which this
Prospectus incorporates). Requests should be directed to Mr.
Richard K. Vitelle, Chief Financial Officer, DDL Electronics,
Inc., 2151 Anchor Court, Newbury Park, California 91320, telephone
(805) 376-9415.
RISK FACTORS
Prospective investors should carefully consider the following
factors, in addition to the other information presented in this
Prospectus, before purchasing the Shares.
Risk that Acquisition of Jolt will not Close. On June 30,
1997, in order to raise funds necessary to repay its 10% Senior
Secured Notes in the aggregate principal amount of $5,300,000 (the
"Senior Notes"), the Company borrowed $2 million from Mr. Thomas
A. Wheeler, a private investor, under a promissory note bearing 8%
interest (the "Wheeler Note"). The Wheeler Note matures on
February 1, 1999, except as provided below, and is secured by a
pledge of all of the outstanding shares of SMTEK, Inc. ("SMTEK").
The Company agreed to give Mr. Wheeler two seats on its Board of
Directors. The seats were filled by Mr. Wheeler and Ms. Charlene
A. Gondek. The Company also agreed to acquire all of the issued
and outstanding shares of Jolt Technology, Inc. ("Jolt"), a
privately-held electronics manufacturing company owned by Mr.
Wheeler, Ms. Gondek and a third individual, for nine million
shares of Common Stock. If the Company acquires all of the issued
and outstanding shares of Jolt in exchange for registered Common
Stock by February 1, 1999, and if Mr. Wheeler is not then
prevented from transferring his portion of such Common Stock to a
charitable foundation, then the Wheeler Note (and all accrued
interest thereon) will become due on October 31, 1999 (rather than
February 1, 1999).
The Company is currently negotiating a definitive agreement
and other legal documents relating to its acquisition of Jolt.
The specific terms of such documents are subject to negotiation,
and the closing of the Jolt acquisition will be subject to many
conditions, some of which are beyond the Company's control,
including obtaining a fairness opinion and stockholder approval.
There can be no assurance that the Jolt acquisition will be
completed on the terms described herein, or at all, or that there
will be no material change in the information included and
incorporated herein with respect to the Jolt acquisition.
Furthermore, there can be no assurance, should the Jolt
acquisition be completed, that anticipated benefits of the
acquisitions will be realized. In any event, the process of
integrating the operations of Jolt into the Company's operations
may result in unforeseen operating difficulties, could absorb
significant management attention and could require the use of
financial resources otherwise available for ongoing development
and expansion of the Company's existing operations.
Significant Losses. The Company has incurred significant
losses repeatedly in recent quarters and years. The net loss was
$1,678,000 for the Company's fiscal year ended June 30, 1997
("fiscal 1997"). Operating losses totaled $1,167,000, $4,970,000,
$6,948,000 and $5,067,000 in the Company's fiscal years ended June
30, 1996, 1995, 1994 and 1993, respectively. Indeed, with the
exception of the most recent fiscal year, during which the Company
generated operating income of $118,000, the Company has incurred
operating losses for most of the last ten years. Operating losses
could continue until such time as sales increase to a level
sufficient to cover costs and operating expenses. No assurance
can be given as to whether or when such sales increases or
sustained operating profits may be achieved.
In attempting to maintain and improve operating
profitability, management is focusing on problems such as
aggressive price competition throughout the industry and the
Company's need to strengthen its sales and marketing initiatives.
All three of the Company's operating units currently have
significant underutilized manufacturing capacity which management
attributes to these problems. Although DDL has recently
implemented operational improvements that have resulted in modest
operating income, there can be no assurance that the Company will
be able to maintain or improve operating profitability. See "The
Company" herein.
Litigation Risks. On May 29, 1997, the Company signed a
letter of intent (the "Century Letter of Intent") to merge with
Century Electronics Manufacturing, Inc. ("CEMI"). Pursuant to the
Century Letter of Intent, CEMI was to provide a loan of up to $3.3
million to the Company by June 1, 1997 for retirement of the
Company's Senior Notes in the aggregate principal amount of
$5,300,000. However, such financing was not made available by
CEMI. As a result, on June 30, 1997 the Company obtained
alternate financing which enabled it to repay its Senior Notes.
On September 22, 1997, the Company filed a lawsuit against CEMI in
the Superior Court of Ventura County, California, alleging breach
of contract and fraud and seeking $5,000,000 in actual damages
plus punitive damages. CEMI has not yet answered the Company's
complaint or made an appearance in the case. On October 14, 1997,
however, CEMI filed a lawsuit of its own against the Company in
the Superior Court of Middlesex County, Massachusetts. In the
Massachusetts action, CEMI asserts that the Company failed to
provide collateral acceptable to CEMI to secure CEMI's loan and
that the Company engaged in unfair and deceptive acts which
deprived CEMI of the opportunity to merge with a publicly traded
company. CEMI's lawsuit seeks $10,000,000 plus punitive damages.
The Company believes CEMI's lawsuit is without merit and plans to
contest CEMI's claims vigorously, unless an amicable settlement
can be reached. Negotiations between the parties during the week
of October 27, 1997 resulted in an oral understanding, not yet
reduced to writing, resolving all claims asserted in both lawsuits
without the payment of cash by either party to the other party.
If for any reason a settlement cannot be consummated, then
litigation would continue. In that event, the Company's
prosecution of the California action and its defense of the
Massachusetts action would both be subject to all of the risks,
costs and uncertainties associated with litigation, including
legal fees and expenses, disruption of executive schedules and
focus, the possibility that the Company may be called upon to
satisfy a judgment and the possibility that the Company will be
unable to realize proceeds from any judgment that it may obtain.
Limited Capital Resources; Continuing Need for Financing.
The Company's ability to maintain its current revenue base and to
fund its business operations is dependent on the availability of
adequate capital. Without sufficient capital, the Company's
growth will be limited and its operations will be adversely
affected. As a result of significant operating losses in recent
years and the Company's repayment of the Senior Notes on June 30,
1997, the Company currently has limited capital. General market
conditions and the Company's future performance, including its
ability to generate profits and positive cash flow, will also
impact the Company's resources. In addition, the Company's future
capital requirements will depend upon a number of factors, such as
competitive conditions and capital costs, that are not within the
Company's control. The Company anticipates that it may be
required to issue additional equity or debt securities and may use
other financing sources to fund growth and development. The sale
of additional equity securities would result in additional
dilution to the stockholders of the Company. The failure of the
Company to obtain additional capital when needed could have
material adverse effects on the Company's business and future
prospects. No assurance can be given that additional financing
will be available when needed on acceptable terms or at all.
Dependence on Key Personnel. The Company's success depends
to a large extent upon the efforts and abilities of key managerial
and technical personnel. Pursuant to a change in control of the
Company in May 1995, the Company's incumbent senior management was
replaced with interim senior management while the Company searched
for permanent senior management possessed of desired skills,
experience and other qualifications. The operating management of
the Company's Northern Ireland subsidiaries was not changed.
Upon consummation of the acquisition of SMTEK in January
1996, the President and Chief Executive Officer of SMTEK, Mr.
Gregory L. Horton, became the President and Chief Executive
Officer of the Company and a member of the Company's Board of
Directors. Mr. Horton's experience within the industry in which
the Company operates will continue to be of considerable
importance to the Company. Pursuant to the respective employment
agreements of Messrs. Horton and Vitelle, Vice President of
Finance and Chief Financial Officer, Mr. Horton's term of
employment continues until November 1, 1999 and Mr. Vitelle's term
of employment continues until September 12, 2001, unless earlier
terminated in accordance with the terms and conditions of each
respective agreement. With respect to each such employment
agreement, either the Company or Mr. Horton or Mr. Vitelle, as the
case may be, may terminate employment with or without cause,
although certain amounts are to be paid or forfeited to the other
party in the event of a termination of employment without cause.
There can be no assurance that the Company will be able to retain
its existing personnel or attract additional skilled employees in
the future. The loss of any of the Company's key personnel or its
inability to attract and retain key employees in the future could
have a material adverse effect on the Company's operations and
business plan. The Company is the beneficiary of "key-man" life
insurance policy with respect to Mr. Horton in the amount of $1.3
million. The Company does not intend to obtain similar insurance
policies with respect to the lives of any of its other officers or
personnel.
Concentration of Revenues Among Major Customers. In fiscal
1997, one customer accounted for approximately 42% of the sales of
DDL Electronics Limited, a wholly-owned subsidiary of the Company
located in Northern Ireland ("DDL-E"). There can be no assurance
that this customer will maintain its business relationship with
DDL-E. The loss of all or a substantial portion of DDL-E's
revenues attributable to any of its major customers that could not
be offset by a new customer could have a material adverse effect
on the Company's financial condition and results of operations.
In fiscal 1997, one customer accounted for more than 47% of
SMTEK's sales. During fiscal 1997, more than 50% of SMTEK's
business was generated by customers located in California. There
can be no assurance that any of these customers will maintain
their volume of business with SMTEK. The loss of all or a
substantial portion of SMTEK's revenues attributable to any of
SMTEK's major customers, or an adverse change in economic
conditions in California, could have a material adverse effect on
the financial condition and results of operations of SMTEK and the
Company.
Historical Dependence on Government Business; Recent Shift
into Commercial Business. A substantial portion of SMTEK's
historical revenues have been derived from contracts with United
States government prime contractors, but this historical
dependency is changing. Approximately 18% and 36% of SMTEK's net
sales in fiscal 1997 and 1996, respectively, were derived from
sales to government contractors in the defense and space sectors.
Business with the United States and other governments is, in
general, subject to a variety of risks, including delays in
funding and performance of contracts; possible termination of
contracts or subcontracts for the convenience of the government;
termination or modification of contracts or subcontracts in the
event of change in the government's requirements; policies or
budgetary constraints; adjustments as a result of audits; and
increases or unexpected costs causing losses or reduced profits
under fixed-price contracts. There can be no assurance that any
or all of these risks will not come to fruition in the Company's
business.
The ongoing shift in SMTEK's revenue base from prime
government contractors to commercial original equipment
manufacturers ("OEMs") is necessitating significant adjustments in
operations, including changes in project management, materials
management and order turnaround time. At the management level,
significant shifts in internal processes, including strategic
planning, marketing and throughput planning, are also required for
a successful completion of this transition. There can be no
assurance that SMTEK will be able to adapt to any or all of these
changes.
Industry Conditions. The industries and markets in which the
Company's customers compete are characterized by rapid
technological change and product obsolescence. As a result, the
end products made by the Company's customers have relatively short
product lives. The Company's ability to compete successfully will
depend in substantial part on its ability to procure appropriate
raw materials and maintain its quality asset base, incorporate or
respond to advances in technology, manufacture and price its
products and services competitively and achieve significant market
acceptance. Unexpected delays in completing or shipping products,
or design or production problems, may arise and could adversely
affect the Company.
Competition. The markets for the Company's products and
services are highly competitive. Competition is principally based
on price, product and service quality, order turnaround time and
technical capability. The technology used by the Company in
fabricating its products and providing its services is widely
available, and the Company has a large number of domestic and
foreign competitors, many of which are larger than the Company and
possess much greater financial, marketing, personnel and other
resources. The Company also faces competition from current and
prospective customers that evaluate the Company's capabilities
against the merits of manufacturing products internally. To
remain competitive, the Company must continue to provide
technologically advanced manufacturing services, maintain quality
levels, offer flexible delivery schedules, deliver finished
products on a reliable basis and compete favorably on the basis of
price. The Company currently may be at a competitive disadvantage
as to price when compared to manufacturers with lower cost
structures, particularly manufacturers with established facilities
where labor costs are lower, and manufacturers with larger sales
volume and resultant lower unit costs.
Environmental Matters. The Company's operations involve the
use and handling of environmentally hazardous substances. It is
currently a party to certain lawsuits brought in connection with a
waste disposal site in California known as the "Stringfellow
Superfund Site." Total cleanup costs for the Stringfellow
Superfund Site have been estimated at $600 million. Under a
proposed settlement agreement with respect to one such suit, the
Company's probable liability for such cleanup costs is estimated
at $120,000 and the Company has accrued this amount as its
estimate of the liability it will ultimately bear. It is
impossible to determine the Company's ultimate liability for such
cleanup costs. Its allocated share of such cleanup costs could
have a material adverse impact on its business, financial
condition and results of operations. See "Business --
Environmental Regulation" in the Form 10-K.
In addition, the Company is currently involved in certain
remediation and investigative studies regarding soil and
groundwater contamination with respect to certain property in
California previously leased by its Anaheim printed circuit board
manufacturing facility. Initial estimates from environmental
engineering firms indicate that it could cost from $1,000,000 to
$3,000,000 to fully clean up the site and could take as long as
ten years to complete. At June 30, 1997, the Company had a
reserve of $564,000, which represents its estimated share of
future remediation costs at this site. Based on consultation with
the environmental engineering firms, management believes that the
Company has made adequate provision for the liability based on
probable loss. It is possible, however, that the future
remediation costs at this site may differ significantly from the
estimates, and may exceed the amount of the reserve. The
Company's liability for remediation in excess of its reserve could
have a material adverse impact on its business, financial
condition and results of operations. See "Business --
Environmental Regulation" in the Form 10-K.
Dependence on Suppliers. Certain components used by the
Company are purchased from sources specified by its customers. An
interruption in delivery of these components could have material
adverse effects on the Company. See "Business -- Raw Materials
and Suppliers" in the Form 10-K. SMTEK and DDL-E have been
adversely affected throughout their history by delays in
production caused by delay in the receipt of materials, resulting
in reduced overall profitability. There can be no assurance that
the same adverse conditions will not recur.
Volatility. The public equity markets in recent years have
experienced extreme price and volume fluctuations that often have
been unrelated or disproportionate to the operating performance of
companies. These broad fluctuations may adversely affect the
market price of the Shares. In light of these market
considerations, prospective purchasers should view the Shares as
illiquid investments.
Possible Delisting of Common Stock. The Common Stock is
currently listed and traded on the PE and the NYSE. To maintain
eligibility for listing on the NYSE, the Company must satisfy
certain continued listing criteria, including minimum levels
regarding (1) number of stockholders and shareholdings (1,200
holders and average monthly trading volume less than 100,000
shares), (2) number of publicly-held shares (600,000), (3)
aggregate market value of publicly-held shares ($8,000,000) and
(4) annual net income (an average of $600,000 per year for the
past three years if net tangible assets are less than
$12,000,000). The NYSE has notified the Company that, due to the
Company's failure to satisfy the annual net income and net
tangible asset criteria, the Common Stock is subject to delisting.
The NYSE has not yet taken affirmative action to delist the
Common Stock, but it has reserved the right to take such action in
the future. Delisting of the Common Stock from the NYSE could
have material adverse effects on the price and liquidity of the
Common Stock, depending upon, among other things, the Company's
eligibility at that time to continue listing the Common Stock on
the PE or, failing that, to list the Common Stock on Nasdaq or
some other exchange. There can be no assurance that the Common
Stock could be listed on Nasdaq or any other exchange at any time.
Proprietary Rights and Patents. The Company holds no
copyrights, patents or trademarks that are material to the sale
of its products, and currently the Company does not intend to
obtain any copyrights, patents or trademarks with respect to its
intellectual property. There can be no meaningful protection from
competitors developing and marketing products and services
competitive with those of the Company. In addition, companies
that obtain patents claiming products or processes that are
necessary for or useful to the development or operation of the
Company's products and services can bring legal actions against
the Company claiming infringement. Although management is not
aware of any claim that either the Company or any of its
subsidiaries infringes any existing patent, in the event that in
the future the Company is unsuccessful against such claim it may
be required to obtain licenses to such patents or to other patents
or proprietary technology in order to develop, manufacture or
market its products and services. There can be no assurance that
the Company will be able to obtain such licenses on commercially
reasonable terms or that the patents underlying the licenses will
be valid and enforceable.
Risks Associated with International Business. Revenues from
international business could continue to represent a substantial
percentage of the Company's total revenues. Such business is
subject to various risks, including exposure to currency
fluctuations, political and economic instability, the greater
difficulty of administering business abroad and the need to comply
with a wide variety of export laws, tariff regulations and
regulatory requirements. Such risks are amplified in the case of
the Company because a large portion of its assets and operations
are located outside of the United States. See "Business" in the
Form 10-K and "The Company" herein.
No Dividends. There can be no assurance that the operations
of the Company will ever result in revenues sufficient to enable
the Company to resume paying dividends on its Common Stock, which
were suspended in 1989. For the foreseeable future, management
anticipates that any earnings generated by the Company's
operations will be used to finance the Company's business and that
cash dividends on the Common Stock will not be paid to
stockholders.
THE COMPANY
This section of the Prospectus contains certain forward-
looking statements that involve various risks and uncertainties.
Actual results may differ from the results suggested by such
forward-looking statements. Factors that might cause such
differences would include, without limitation, those discussed in
"Risk Factors."
The Company manufactures printed circuit boards ("PCBs"),
also called printed wire boards ("PWBs"), for use primarily in the
computer, communications and instrumentation industries. The
Company also is an independent provider of electronic
manufacturing services ("EMS") for electronic equipment
manufacturers. Its PCB facilities are located in Northern Ireland
and primarily serve customers in Western Europe. Its EMS
facilities are located in Northern Ireland and Southern
California. The Company's principal executive offices are located
at 2151 Anchor Court, Newbury Park, California 91320, telephone
(805) 376-9415.
All of the Company's products and services are "customized"
insofar as they are produced only after the Company has contracted
for their design and sale. The Company relies on customer
specifications in manufacturing products. Such specifications may
be developed by the customer alone or may involve some assistance
provided by the Company. Customers submit requests for quotations
on each project. The Company prepares bids based on estimates of
its costs.
European PCB Operations
The Company conducts its PCB business through a wholly-owned
subsidiary, Irlandus Circuits Limited ("Irlandus").
The PCB Industry. PCBs range from simple single- and double-
sided boards to boards with more than twenty layers. When joined
with electronic components in an assembly process, they comprise
the basic building blocks of electronic equipment. PCBs consist
of fine lines of a conductive material, such as copper, which are
bonded to a non-conductive panel, typically laminated epoxy glass.
The conductive pathways in a PCB form electrical circuits and
replace wire as a means of connecting electronic components.
On technologically advanced multilayer boards, conductive
pathways between layers are connected with traditional plated
through-holes and may incorporate surface mount technology.
"Through-holes" are holes drilled entirely through the board that
are plated with a conductive material and constitute the primary
connection between the circuitry on the different layers of the
board and the electronic components attached to the boards later.
"Surface mount" boards are boards on which electrical components
are soldered instead of being inserted into through-holes.
Although much more complex and difficult to produce, surface
mount boards can substantially reduce wasted space associated with
through-hole technology and permit greatly increased surface and
inner layer densities. Single-sided PCBs are used in electronic
games and automobile ignition systems, while multilayer PCBs find
use in more advanced applications such as computers, office
equipment, communications, instrumentation and defense systems.
The development of increasingly sophisticated electronic
equipment, which combines higher performance and reliability with
reduced size and cost, has created a demand for greater
complexity, miniaturization and density in electronic circuitry.
In response to this demand, multilayer technology is advancing
rapidly on many fronts, including the widespread use of surface
mount technology. More sophisticated boards are being created by
decreasing the width of the tracks on the board and increasing the
amount of circuitry that can be placed on each layer. Fabricating
advanced multilayer PCBs requires high levels of capital
investment and complex, rapidly changing production processes.
Since the mid-1980s, the Company has increasingly focused on
the fabrication of advanced multilayer PCBs. Management believes
that the market for these boards offers the opportunity for more
attractive margins than the market for less complex single and
double-sided boards.
As the sophistication and complexity of PCBs increase, yields
typically fall. Historically, the Company relied on tactical
quality procedures, in which defects are assumed to exist and
inspectors examine products lot by lot and board by board to
identify deficiencies. This traditional approach to quality
control is not adequate, however, in an advanced multilayer PCB
fabrication environment. Irlandus is now striving to minimize the
occurrence of product defects.
Market demand for PCBs historically has been driven by end-
user product demand. Market supply has followed a classic "boom
and bust" cycle because there are few barriers to entry. High
margins triggered a flood of supply to the market in the 1980s,
which drove prices down until significant industry consolidation
occurred in the early 1990s.
Competition among PCB manufacturers is based on price,
quality, order turnaround speed and technical differentiation
within the manufacturing process. Virtually every order is bid
competitively. The profit of an individual manufacturer typically
depends on its throughput mix; premium panels generate higher
margins. Both Irlandus and DDL-E have achieved "ISO 9002"
certification, which is increasingly necessary to attract
business.
Irlandus. Irlandus is located in Craigavon, Northern
Ireland, where it produces high-quality, high-technology,
multilayer PCBs. Established in 1972 by Andrus Circuits, a German
company, it was acquired by the Company in 1984 and currently
employs approximately 160 people. Irlandus has a base of
approximately 150 active customers throughout Europe. In fiscal
1997, Irlandus' largest customer accounted for approximately 22%
of its total revenues. No other customer represented more than
10% of Irlandus' fiscal 1997 revenues. Over 80% of its sales are
made by a direct sales force; the remainder are effected by
independent sales representatives.
Since 1989 Irlandus has struggled to compete effectively in a
marketplace characterized by excess supply. In fiscal 1997, it
did achieve an operating profit, which management attributes to a
new strategic focus on the high-technology, prototype and premium
fast-service end of the multilayer PCB market. There can be no
assurance, however, that Irlandus will continue to profit from its
implementation of this strategy.
EMS Contracts
The Company conducts its EMS business in Western Europe
through DDL-E and in the United States through SMTEK.
The EMS Industry. EMS contracts are estimated to generate
more than $30 billion in revenues annually worldwide. The EMS
market has three segments: high-volume, medium-volume and low-
volume. The Company focuses on the medium-volume segment, which
accounts for approximately 20% of global demand. Manufacturers in
this segment are highly fragmented and competitive. Customer
bases tend to be highly concentrated, with two or three customers
typically accounting for most of the typical manufacturer's
revenue.
Three types of technology are employed in providing higher-
margin, higher-complexity contract manufacturing in the medium-
volume EMS market segment: surface mount technology ("SMT"), which
accounts for the majority of manufacturing; and through-hole
technology and system assembly, which together account for the
remainder. Management believes that the medium-volume EMS market
is continuing to move toward SMT as the preferred manufacturing
technique, mainly because semiconductors have continued to decline
in size, thereby lowering manufacturing tolerances.
Competition in this market segment is driven by service,
order turnaround time and quality. Margins tend to be slightly
higher here than in the high-volume segment because of greater
complexity and the generally higher price associated with
specialty products. Also, the customers in this segment tend to
be smaller firms, with less bargaining power. Such customers
include specialized equipment providers to the financial services,
computer hardware, medical services and telecommunications
industries, among others.
DDL-E. DDL-E provides turnkey EMS using both SMT and
through-hole technologies. Under the turnkey process, DDL-E
procures customer-specified components from suppliers, assembles
the components onto PCBs and performs post-assembly testing. DDL-
E provides EMS primarily for original equipment manufacturers
located in Western Europe and sells system assembly and
subassembly services to the same customer base. It does not
fabricate any of the components or PCBs used in these processes.
Instead, after acceptance of an order, it procures the necessary
components from distributors.
In the past, DDL-E has procured a portion of its PCB
requirements from its affiliate, Irlandus, at prevailing
commercial prices. Located approximately two miles from Irlandus'
facilities in Craigavon, Northern Ireland, DDL-E was founded by
the Company in 1989 to complement Irlandus' PCB business by adding
value to boards at the next level of manufacturing. DDL-E has
traditionally focused on customers who are major OEMs in global
businesses across a wide range of industries. Its customer base
is highly concentrated; in fiscal 1997, five customers accounted
for 77% of sales. All of its sales are made by its direct sales
force.
Historically, there has been a high level of interdependence
in the EMS/OEM relationship. Since contracted manufacturing may
be a substitute for all or some portion of a customer's captive
EMS capability, continuous communication between the manufacturer
and the customer is critical. To facilitate such communication,
DDL-E maintains a customer service department whose personnel work
closely with the customer throughout the assembly process.
Engineering and service personnel coordinate with the customer on
product implementation, thereby providing feedback on issues such
as ease of assembly and anticipated production lead times.
Component procurement is commenced after component specifications
are verified and approved sources are confirmed with the customer.
Concurrently, assembly routing and procurement for conformance
with workmanship standards are defined and planned.
"In-circuit" test fixturing also is designed and developed.
In-circuit tests are normally performed on all assembled circuit
boards for turnkey projects. Such tests verify that components
have been properly inserted and meet certain functional standards
and that electrical circuits are properly completed. In addition,
under protocols specified by the customer, DDL-E performs
customized functional tests designed to ensure that the board or
assembly will perform its intended function. Company personnel
monitor all stages of the assembly process in an effort to provide
flexible and rapid responses to the customer's requirements,
including changes in design, order size and delivery schedule.
The materials procurement element of DDL-E's turnkey services
consists of the planning, purchasing, expediting and financing of
the components and materials required to assemble a PCB or system-
level assembly. Customers have increasingly required DDL-E and
other independent providers of EMS to purchase all or some
components directly from component manufacturers or distributors
and to finance the components and materials. In establishing a
turnkey relationship with an independent EMS provider, a customer
must incur expenses in order to qualify the EMS provider (and, in
some cases, the provider's sources of component supply), refine
product design and EMS processes and develop mutually compatible
information and reporting systems. With this relationship
established, management believes that customers experience
significant difficulty in expeditiously and effectively
reassigning a turnkey contract to a new assembler or in taking on
the project themselves.
While the interdependence between EMS providers and OEMs may
be a source of stability in DDL-E's customer base, it also is an
obstacle when DDL-E seeks to attract new customers.
SMTEK. SMTEK is an EMS provider, specializing in SMT design
and assembly of circuit boards. Its operations range from
analysis and design to complex manufacturing and test services.
Its services are marketed to the military, medical, avionics,
industrial and space industries and for high-end commercial
applications.
SMTEK's core competence includes: (i) mechanical thermal and
structural engineering analysis and design of printed circuit
boards; (ii) full procurement of all materials and components; and
(iii) full in-circuit and functional testing capabilities. Such
operations are integrated with a contract manufacturing capability
that relies in substantial part upon factory automation. SMTEK
employs approximately 155 persons and conducts its operations in a
45,000-square-foot facility located in Newbury Park, California.
SMTEK was founded in 1986 by Mr. Horton, who became the
Company's President and Chief Executive Officer when the Company
acquired SMTEK in January 1996. Over the years SMTEK has focused
on supplying circuit board assemblies to the aerospace and
avionics industry. Management believes that SMTEK's automated
production processes and design capabilities are a competitive
advantage. Such automated processes rely upon SMT, an unpatented
design and production technique believed by management to be less
expensive and more efficient than component through-hole
insertion. SMTEK competes against companies that are much larger
and better capitalized than the Company. In the past Mr. Horton
was able to increase the revenues of SMTEK by focusing on
contracts of much smaller size than those sought actively by its
principal competitors. SCI Systems is the leading firm in the EMS
industry. Management believes that the Company's largest direct
competitor is Solectron Corporation.
SMTEK's backlog at June 30, 1997 amounted to approximately
$15 million in orders to be filled within six months under
contracts with approximately 40 customers.
<PAGE>
PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial statements
have been prepared giving effect to the acquisition of Jolt by the Company
as if the acquisition had taken place at June 30, 1997 for the pro forma
consolidated balance sheet and, in the case of the pro forma statement of
operations, as of July 1, 1996.
The acquisition will be accounted for using the purchase method. In
accordance with Accounting Principles Board Opinion No. 16, the purchase
price will be allocated to the assets and liabilities acquired at their
estimated fair values at acquisition date. Based on current information,
management does not expect the final allocation of the purchase price to be
materially different from that used in the following pro forma balance
sheet and pro forma statement of operations.
The unaudited pro forma financial information is not necessarily
indicative of the results of operations of the financial position which
would have been attained had the acquisition been consummated at either of
the foregoing assumed dates or which may be attained in the future. The pro
forma financial information should be read in conjunction with the
historical financial statements of the Company and Jolt.
<TABLE>
DDL ELECTRONICS, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(Unaudited)
(In thousands)
<CAPTION>
DDL Electronics, Inc. Jolt Technology, Inc.
------------------------------------ -----------------------------------
As reported Effect of DDL Jolt Pro forma Pro forma
at 6/27/97 transactions pro forma Balances Pre-merger pro forma acquisition total at
(Actual) on 6/30/97 at 6/30/97 at 6/30/97 transactions at 6/30/97 adjustments 6/30/97
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,718 $(3,343)(A) $ 1,375 $ 640 $ (40)(B) $ 600 $ (256)(D) $ 1,719
Accounts receivable, net 9,198 9,198 409 409 9,607
Costs and estimated earnings
in excess of billings on
uncompleted contracts, net
of progress billings 3,161 3,161 3,161
Inventories 3,211 3,211 76 76 3,287
Prepaid expenses 132 132 17 17 149
------- ------- ------- ------- ------- ------- ------- -------
Total current assets 20,420 (3,343) 17,077 1,142 (40) 1,102 (256) 17,923
Property and equipment, net 6,790 6,790 501 501 0 (E) 7,291
Goodwill 4,439 4,439 4,262 (F) 8,701
Deposits and other assets 231 231 8 8 239
------- ------- ------- ------- ------- ------- ------- -------
$31,880 $(3,343) $28,537 $ 1,651 $ (40) $ 1,611 $ 4,006 $34,154
======= ======= ======= ======= ======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank line of credit payable $ 1,378 $ 1,378 $ 1,378
Current portion of long-term
debt 4,167 $(3,300)(A) 867 867
Accounts payable 9,084 9,084 $ 12 $ 12 9,096
Notes and accrued interest
payable to Jolt stockholder 1,935 $(1,935)(C) 0 0
Other current liabilities 3,466 (43)(A) 3,423 28 28 3,451
------- ------- ------- ------- ------- ------- ------- -------
Total current liabilities 18,095 (3,343) 14,752 1,975 (1,935) 40 14,792
Long-term debt 7,820 0 (A) 7,820 8 8 7,828
------- ------- ------- ------- ------- ------- ------- -------
Stockholders' equity:
Common stock and additional
paid-in capital 6,656 6,656 $ 5,569 (G) 12,225
Retained earnings 0 0 0
Foreign currency translation
adjustment (691) (691) (691)
Net assets of acquired company (332) 1,895 1,563 (1,563)(H) 0
------- ------- ------- ------- ------- ------- ------- -------
Total stockholders'
equity (deficit) 5,965 0 5,965 (332) 1,895 1,563 4,006 11,534
------- ------- ------- ------- ------- ------- ------- -------
$31,880 $(3,343) $28,537 $ 1,651 $ (40) $ 1,611 $ 4,006 $34,154
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
DDL ELECTRONICS, INC.
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
(A) Represents the net effects of two transactions that occurred on June 30,
1997 (which was subsequent to the Company's fiscal year ended June 27,
1997, as the Company utilizes a 52-53 week year):
(1) Issuance of a note payable due February 1, 1999 in the principal
amount of $2,000,000, with the corresponding cash proceeds.
(2) Repayment of Senior Notes due July 1, 1997 in the aggregate
principal amount of $5,300,000 plus accrued interest of $43,000.
Of the aggregate principal amount on these notes, $3,300,000 was
classified as a current liability at June 27, 1997, and the
remaining $2,000,000 was included in long-term debt at that date
because this portion was essentially refinanced on a long-term
basis as a result of the $2,000,000 note referred to in
(A)(1) above.
(B) The acquisition agreement provides that Jolt will have not less than
$600,000 of cash at the time of acquisition closing. It is assumed
that cash in excess of $600,000 will be distributed to Jolt's
stockholders in a pre-acquisition distribution.
(C) To convert notes payable to a Jolt stockholder and accrued interest
thereon to equity in a pre-merger transaction, in accordance with the
terms of the acquisition agreement.
(D) Cash paid for direct costs of acquisition and debt issuance costs, as
follows:
Cash paid for fairness opinion fee $ 105,000
Cash paid for other direct costs of Jolt acquisition 151,000
---------
$ 256,000
=========
(E) The fair market value of Jolt's property and equipment is considered to
approximate its net book value in Jolt's historical financial statements,
hence no adjustment in basis of property and equipment is shown.
(F) To record excess of cost over value assigned to net assets
acquired as goodwill.
(G) To record issuance of Common Stock as purchase consideration for Jolt.
(H) To eliminate pre-acquisition equity of Jolt.
(I) The purchase price of Jolt is computed as follows:
Issuance of 9 million shares of DDL common stock,
valued at $1.125 per share, less discount of 45%
for blockage and lock-up trading restrictions $5,569,000
Direct costs of acquisition including fairness
opinion, legal and accounting 256,000
----------
$5,825,000
==========
The purchase price is allocated as follows:
Book value of net assets acquired $1,563,000
Excess of cost over value assigned (goodwill) 4,262,000
----------
$5,825,000
==========
<PAGE>
DDL ELECTRONICS, INC.
PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1997
(Unaudited)
(In thousands except per share amounts)
DDL
Electronics, Jolt Pro forma
Inc. Technology, acquisition Pro forma
(Actual) Inc. adjustments total
-------- -------- -------- --------
(A)
Sales $48,919 $ 2,170 $51,089
------- ------- -------
Costs and expenses:
Cost of goods sold 42,475 1,329 43,804
Administrative and selling 5,058 346 5,404
Goodwill amortization 1,268 $ 213 (B) 1,481
------- ------- ------- -------
48,801 1,675 213 50,689
------- ------- ------- -------
Operating income 118 495 (213) 400
------- ------- ------- -------
Non-operating income (expense):
Interest expense on
stockholder notes (107) 107 (C) 0
Interest expense - other (1,105) (10) (1,115)
Debt issue cost
amortization (937) (937)
Other income 246 8 254
------- ------- ------- -------
(1,796) (109) 107 (1,798)
------- ------- ------- -------
Income (loss) before income
taxes (1,678) 386 (106) (1,398)
Provision for income taxes 0 0 28 (D) 28
------- ------- ------- -------
Net income (loss) $(1,678) $ 386 $ (134) $(1,426)
======= ======= ======= =======
Per share information:
Loss per share $ (0.07) $ (0.04)
======= =======
Shares used in computing
loss per share 23,398 9,000 32,398
======= ======= =======
<PAGE>
DDL ELECTRONICS, INC.
NOTES TO PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1997
(In thousands)
(A) The revenues and expenses shown for Jolt are the historical
amounts for Jolt's fiscal year ended December 31, 1996, adjusted to
add revenues and expenses for the six months ended June 30,
1997 and to deduct revenues and expenses for the six months
ended June 30, 1996.
(B) To amortize goodwill arising from the Jolt acquisition on a
straight-line basis over 20 years.
(C) To eliminate interest expense on notes payable to a Jolt stockholder.
These notes will be converted to equity prior to the acquisition.
(D) Amount represents a Florida state income tax provision on Jolt's
pretax income, after giving effect to the elimination of interest
expense on notes payable to stockholder. Jolt is an "S" corporation
for income tax purposes and hence does not pay income taxes at the
corporate level. Upon consummation of the merger, Jolt will be
converted to a "C" corporation and will be subject to Florida
corporate income taxes at the rate 5.5% of taxable income. For
federal income tax purposes, it is assumed that Jolt's taxable income
will be sheltered by the Company's net operating loss carryforwards.
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the
Shares.
DETERMINATION OF OFFERING PRICE
This Prospectus may be used from time to time by the Selling
Stockholders who offer the Shares for sale. The offering price of the
Shares will be determined by the Selling Stockholders and may be based
on market prices prevailing at the time of sale, at prices relating to
such prevailing market prices or at negotiated prices.
SELLING STOCKHOLDERS
The following table provides certain information with respect to
Common Stock beneficially owned by each Selling Stockholder as of the
dates indicated. Except as set forth in the footnotes to the table and
elsewhere in this Prospectus, within the past three years none of the
Selling Stockholders has had a material relationship with the Company or
with any of the Company's predecessors or affiliates other than as a
result of ownership of the securities of the Company. The Shares may be
offered from time to time by the Selling Stockholders named below or
their nominees, and this Prospectus may be required to be delivered by
persons who may be deemed to be underwriters in connection with the
offer or sale of Shares.
<TABLE>
<CAPTION>
Number of shares Percentage of
of Common Stock Number of shares shares of Common
Beneficially Number of of Common Stock Stock Beneficially
Owned Prior to Shares Beneficially Owned Owned After
Name the Offering Offered After the Offering the Offering
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Par Investment
Partners, L.P. 1,000,000 1,000,000 0 0.0%
A.I.M. Overseas Ltd. 1,670,000 250,000 1,420,000 5.6%
Richard Fechtor 578,550 150,000 428,550 1.7%
Peter D. Fenton 125,000 125,000 0 0.0%
Robert Detwiler 125,000 125,000 0 0.0%
Jeffrey R. Power 135,000 125,000 10,000 (1)
Sheldon M. Fechtor 100,000 100,000 0 0.0%
John Pemble 75,700 75,000 700 (1)
Maurice B. Buchsbaum 25,000 25,000 0 0.0%
Andrew Detwiler 25,000 25,000 0 0.0%
</TABLE>
(1) Less than one percent.
PLAN OF DISTRIBUTION
The Shares may be sold from time to time by the Selling
Stockholders through the facilities of the NYSE or the PE on terms to be
determined at the time of each sale. Alternatively, the Selling
Stockholders may offer Shares from time to time to or through
underwriters, dealers or agents, who may receive compensation in the
form of discounts and commissions. Such compensation, which may exceed
ordinary brokerage commissions, may be paid by the Selling Stockholders
and/or the purchasers of the Shares for whom such underwriters, dealers
and agents may act.
The Selling Stockholders and any dealers or agents that participate
in the distribution of the Shares may be considered "underwriters"
within the meaning of the Securities Act, and any profit on the sale of
such Shares offered by them and any discounts, commissions or
concessions received by any such dealers or agents might be deemed to be
underwriting discounts and commissions under the Securities Act. The
aggregate proceeds to the Selling Stockholders from sales of the Shares
will be the purchase price of such Shares less any brokers' commission
required to be paid by the Selling Stockholders.
To the extent required, the specific Shares to be sold, the names
of the Selling Stockholders, the respective purchase prices and public
offering prices, the names of any such agents, dealers and underwriters
and any applicable commissions or discounts with respect to a particular
offer will be set forth in a supplement to this Prospectus.
The Shares may be sold from time to time in one or more
transactions at a fixed offering price, which may be changed, at varying
prices determined at the time of sale or at negotiated prices.
In order to comply with the securities laws of certain states, if
applicable, the Shares will be sold by Selling Stockholders in such
jurisdictions only through registered or licensed brokers or dealers.
In addition, in certain states Shares may not be sold unless they have
been registered or qualified for sale in the applicable state or an
exemption from the registration or qualification requirements is
available and is satisfied.
The Company will pay the expenses that it incurs in connection with
the registration of the Shares with the SEC.
The Company and each Selling Stockholder have agreed to indemnify
each other against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
Certain legal matters have been passed upon for the Company by
Nelson Mullins Riley & Scarborough, L.L.P., Charlotte, North Carolina.
EXPERTS
The consolidated financial statements of DDL Electronics, Inc. as
of June 30, 1997 and 1996 and for each of the years in the three-year
period ended June 30, 1997, have been incorporated by reference herein
and in the Registration Statement in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, incorporated
by reference herein, and upon the authority of said firm as experts in
accounting and auditing.
The financial statements of Jolt Technology, Inc. as of December
31, 1996 and for the year then ended, included in this Prospectus, have
been audited by Brunt & Company, P.A., to the extent and for the period
indicated in their report, and such financial statements have been
included herein and therein upon the authority of such firm as experts
in accounting and auditing.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Jolt Technology, Inc.
Hollywood, Florida
We have audited the accompanying balance sheet of Jolt Technology, Inc.
(a Florida corporation) as of December 31, 1996 and the related
statement of income, changes in stockholders' equity (deficit) and cash
flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to in the first
paragraph present fairly, in all material respects, the financial
position of Jolt Technology, Inc. as of December 31, 1996 and the
results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
/s/ Brunt & Company, P.A.
BRUNT & COMPANY, P.A.
Certified Public Accountants
August 7, 1997
F-1
<PAGE>
JOLT TECHNOLOGY, INC.
BALANCE SHEET
DECEMBER 31, 1996
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 613,618
Accounts receivable, net of allowance
for doubtful accounts of $5,000 269,181
Other receivables 11,787
Inventories 55,249
---------------
TOTAL CURRENT ASSETS 949,835
PROPERTY AND EQUIPMENT, net 454,540
OTHER ASSETS 6,573
---------------
$ 1,410,948
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accrued expenses $ 279,179
Shareholder note payable 100,000
Lease obligation payable 31,992
Accounts payable 10,853
---------------
TOTAL CURRENT LIABILITIES 422,024
SHAREHOLDER LOAN PAYABLE 1,525,148
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $1.00 par value, 10,000
shares authorized, issued and outstanding 10,000
Additional Paid-in-Capital 24,000
Accumulated Deficit (570,224)
---------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (536,224)
---------------
$ 1,410,948
===============
Read accompanying notes and auditors' report.
F-2
<PAGE>
JOLT TECHNOLOGY, INC.
STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
NET SALES $ 2,354,386
COST OF GOODS SOLD 1,412,482
-------------
GROSS PROFIT 941,904
-------------
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 326,815
-------------
INCOME FROM OPERATIONS 615,089
INTEREST EXPENSE - SHAREHOLDER LOANS (114,900)
OTHER INCOME (EXPENSES) (9,032)
-------------
TOTAL NON-OPERATING EXPENSES (123,932)
-------------
NET INCOME $ 491,157
=============
Read accompanying notes and auditors' report.
F-3
<PAGE>
<TABLE>
JOLT TECHNOLOGY, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
DECEMBER 31, 1996
<CAPTION>
Additional
Common Treasury Paid-in Accumulated
Total Stock Stock Capital Deficit
---------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995 $(704,381) $ 10,000 $ (2,000) $ 24,000 $ (736,381)
Sale of Treasury Stock 2,000 2,000 -
Net income 491,157 491,157
Dividends paid (325,000) (325,000)
---------- ---------- ----------- ---------- -----------
BALANCE, December 31, 1996 $(536,224) $ 10,000 - $ 24,000 $ (570,224)
========== ========== =========== ========== ===========
Read accompanying notes and auditors' report.
F-4
</TABLE>
<PAGE>
JOLT TECHNOLOGY, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 491,157
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 232,435
Allowance for bad debts 5,000
Changes in assets and liabilities:
Accounts receivable 119,792
Inventories 2,286
Other receivables 7,647
Net deposits 1,185
Customer deposits (44,600)
Accounts payable (18,996)
Accrued expenses 106,224
-----------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 902,130
-----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (225,942)
-----------------
NET CASH USED BY INVESTING ACTIVITIES (225,942)
-----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Reduction in Capitalized Lease Obligations (171,467)
Sale of Treasury Stock 2,000
Shareholder dividends (325,000)
-----------------
NET CASH USED IN FINANCING ACTIVITIES (494,467)
-----------------
NET INCREASE IN CASH 181,721
CASH AT BEGINNING OF YEAR 431,897
-----------------
CASH AT END OF YEAR $ 613,618
=================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 57,227
=================
Read accompanying notes and auditors' report.
F-5
<PAGE>
JOLT TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996
NOTE 1 - BUSINESS ACTIVITY
The Company was incorporated in the State of Florida on June 21, 1989.
It is engaged in the manufacture and sale of custom made printed circuit
boards for use primarily in the computer, communications and
instrumentation industries. The Company is located in Florida with
customers throughout the United States but primarily in the South
Florida region.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and cash equivalents: Cash equivalents include short-term, highly-
liquid debt instruments purchased with original maturities of three
months or less.
Revenue Recognition: Revenue is recognized when products are shipped
and title has passed to the customer.
Inventories: Inventories are stated at the lower of cost (determined on
the first-in, first-out basis) or market. Labor and overhead costs are
capitalized at the time of production.
Property and Equipment: Property and equipment are stated at cost.
Depreciation is provided using straight-line methods at rates based on
the following estimated useful lives:
Years
------
Machinery and equipment 5 - 10
Furniture and fixtures 5 - 10
Vehicles 5
Expenditures for major renewals and betterments that extend the useful
lives of the property and equipment are capitalized. Expenditures for
maintenance and repairs are charged to expense as incurred. Building
and equipment repairs for the year ended December 31, 1996 were $25,030.
Income Taxes: The Company, with the consent of its shareholders, has
elected under the Internal Revenue Code to be an S corporation. In lieu
of corporation income taxes, the shareholders of an S corporation are
taxed on their proportionate share of the Company's taxable income.
Therefore, no provision or liability for federal income taxes has been
included in the financial statements.
Use of Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts in
the financial statements and accompanying notes. Actual results could
differ from those estimates.
F-6
<PAGE>
NOTE 3 - INVENTORIES
Inventories consisted of the following on December 31, 1996:
Raw materials $ 9,540
Jobs in process 45,709
---------
$ 55,249
=========
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
Original Cost
----------
Leasehold Improvements $ 63,880
Machinery and Equipment 1,102,624
Motor Vehicles 24,735
Office Furniture and Equipment 131,864
----------
Total 1,323,106
Accumulated depreciation (868,566)
----------
Net Property Plant and Equipment $ 454,540
==========
NOTE 5 - CAPITALIZED LEASE OBLIGATION
The Company acquired equipment under the provisions of a long-term lease
in August of 1994. For financial reporting purposes, minimum lease
payments relating to the equipment have been capitalized. The lease
payments are $4,550 per month and expire August 1997. The original cost
of the leased equipment was $216,682. The present value of the lease
payments as of December 31, 1996 was $31,992 and the entire portion is a
current liability.
The future minimum lease payments under the capital lease and the net
present value of the future minimum lease payments are as follows:
Total minimum lease payments $ 35,382
Less amount representing interest 3,390
----------
Present value of net minimum lease payments $ 31,992
==========
F-7
<PAGE>
NOTE 6 - SHAREHOLDER NOTE AND LOAN PAYABLE
Shareholder note payable, unsecured, bearing
interest at the rate of 8.25%. $ 100,000
Shareholder loan payable, unsecured, bearing
interest at the rate of the applicable federal
rate plus one-half percent (7.75% as of
December 31, 1996). $1,525,148
There are no repayment terms set forth for the above note and loan
payable. Repayment of the loan will not be demanded prior to February
1998.
NOTE 7 - COMMITMENTS
As of December 31, 1996, the Company operated its facilities on a one
year noncancellable lease which will expire on October 31, 1997. The
lease is for $74,420 per year ($6,202 per month) plus applicable sales
tax. Rental Expense for the year ended December 31, 1996 was $72,706.
NOTE 8 - MAJOR CUSTOMER
The Company had one customer that accounted for approximately 20% of its
revenue in 1996.
NOTE 9 - EMPLOYEE BENEFIT PLAN
On January 1, 1991 the Company established a Salary Allowance Reduction
Simplified Employee Pension Plan (SARSEP). Under the plan, employees may
elect to defer up to fifteen percent of their salary, subject to
Internal Revenue Service limits. The Company, at their discretion
contributes matching of employee contributions. In addition, the plan
allows for the Company to make additional discretionary contributions.
The Company made no contributions to the plan in 1996.
NOTE 10 - SUBSEQUENT EVENT
On June 30, 1997 the Company's principal stockholders entered into an
agreement in principle to sell the Company to DDL Electronics, Inc.
("DDL"), a publicly owned company, in exchange for DDL stock. Pursuant
to the agreement in principle, the Company's shareholder loans payable
and accrued interest thereon will be converted to equity on or before
the closing date of the sale to DDL.
F-8
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No dealer, salesperson or other person has been
authorized to give any information or to make any
representations other than those contained in this
Prospectus, and, if given or made, such information
or representations must not be relied upon as having
been authorized by the Company or any Selling
Stockholder. This Prospectus does not constitute an
offer to sell, or a solicitation of an offer to buy,
to any person in any jurisdiction in which such
offer or solicitation is not authorized, or in which DDL ELECTRONICS, INC.
the person making such offer or solicitation is not
qualified to do so, or to any person to whom it is
unlawful to make such offer or solicitation. COMMON STOCK
Neither the delivery of this Prospectus nor any sale
made hereunder shall, under any circumstances,
create any implication that the information
contained herein is correct as of any date
subsequent to the date hereof.
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Table of Contents
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Page
PROSPECTUS
Additional Information 4
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Incorporation of Certain Information by
Reference 4
Risk Factors 5
November 4, 1997
The Company 11
Pro Forma Financial Statements 16
Use of Proceeds 21
Determination of Offering Price 21
Selling Stockholders 21
Plan of Distribution 22
Legal Matters 22
Experts 22
Jolt Financial Statements F-1
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