SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM 8-K/A
AMENDMENT NO. 1
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):August 20, 1999
LABTEC INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Massachusetts 0-27302 04-3116697
---------------------------- ----------- -------------
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File No.) Identification No.)
1499 Southeast Tech Center Place, Suite 350, Vancouver, Washington 98683
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (360) 896-2000
<PAGE>
This Amendment No. 1 to the Current Report on Form 8-K is being filed
by Labtec Inc. to provide the financial statements and financial information
required by Item 7.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
Provided herein on pages F-1 through F-13 are the financial statements
of Connector Resources Unlimited, Inc., a California corporation ("CRU").
(b) PRO FORMA FINANCIAL INFORMATION.
Pro Forma financial information relative to CRU is provided herein on
pages F-14 through F-19.
(c) EXHIBITS.
Exhibit
No. Description
------- -----------
2.1* Stock Purchase Agreement, dated as of August 4, 1999, among the
Purchaser, the Company and each of the stockholders of Connector
Resources Unlimited, Inc.
2.2* Promissory Note, dated as of August 20, 1999, issued by the
Company and payable to Carl W. Gromada, as collection agent for
each of the stockholders of Connector Resources Unlimited, Inc.
23.1** Consent of Independent Accountants.
- --------------
* Previously filed.
** Filed herewith.
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
Dated: November 1, 1999
LABTEC INC.
By: /s/ Marc J. Leder
---------------------------------------
Name: Marc J. Leder
Title: Senior Vice President, Finance,
Chief Financial Officer and
Treasurer
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
------- -----------
2.1* Stock Purchase Agreement, dated as of August 4, 1999, among the
Purchaser, the Company and each of the stockholders of Connector
Resources Unlimited, Inc.
2.2* Promissory Note, dated as of August 20, 1999, issued by the
Company and payable to Carl W. Gromada, as collection agent for
each of the stockholders of Connector Resources Unlimited, Inc.
23.1** Consent of Independent Accountants.
- --------------
* Previously filed.
** Filed herewith.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
Connector Resources Unlimited, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of cash flows and of changes in
shareholders' equity present fairly, in all material respects, the financial
position of Connector Resources Unlimited, Inc. and its wholly-owned subsidiary
at March 31, 1999, and the results of their operations and their cash flows for
the year 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 audit. We conducted our audit 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 audit provides a reasonable basis
for the opinion expressed above.
As described in Note 11, on August 20, 1999, all of the Company's common stock
was purchased by a subsidiary of Labtec Inc. The accompanying financial
statements do not include any adjustments relative to this matter.
/s/ PricewaterhouseCoopers LLP
Portland, Oregon
October 8, 1999
F-1
<PAGE>
CONNECTOR RESOURCES UNLIMITED, INC.
CONSOLIDATED BALANCE SHEET
MARCH 31, 1999 AND JUNE 30, 1999 (UNAUDITED)
MARCH 31, JUNE 30,
ASSETS 1999 1999
------ --------- --------
(Unaudited)
Current assets:
Cash and cash equivalents $ 112,255 $ 132,565
Accounts receivable, net 1,583,905 2,423,177
Inventories, net 2,023,548 1,786,137
Note receivable 50,000 50,000
Other current assets 2,500 3,375
Deferred income taxes 192,501 192,501
--------- ---------
Total current assets 3,964,709 4,587,755
Furniture and equipment, net 157,755 163,220
Deferred income taxes 47,698 47,698
--------- ---------
$4,170,162 $4,798,673
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit $ 72,681 $ 21,000
Accounts payable 1,366,403 1,015,387
Accrued expenses 71,353 132,180
Income taxes payable 241,168 463,422
Current portion of notes payable 56,488 -
--------- ---------
Total current liabilities 1,808,093 1,631,989
Notes payable, less current portion 5,342 -
--------- ---------
1,813,435 1,631,989
--------- ---------
Commitments and contingencies (Notes 5, 6 and 10) - -
Shareholders' equity:
Common stock, no par value, 2,500,000
shares authorized, 889,307 shares issued
and outstanding 471,880 471,880
Retained earnings 1,884,847 2,694,804
--------- ---------
Total shareholders' equity 2,356,727 3,166,684
--------- ---------
$4,170,162 $4,798,673
========= =========
The accompanying notes are an integral part of these
financial statements.
F-2
<PAGE>
CONNECTOR RESOURCES UNLIMITED, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1999 AND
THREE MONTHS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED)
YEAR ENDED THREE MONTHS ENDED
MARCH 31, JUNE 30,
1999 1998 1999
------------ ----------- ----------
(Unaudited)
Sales $ 12,158,162 $ 3,093,543 $3,958,900
Cost of sales 7,382,551 2,146,293 2,025,163
----------- ---------- ---------
Gross profit 4,775,611 947,250 1,933,737
----------- ---------- ---------
Operating expenses:
Selling and marketing 1,543,255 326,460 396,949
General and administrative 985,808 187,712 255,474
Depreciation 10,087 4,461 3,426
Amortization 8,397 3,156 -
----------- ---------- ---------
2,547,547 521,789 655,849
----------- ---------- ---------
Income from operations 2,228,064 425,461 1,277,888
Interest expense, net 41,916 16,965 1,970
Other non-operating expense 14,013 - -
----------- --------- ---------
Income before
income taxes 2,172,135 408,496 1,275,918
Provision for income taxes 834,948 176,395 465,961
----------- --------- ---------
Net income $ 1,337,187 $ 232,101 $ 809,957
=========== ========= =========
The accompanying notes are an integral part of these
financial statements.
F-3
<PAGE>
CONNECTOR RESOURCES UNLIMITED, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED MARCH 31, 1999 AND
THREE MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON RETAINED
SHARES STOCK EARNINGS TOTAL
--------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Balance, April 1, 1998 1,111,157 $ 561,250 $ 767,660 $ 1,328,910
Net income 1,337,187 1,337,187
Repurchase and retirement of common stock (236,410) (100,000) (220,000) (320,000)
Exercise of stock options 14,560 10,630 - 10,630
--------- --------- --------- ----------
Balance, March 31, 1999 889,307 471,880 1,884,847 2,356,727
Net income (unaudited) 809,957 809,957
--------- --------- --------- ---------
Balance, June 30, 1999 (unaudited) 889,307 $ 471,880 $2,694,804 $ 3,166,684
========= ========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-4
<PAGE>
CONNECTOR RESOURCES UNLIMITED, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED MARCH 31, 1999 AND
THREE MONTHS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
MARCH 31, JUNE 30,
1999 1998 1999
---------- --------- ---------
(Unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,337,187 $ 232,101 $ 809,957
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 111,266 25,921 13,926
Deferred income taxes (127,539) - -
Loss on disposal of fixed assets 14,013 - -
Changes in certain current assets and current
liabilities:
Accounts receivable (232,729) (415,345) (839,272)
Inventories (545,878) 331,694 237,411
Other current assets 4,131 (4,036) (875)
Accounts payable 417,884 (166,679) (351,016)
Accrued expenses (69,065) (55,446) 60,827
Income taxes payable 67,740 263 222,254
---------- -------- ---------
Net cash provided by (used in) operating activities 977,010 (51,527) 153,212
---------- -------- ---------
Cash flows from investing activities:
Issuance of note receivable (50,000) - -
Purchases of property and equipment (146,169) (9,403) (19,391)
---------- -------- ---------
Net cash used in investing activities (196,169) (9,403) (19,391)
---------- ------- ---------
Cash flows from financing activities:
Payments on line of credit (300,000) - (201,681)
Borrowings on line of credit 72,681 - 150,000
Proceeds from issuance of notes payable 225,952 - -
Principal payments on notes payable (517,316) (34,166) (61,830)
Exercise of stock option 10,630 - -
Repurchase of common stock (320,000) - -
---------- --------- ---------
Net cash used in financing activities (828,053) (34,166) (113,511)
---------- --------- ---------
Net (decrease) increase in cash and cash equivalents (47,212) (95,096) 20,310
Cash and cash equivalents at beginning of period 159,467 159,467 112,255
---------- --------- -----------
Cash and cash equivalents at end of period $ 112,255 $ 64,371 $ 132,565
========== ======== ==========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-5
<PAGE>
CONNECTOR RESOURCES UNLIMITED, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
COMPANY
Connector Resources Unlimited, Inc. (the "Company"), a California
corporation formed in 1986, designs, develops, and markets computer
peripheral products principally in North America.
REVENUE RECOGNITION
Revenues are recognized upon shipment of the Company's products, net of an
estimated allowance for sales returns. Gross revenues in fiscal 1999 from
one customer were $2.9 million or 23.8% of total sales.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The recorded amounts of cash, accounts receivable, accounts payable, notes
payable, and accrued liabilities as presented in the financial statements
approximate fair value because of the short-term maturity of these
instruments.
CONCENTRATION OF CREDIT RISK
The Company is subject to credit risk primarily from its accounts
receivable. The Company mitigates its credit risk on receivables by control
procedures to monitor the credit worthiness of its customers and
utilization of credit limits. The Company's customers are concentrated in
the technology industry. Therefore, the Company's operations and collection
of its accounts receivable are directly associated with the results of the
technology industry.
CASH AND CASH EQUIVALENTS
The Company considers short-term investments which are highly liquid,
readily convertible into cash and have original maturities of less than
three months to be cash equivalents.
INVENTORIES
Inventories, net of reserves of $89,739 and $80,055 as of March 31, 1999
and June 30, 1999, respectively, are stated at the lower of cost or market
with cost being determined on the first-in, first-out (FIFO) method.
Inventories consist primarily of assemblies and purchased finished goods
produced for the Company by foreign factories subcontracted by the Company.
Of the total inventories, $476,120 was in transit at March 31, 1999. The
Company takes title upon shipment from the foreign port.
FURNITURE AND EQUIPMENT
Furniture and equipment are stated at cost. Depreciation is provided on the
straight-line method for financial reporting purposes and on an accelerated
method for tax purposes over estimated useful lives ranging from three to
seven years. Depreciation expense for the year ended March 31, 1999 was
$102,870. Depreciation expense included in cost of sales for the year ended
March 31, 1999 was $92,783.
Repair and maintenance costs are expensed as incurred.
F-6
<PAGE>
CONNECTOR RESOURCES UNLIMITED, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING
The Company expenses advertising costs when incurred. Total advertising
expenses were $378,501 for the year ended March 31, 1999.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 (FAS 109), ACCOUNTING FOR INCOME
TAXES. FAS 109 requires the recognition of deferred tax assets and
liabilities for the expected tax effects from differences between the
financial reporting and tax bases of assets and liabilities. In estimating
future tax effects, FAS 109 generally considers all expected future events
other than enactments of changes in tax law or statutorily imposed rates.
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 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. Significant estimates and judgements made by the Company include
items such as the collectibility of accounts receivable, the level of sales
returns, realizability of inventories and realizability of deferred income
tax assets.
INTERIM FINANCIAL INFORMATION
The accompanying balance sheet as of June 30, 1999 and the statements of
operations and of cash flows for the three-month periods ended June 30,
1998 and 1999, are unaudited. In the opinion of management, these
statements have been prepared on the same basis as the audited financial
statements and include all adjustments, consisting only of normal recurring
adjustments, necessary for the fair presentation of the results of the
interim periods. The financial data and other information disclosed in
these notes to the financial statements related to these periods are
unaudited. The results for the three months ended June 30, 1999 are not
necessarily indicative of the results to be expected for the fiscal year
ending March 31, 2000.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred.
COMPREHENSIVE INCOME
The Company has adopted Statement of Financial Accounting Standards No. 130
REPORTING COMPREHENSIVE INCOME as of April 1, 1998. Comprehensive income
equals net income in all periods presented.
F-7
<PAGE>
CONNECTOR RESOURCES UNLIMITED, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SEGMENT REPORTING
The Company competes in one segment, computer peripherals, and sells its
products mainly in the United States. Accordingly, no further segment
disclosures are necessary.
2. ACCOUNTS RECEIVABLE
Accounts receivable are net of allowances for doubtful accounts and for
sales returns as follows:
MARCH 31, JUNE 30,
1999 1999
----------- -----------
(Unaudited)
Accounts receivable $1,727,913 $ 2,486,020
Less:
Allowance for bad debts (20,137) (20,137)
Allowance for sales returns (123,871) (42,706)
--------- ---------
$1,583,905 $ 2,423,177
========= =========
At March 31, 1999, 27.4% of accounts receivable were from one customer.
3. NOTE RECEIVABLE
Note receivable consists of an unsecured note from the Company's primary
shareholder. The note bears interest at a rate of 6% per annum. At March
31, 1999 and June 30, 1999, $50,000 was outstanding. The note was repaid in
August 1999.
4. FURNITURE AND EQUIPMENT
Furniture and equipment consist of:
MARCH 31, JUNE 30,
1999 1999
--------- ---------
(Unaudited)
Leasehold improvements $ 44,655 $ 44,655
Tooling and molds 355,345 359,645
Furniture and equipment 173,584 188,675
---------- ---------
573,584 592,975
Less accumulated depreciation (415,829) (429,755)
--------- ---------
$ 157,755 $ 163,220
========= =========
F-8
<PAGE>
CONNECTOR RESOURCES UNLIMITED, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
5. BORROWINGS
Notes payable consist of a note payable to a bank. The note is
collateralized by all of the Company's assets and is due in monthly
installments of $4,707, plus interest at the prime rate plus 0.5% (8.25% at
March 31, 1999) per annum. The note was repaid in full during May 1999.
On December 15, 1998, the Company entered into a line of credit agreement
with a bank. Borrowings under the agreement are collateralized by all
assets of the Company, bear interest at the prime rate plus 0.5% (8.25% at
March 31, 1999) and are limited to the lesser of $1,500,000 or 80% of
eligible accounts receivable. At March 31, 1999 and June 30, 1999, $72,681
and $21,000, respectively, was outstanding on the Company's line of credit.
The line of credit agreement requires the Company to comply with various
financial covenants. At March 31, 1999, the Company was not in compliance
with the quick ratio covenant under the line of credit. The Company
obtained a waiver from the bank. The current line of credit expires in
December 2002.
Interest payments for the year ended March 31, 1999 and the three months
ended June 30, 1998 and 1999 were $45,070, $16,965 and $2,931,
respectively.
Notes payable mature as follows:
YEAR ENDING
MARCH 31, 1999
--------------
2000 $ 56,488
2001 5,342
--------
$ 61,830
6. EMPLOYEE BENEFIT PLAN
The Company has implemented a 401 (k) Profit Sharing Plan (the "Plan") in
which employees who have met certain service and eligibility requirements
may participate. Each eligible employee may elect to contribute to the
Plan, and the Company may make discretionary matching contributions of up
to 8% of employees' compensation. Matching contributions of approximately
$13,100, $4,613 and $4,357 were made during the year ended March 31, 1999
and the three months ended June 30, 1998 and 1999, respectively.
F-9
<PAGE>
CONNECTOR RESOURCES UNLIMITED, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
7. INCOME TAXES
The provision of income taxes consists of the following:
YEAR ENDED
MARCH 31,
1999
----------
Current
Federal $ 761,109
State 201,378
--------
962,487
--------
Deferred
Federal (119,170)
State (8,369)
--------
(127,539)
--------
$ 834,948
========
Deferred taxes are due to timing differences in recognizing deductions,
primarily related to depreciation, amortization and certain accrued
expenses for income tax and financial reporting purposes.
The income tax benefit differs from the amount computed by applying the
statutory federal income tax rate to pretax income as a result of the
following differences:
YEAR ENDED
MARCH 31,
1999
----------
Statutory federal tax rate 34.0 %
Increase (decrease) in rates esulting from:
State taxes 8.9
Other (4.5)
38.4 %
F-10
<PAGE>
CONNECTOR RESOURCES UNLIMITED, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
7. INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets are presented below:
MARCH 31,
1999
---------
State income tax $ 70,179
Allowance for doubtful accounts and returns 51,174
Allowance for obsolete inventory 35,723
Accrued expenses 9,460
Inventory adjustment, IRC Section 263(a) 25,965
-------
Current deferred tax asset $192,501
=======
Property and equipment $ 35,979
Other miscellaneous 11,719
-------
Long-term deferred tax asset $ 47,698
========
Income taxes paid during the year ended March 31, 1999 and the three months
ended June 30, 1998 and 1999 were $878,815, $176,132 and $243,708,
respectively.
8. SHAREHOLDERS' EQUITY
In January 1999, the Company entered into an agreement with a former
minority shareholder to repurchase 236,410 shares of common stock for
$320,000. The common stock was retired upon repurchase. The excess of the
cost of the common stock repurchased, $320,000, less the stated value of
the common stock repurchased, $100,000, was charged to retained earnings.
9. STOCK OPTIONS
The Company provided a stock option plan (the Plan) which commenced in
September 1993. Options under the Plan were granted at the discretion of
the Board of Directors. The exercise price of these options generally was
the fair market value of shares at the date of grant as determined by the
Board of Directors. Such options were exercisable generally at the time the
options were granted.
The Plan allowed the granting of options to purchase up to an aggregate of
58,248 shares of the Company's common stock. Options granted under the Plan
were either incentive stock options or nonqualified stock options as
defined by the Internal Revenue Code.
F-11
<PAGE>
CONNECTOR RESOURCES UNLIMITED, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
9. STOCK OPTIONS (CONTINUED)
The Company has elected to follow APB No. 25, "Accounting for Stock Issued
to Employees" ("APB 25"), and related interpretations in accounting for its
employee stock options. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying
stock on the date of the grant, no compensation expense has been
recognized. Pro forma information regarding net income per share is not
required by SFAS No. 123, "Accounting for Stock- Based Compensation", as
all stock options were granted and were fully vested as of October 1, 1993,
which was before the release of SFAS 123.
The following table summarizes the stock option transactions for the year
ended March 31, 1999, under the plan described above.
OPTIONS
NUMBER PRICE
OUTSTANDING PER SHARE
----------- ---------
Balance, April 1, 1998 14,560 $ .73
Granted - -
Exercised (14,560) .73
Terminated - -
-------
Balance, March 31, 1999 -
=======
10. COMMITMENTS
The Company leases its facilities under operating lease agreements which
expire through May 2001. The leases require monthly payments of
approximately $9,200. Rent expense paid under these leases was
approximately $113,000 for the year ended March 31, 1999.
The Company also leases equipment under operating lease agreements with
monthly payments totaling approximately $900. The leases expire through
October 2001. Rent expense under these leases was approximately $12,200 for
the year ended March 31, 1999.
Future minimum annual lease payments required under these agreements are as
follows:
YEAR ENDING
MARCH 31
-----------
2000 $ 99,674
2001 100,780
2002 19,008
--------
$219,462
========
The Company becomes involved in litigation and other proceedings arising in
the normal course of its business. In the opinion of management, the
Company's liability, if any, under any pending litigation would not
materially affect its financial condition or results of operations.
F-12
<PAGE>
CONNECTOR RESOURCES UNLIMITED, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
11. SUBSEQUENT EVENTS
STOCK REPURCHASE
On July 7, 1999, the Company entered into an agreement with a minority
shareholder to repurchase 65,527 shares of the Company's common stock for
$750,000. The excess of the original cost of the common stock repurchased,
less the stated value of the common stock repurchased, $450,000, was
charged to retained earnings.
SALE OF THE COMPANY
On August 20, 1999, the Company entered into a stock purchase agreement
with CRU Acquisition Corporation, a wholly owned subsidiary of Labtec Inc.,
whereby all of the outstanding shares of the Company's common stock were
sold to CRU Acquisition Corporation for $12,000,000 in cash and debt in the
amount of $1,500,000. At that time the Company became a wholly owned
subsidiary of Labtec Inc.
F-13
<PAGE>
LABTEC INC.
INTRODUCTION TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
On August 20, 1999, Labtec Inc. ("Labtec") completed the acquisition of
Connector Resources Unlimited, Inc. ("CRU"). As a result, Labtec acquired all
the outstanding shares of CRU for approximately $12 million in cash, and
$1,500,000 in debt. Concurrent with the acquisition of CRU, Labtec entered into
a $43 million credit facility with a bank and also sold 312,500 shares of common
stock for $1 million. The net proceeds from the credit facility and proceeds
from the stock sale were used to retire outstanding debt and accrued interest of
$23.4 million; to pay issuance costs and loan fees on the new credit facility of
$2.1 million; to pay $275,000 for certain acquisition costs related to the
purchase of CRU; and to fund the purchase of CRU.
The pro forma financial information has been prepared as if the acquisition of
CRU had taken place at June 30, 1999 for the pro forma condensed balance sheet
and at April 1, 1998 for the pro forma condensed statements of operations for
the year ended March 31, 1999 and the three months ended June 30, 1999.
The acquisition of CRU has been accounted for as a purchase, whereby the basis
of accounting for the acquired assets and liabilities have been based upon their
estimated fair market values at the date of the acquisition. Pro forma
adjustments represent Labtec's preliminary determination of these values and are
based upon estimates and certain assumptions considered reasonable by management
under the circumstances. Any purchase price or fair market value adjustments
will be made within ninety days from the acquisition date and are not expected
to be material to the pro forma financial information taken as a whole.
These pro forma financial statements are provided for illustrative purposes only
and are not necessarily indicative of the results that would have occurred if
the acquisition had occurred on the dates indicated or which may be obtained in
the future. All information contained herein should be read in conjunction with
the consolidated financial statements and the notes thereto included in Labtec's
Annual Report on Form 10-K for the year ended March 31, 1999, the financial
statements and notes thereto of CRU included in this Form 8- K/A and the notes
to the unaudited pro forma condensed financial information.
DETERMINATION AND ALLOCATION OF PURCHASE PRICE
The following table sets forth the purchase price for Connection Resources
Unlimited, Inc.:
Cash $ 12,000,000
Debt payable to former owners of CRU 1,500,000
Transaction and other direct costs 1,030,034
------------
Pro forma purchase price $ 14,530,034
============
F-14
<PAGE>
LABTEC INC.
INTRODUCTION TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA (CONTINUED)
The preliminary allocation of the pro forma purchase price (as of August 20,
1999) is as follows:
Cash $ 360,455
Accounts receivable 2,345,405
Inventories 2,219,406
Fixed assets 193,603
Other current and noncurrent assets 218,843
Liabilities assumed (3,603,236)
Goodwill and other identifiable intangibles 12,795,558
-----------
$ 14,530,034
===========
F-15
<PAGE>
LABTEC INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
---------------------
JUNE 30, 1999 PRO FORMA
LABTEC CRU ADJUSTMENTS COMBINED
------ --- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 450,348 $ 132,565 $ $ 582,913
Accounts receivable, net 14,953,159 2,423,177 17,376,336
Interest and other receivables 235,466 50,000 285,466
Income tax receivable 536,215 - 536,215
Inventories, net 10,344,085 1,786,137 12,130,222
Prepaid expenses and other
current assets 132,568 3,375 135,943
Deferred income taxes 742,531 192,501 935,032
---------- --------- ---------- ----------
Total current assets 27,394,372 4,587,755 31,982,127
Property and equipment, net 2,282,642 163,220 2,445,862
Deferred income taxes 1,892,850 47,698 672,476 (g) 2,613,024
Debt issuance costs 1,877,718 - 2,144,399 (e) 2,275,425
(1,746,692)(g)
Other noncurrent assets 132,566 - 132,566
Goodwill, net 8,575,346 - 11,363,352 (a) 19,938,698
---------- ---------- ---------- ----------
$42,155,494 $4,798,673 $12,433,535 $59,387,702
========== ========= ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Lines of credit $ 3,200,000 $ 21,000 $ 5,901,774 (b) $ 9,122,774
Current portion of long-term debt - - 2,800,000 (b) 2,800,000
Accounts payable 5,441,842 1,015,387 6,457,229
Accrued payroll and benefits 1,265,586 132,180 419,586 (d) 1,817,352
Accrued interest 232,373 - (232,373)(b) -
Other accrued expenses 1,786,789 463,422 335,448 (d) 2,585,659
------------ ---------- ----------- ----------
Total current liabilities 11,926,590 1,631,989 9,224,435 22,783,014
Long-term debt 26,094,983 - 6,450,000 (b) 32,544,983
---------- --------- ---------- ----------
Total liabilities 38,021,573 1,631,989 15,674,435 55,327,997
---------- --------- ---------- ----------
Shareholders' equity
Common stock 69,072 471,880 (471,880)(c) 72,197
3,125 (f)
Additional paid-in capital 20,563,013 - 996,875 (f) 21,559,888
Stock subscription receivable (25,688) - (25,688)
Retained (deficit) earnings (16,412,366) 2,694,804 (2,694,804)(c) (17,486,582)
(1,074,216)(g)
Accumulated other comprehensive income (loss):
Cumulative foreign currency translation
adjustment (60,110) - (60,110)
----------- --------- ---------- ----------
Total shareholders' equity 4,133,921 3,166,684 (3,240,900) 4,059,705
----------- --------- ---------- ----------
$ 42,155,494 $4,798,673 $12,433,535 $59,387,702
============ ========= ========== ==========
</TABLE>
F-16
<PAGE>
LABTEC INC.
PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
YEAR ENDED MARCH 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
YEAR ENDED MARCH 31, 1999
------------------------- PRO FORMA
LABTEC CRU ADJUSTMENTS COMBINED
----------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
Net sales $ 64,273,410 $ 12,158,162 $ $76,431,572
Cost of sales 40,657,361 7,382,551 48,039,912
----------- ----------- ---------- ----------
Gross profit 23,616,049 4,775,611 28,391,660
----------- ----------- ---------- ----------
Operating expenses:
Selling and marketing 14,993,624 1,543,255 16,536,879
General and administrative 5,457,227 985,808 6,443,035
Research and development 1,716,705 - 1,716,705
Depreciation 1,444,308 10,087 1,454,395
Amortization of goodwill 2,175,874 8,397 3,787,784 (h) 5,972,055
Amortization of noncompete agreement 361,800 - 361,800
----------- ----------- ---------- ----------
26,149,538 2,547,547 3,787,784 32,484,869
----------- ----------- ---------- ----------
Income (loss) from operations (2,533,489) 2,228,064 (3,787,784) (4,093,209)
Interest expense, net 3,516,553 41,916 1,771,650 (i) 5,330,119
Other nonoperating (income) expense (8,171) 14,013 5,842
----------- ----------- ---------- ----------
Income (loss) before income taxes (6,041,871) 2,172,135 (5,559,434) (9,429,170)
Provision for (benefit from) income taxes (1,370,471) 834,948 (682,085)(j) (1,217,608)
---------- ----------- ---------- -----------
Income (loss) before extraordinary loss $(4,671,400) $ 1,337,187 $(4,877,349) $(8,211,562)
=========== =========== ========== ==========
Net income (loss) per share before extraordinary loss:
Basic $ (0.94) $ (1.55)
=========== ===========
Diluted $ (0.94) $ (1.55)
=========== ===========
Weighted average shares outstanding:
Basic 4,987,000 312,500 (f) 5,299,500
Diluted 4,987,000 312,500 (f) 5,299,500
</TABLE>
F-17
<PAGE>
LABTEC INC.
PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
THREE MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
---------------------------
THREE MONTHS ENDED
JUNE 30, 1999 PRO FORMA
LABTEC CRU ADJUSTMENTS COMBINED
---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net sales $ 15,512,259 $ 3,958,900 $ $19,471,159
Cost of sales 9,175,194 2,025,163 11,200,357
----------- ---------- ---------- -----------
Gross profit 6,337,065 1,933,737 8,270,802
----------- ---------- ---------- -----------
Operating expenses:
Selling and marketing 3,349,302 396,949 3,746,251
General and administrative 1,037,648 255,474 1,293,122
Research and development 497,799 - 497,799
Depreciation 345,765 3,426 349,191
Amortization of goodwill 816,698 - 946,946 (h) 1,763,644
----------- ---------- ---------- ----------
6,047,212 655,849 946,946 7,650,007
----------- ---------- ---------- -----------
Income (loss) from operations 289,853 1,277,888 (946,946) 620,795
Interest expense, net 761,396 1,970 446,992 (i) 1,210,358
Other nonoperating (income) expense 27,360 - 27,360
----------- ---------- ---------- ----------
Income (loss) before income taxes (498,903) 1,275,918 (1,393,938) (616,923)
Provision for income taxes 49,297 465,961 (73,770)(j) 441,488
----------- ---------- ---------- ----------
Income (loss) before extraordinary loss $ (548,200) $ 809,957 $(1,320,168) $(1,058,411)
=========== ========== ========== ==========
Net income (loss) per share before extraordinary loss:
Basic $ (0.08) $ (0.15)
=========== ===========
Diluted $ (0.08) $ (0.15)
=========== ===========
Weighted average shares outstanding:
Basic 6,905,110 312,500 (f) 7,217,610
Diluted 6,905,110 312,500 (f) 7,217,610
</TABLE>
F-18
<PAGE>
LABTEC INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PRO FORMA BALANCE SHEET ADJUSTMENTS
(a) Records the pro forma purchase price allocations to goodwill and other
identifiable intangibles.
(b) Represents net incremental borrowings of $13,651,774 on the Company's
credit facility and the issuance of a $1,500,000 promissory note payable to
the previous shareholders of CRU as well as repayment of interest accrued
on retired debt.
(c) Represents elimination of the equity accounts of CRU.
(d) Represents transaction costs and other costs relative to the acquisition of
CRU.
(e) Represents $2,144,399 of deferred financing costs incurred relative to the
Company's credit facility used to finance the CRU acquisition.
(f) Represents sale of 312,500 shares of common stock to a finance company for
proceeds of $1,000,000 ($3.20 per share), the proceeds of which were used
to repay debt.
(g) Represents write-off of deferred loan fees incurred in conjunction with the
debt retired by the proceeds of the new credit facility. Since
non-recurring charges are required to be excluded from pro forma net
income, the impact of the write-off of deferred loan fees has been excluded
from the pro forma consolidated income statements.
STATEMENT OF OPERATIONS PRO FORMA ADJUSTMENTS
(h) Reflects the amortization of goodwill and other intangible assets
associated with the purchase of CRU. Amortization is over the estimated
useful life of three years.
(i) Represents additional interest charges for interest incurred on Labtec's
incremental borrowings and on Labtec's promissory note issued to the
previous shareholders of CRU plus amortization of deferred financing fees
relative to the new credit facility. The deferred financing fees are
amortized over the six year term of the credit facility. Interest charges
are calculated at the borrowing rate incurred on Labtec's new credit
facility of prime plus 1.75% (10%) and the stated interest rate on the
promissory note issued to the previous shareholders of CRU (6%).
(j) Represents increase in income taxes as a result of the foregoing
adjustments. Income taxes are calculated at the Company's blended statutory
tax rate of approximately 38.5%
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-04991) of Labtec Inc. of our report dated October
8, 1999, with respect to the consolidated financial statements of Connector
Resources Unlimited, Inc. included in this Form 8-K/A.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Portland, Oregon
October 29, 1999
<PAGE>
CONNECTOR RESOURCES
UNLIMITED, INC.
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
