SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1999.
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________
TO___________.
Commission File No. 0-27302
LABTEC INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-3116697
------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1499 S.E. Tech Center Place, Suite 350, Vancouver, WA 98683
- - ----------------------------------------------------- -----
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code: (360) 896-2000
--------------
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No |_|
There were 4,024,118 shares of Common Stock outstanding at February 9, 2000.
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<CAPTION>
LABTEC INC.
INDEX
PART I - FINANCIAL INFORMATION Page
- - ------------------------------ ----
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheet as of December 31, 1999 (unaudited)
and March 31, 1999.................................................................3
Consolidated Statements of Operations (unaudited) for the three month
and nine month periods ended December 31, 1999 and 1998............................4
Consolidated Statement of Cash Flows (unaudited) for the nine month
periods ended December 31, 1999 and 1998...........................................5
Notes to Financial Statements (unaudited)..................................................6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations..........................................10
Item 3. Quantitative and Qualitative Disclosures About Market Risk................................15
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.......................................16
Item 6. Exhibits and Reports on Form 8-K..........................................................17
Signatures................................................................................21
</TABLE>
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<PAGE>
PART I. - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
LABTEC INC.
CONSOLIDATED BALANCE SHEET
ASSETS DECEMBER 31, 1999 MARCH 31, 1999
------ ----------------- --------------
(UNAUDITED)
CURRENT ASSETS:
<S> <C> <C>
Cash........................................................... $ 829,654 $ 768,150
Accounts receivable, net....................................... 23,417,378 17,889,858
Interest and other receivables................................. 67,577 211,468
Income tax receivable.......................................... 432,160 594,973
Inventories.................................................... 11,517,775 10,661,758
Prepaid expenses............................................... 193,655 160,523
Current deferred income taxes.................................. 981,826 829,713
------------- ------------
TOTAL CURRENT ASSETS........................................ 37,440,025 31,116,443
Property and equipment, net....................................... 2,329,637 2,329,880
Noncurrent deferred income taxes.................................. 1,938,489 1,892,850
Debt issuance costs............................................... 2,386,760 1,983,637
Other noncurrent assets........................................... 301,302 253,535
Goodwill, net..................................................... 18,569,624 9,392,044
------------- ------------
62,965,837 $ 46,968,389
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Line of credit................................................. $ 9,202,248 $ 4,000,000
Current portion of long-term debt.............................. 2,850,000 ---
Accounts payable............................................... 10,954,608 8,491,828
Accrued payroll and benefits................................... 1,294,230 1,588,855
Accrued interest............................................... 211,124 223,214
Other accrued expenses......................................... 1,415,887 1,877,365
------------- ------------
TOTAL CURRENT LIABILITIES................................... 25,928,097 16,181,262
Long-term debt................................................... 29,488,519 26,086,184
------------- ------------
55,416,616 42,267,446
------------- ------------
Commitments and contingencies.................................... --- ---
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock, par value $.01, 25,000,000 shares authorized,
4,010,291 and 3,451,799 shares issued and outstanding at December
31, 1999 and March 31, 1999, respectively......................... 40,103 34,518
Additional paid-in capital..................................... 23,806,200 20,585,770
Stock subscription receivable.................................. (16,836) (25,688)
Accumulated deficit............................................ (16,233,112) (15,864,166)
Accumulated other comprehensive income (loss):
Cumulative foreign currency translation adjustment.......... (47,134) (29,491)
------------- ------------
7,549,221 4,700,943
------------- ------------
$ 62,965,837 $ 46,968,389
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
-3-
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<TABLE>
<CAPTION>
LABTEC INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED THREE MONTHS ENDED NINE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Net sales $27,379,209 $18,230,942 $64,565,793 $47,759,132
Cost of sales 16,526,223 12,017,438 38,801,997 30,406,712
--------------------------------------------- -------------------------------------------
Gross profit 10,852,986 6,213,504 25,763,796 17,352,420
--------------------------------------------- -------------------------------------------
Operating expenses:
Selling and marketing 4,755,428 4,299,396 12,028,631 10,750,929
General and administrative 1,620,249 1,090,840 3,954,743 4,281,918
Research and development 633,201 304,882 1,706,117 1,160,360
Depreciation 427,280 376,224 1,185,999 1,059,763
Amortization of goodwill 682,362 441,881 2,611,399 1,325,643
Amortization of noncompete agreement --- 90,450 --- 271,350
--------------------------------------------- -------------------------------------------
8,118,520 6,603,673 21,486,889 18,849,963
--------------------------------------------- -------------------------------------------
Income (loss) from operations 2,734,466 (390,169) 4,276,907 (1,497,543)
Interest expense, net 1,178,971 870,191 2,941,876 2,634,927
Other nonoperating (income) expense 3,127 (17,945) 62,335 (33,576)
--------------------------------------------- -------------------------------------------
Total other income (expense) 1,182,098 852,246 3,004,211 2,601,351
--------------------------------------------- -------------------------------------------
Income (loss) before income taxes 1,552,368 (1,242,415) 1,272,696 (4,098,894)
Provision (benefit) for income taxes 370,608 (209,585) 626,092 (932,472)
--------------------------------------------- -------------------------------------------
Net income (loss) before extraordinary
items 1,181,760 (1,032,830) 646,604 (3,166,422)
Extraordinary loss on extinguishment of
debt, less applicable income tax benefit
of $677,033 --- --- (1,015,550) ---
--------------------------------------------- -------------------------------------------
Net income (loss) $1,181,760 $(1,032,830) $(368,946) $(3,166,422)
============================================= ===========================================
Weighted average shares outstanding
Basic 3,751,100 1,770,000 3,575,354 1,770,000
Diluted 3,790,163 1,770,000 3,575,354 1,770,000
Net income (loss) per share before
extraordinary loss
Basic $0.32 $(0.58) $0.18 $(1.79)
============================================= ===========================================
Diluted $0.31 $(0.58) $0.18 $(1.79)
============================================= ===========================================
Net income (loss) per share
Basic $0.32 $(0.58) $(0.10) $(1.79)
============================================= ===========================================
Diluted $0.31 $(0.58) $(0.10) $(1.79)
============================================= ===========================================
Comprehensive income (loss):
Net income (loss) $1,181,760 $(1,032,830) $(368,946) $(3,166,422)
Change in cumulative
translation adjustment (7,988) --- (17,643) ---
--------------------------------------------- -------------------------------------------
Comprehensive income (loss) $1,173,772 $(1,032,830) $(386,589) $(3,166,422)
============================================= ===========================================
</TABLE>
The accompanying notes are an integral part of these financial statements
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<TABLE>
<CAPTION>
LABTEC INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED DECEMBER 31,
----------------------------------------------
1999 1998
---- ----
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $(368,946) $(3,166,422)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 1,185,999 1,059,763
Amortization of goodwill 2,611,399 1,325,643
Amortization of noncompete agreement --- 271,350
Amortization of debt issuance costs 329,662 266,052
Change in deferred income taxes 12,914 (881,166)
Compensation expense on common stock --- 802,660
sold to management
Compensation expense on stock options --- 2,264
granted
Write-off of debt issuance costs 1,692,583 ---
Changes in current assets and liabilities, net
of effects of acquisitions:
Accounts receivable (3,182,115) (3,032,682)
Interest and other receivables 143,891 15,078
Income taxes receivable 162,813 ---
Inventories 1,363,389 1,010,949
Prepaid expenses (24,955) ---
Accounts payable 1,008,567 5,034,441
Income taxes payable (448,658) (262,084)
Accrued payroll, benefits and other expenses (1,333,968) 1,283,251
Accrued interest (12,090) (47,000)
----------------------------------------------
Net cash provided by operating activities 3,140,485 3,682,097
----------------------------------------------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures (992,153) (1,112,495)
Other assets (57,500) 2,189
Costs associated with purchase of CRU (13,900,990) ---
----------------------------------------------
Net cash used for investing activities (14,950,643) (1,110,306)
----------------------------------------------
CASH FLOW FROM FINANCING ACTIVITIES:
Net increase (decrease) in short-term credit 5,202,248 (2,500,000)
facility
Proceeds from issuance of long-term debt 28,500,000 ---
Repayment of long-term debt (20,276,425) (348,603)
Debt issuance costs (2,419,399) (19,917)
Proceeds from exercise of stock options 27,796 ---
Proceeds from issuance of common stock 1,000,000 111,383
Payments on common stock subscription 8,852 86,972
Repurchase and cancellation of common (153,769) (60,547)
stock
----------------------------------------------
Net cash provided by (used for) financing activities 11,889,303 (2,730,712)
----------------------------------------------
Effect of foreign currency on cash (17,641) ---
Net increase (decrease) in cash 61,504 (158,921)
Cash at beginning of period 768,150 988,417
----------------------------------------------
Cash at end of period $829,654 $829,496
==============================================
</TABLE>
The accompanying notes are an integral part of these financial statements
-5-
<PAGE>
LABTEC INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The accompanying consolidated financial statements are unaudited and have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission and in the opinion of management include all
adjustments, consisting only of normal recurring adjustments, necessary for the
fair statement of results for the interim periods. Certain information and
footnote disclosures normally included in the financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. These consolidated financial
statements and notes should be read in conjunction with the audited financial
statements and notes thereto included in the Company's annual report on Form
10-K for the year ended March 31, 1999. The results of operations for the
interim periods are not necessarily indicative of the results for the entire
year.
Reclassifications have been made to amounts in prior years to conform to current
year presentation. These changes had no impact on previously reported results of
operations or shareholders' equity.
2. Accounts Receivable
Accounts receivable are net of allowances for doubtful accounts and for sales
returns of $1,540,554 and $1,443,143 at December 31, 1999 and March 31, 1999,
respectively. At December 31, 1999 and March 31, 1999, 10% and 18%,
respectively, of receivables were from one customer.
3. Inventories
Inventories represent product manufactured for the Company by foreign factories
subcontracted by the Company. Of total inventories, $712,527 and $2,169,918 was
in transit at December 31, 1999 and March 31, 1999, respectively. During March
1999, the Company began taking title upon receipt of product and prior to that
the Company took title upon shipment from Asia.
4. Property and Equipment
Property and equipment consists of the following:
December 31, 1999 March 31, 1999
----------------- --------------
Leasehold improvements $ 255,512 $ 238,948
Tooling and molds 2,429,639 2,328,602
Furniture and equipment 2,356,102 1,878,998
Retail displays 2,117,966 1,526,915
------------ ------------
7,159,219 5,973,463
Less: accumulated depreciation (4,829,582) (3,643,583)
------------ ------------
$ 2,329,637 $ 2,329,880
=========== ===========
5. Stock
On December 1, 1999 the Company completed a one-for-two reverse stock split of
its common stock.
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LABTEC INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Subsequent to the reverse stock split, one of the Company's subordinate debt
holders converted $1,500,000 principal amount of its Senior Subordinated Note
due October 1, 2005 for 262,237 shares of common stock. Also, the Company's
majority shareholder converted $824,062 of the Unsecured Subordinated Promissory
Note due February 17, 2005 and $27,926 of accrued interest for 148,949 shares of
common stock.
6. Earnings Per Share
Net loss per share on a diluted basis is based on the weighted average number of
shares of common and all potentially dilutive securities outstanding during the
periods, computed using the treasury stock method for stock options. Given the
Company's net loss for the three and nine months ended December 31, 1998 and for
the nine months ended December 31, 1999, the dilutive effect of stock options
has been excluded from the computation of the weighted average shares
outstanding. For the three and nine months ended December 31, 1999 the dilutive
impact of stock options are included in the computation of income per share
before extraordinary loss and net income per share in accordance with FAS 128.
On December 1, 1999 the Company had a one-for-two reverse stock split. The
weighted average shares outstanding in 1998 have been adjusted to reflect the
reverse split.
Weighted average shares outstanding consist of the following:
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
December 31, December 31,
------------ ------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average shares outstanding (basic) 3,751,100 1,770,000 3,575,354 1,770,000
Effect of dilutive stock options 39,063 0 0 0
--------- --------- --------- ---------
Weighted average shares outstanding (diluted) 3,790,163 1,770,000 3,575,354 1,770,000
========= ========= ========= =========
</TABLE>
7. Purchase of Connector Resources Unlimited, Inc.
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 $13,145,956 in cash and
$1,500,000 in debt. Concurrent with the acquisition of CRU, Labtec entered into
a $43,000,000 credit facility with a lender and also sold 312,500 shares of
common stock for $1,000,000. The net proceeds from the credit facility and
proceeds from the stock sale were used to retire outstanding debt and accrued
interest totaling $23,400,000, to pay debt issuance costs and loan fees on the
new credit facility, to pay for certain acquisition costs related to the
purchase of CRU and to fund the purchase of CRU. CRU designs, develops and
markets computer peripheral products principally in North America. The
acquisition was accounted for as a purchase and therefore the operations of CRU
have been included with those of the Company since August 20, 1999.
-7-
<PAGE>
LABTEC INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following sets forth the reconciliation of fair value of the assets acquired
and the liabilities assumed.
Purchase price $14,645,956
Fair value of tangible assets acquired (5,337,712)
Liabilities assumed 2,098,202
Direct costs of acquisition 755,034
-----------
Excess of purchase price over fair value of tangible assets $12,161,480
===========
The excess of the purchase price over fair value of tangible assets acquired is
being amortized over an estimated useful life of twenty years.
The following unaudited pro forma information presents the results of the
Company's operations assuming the CRU acquisition occurred at the beginning of
the respective nine-month periods, after giving effect to adjustments for
amortization of goodwill, estimated increase in interest expense and the
estimated impact on the income tax provision.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
------------ ------------
1999 1998 1999 1998
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales $27,379,209 $21,079,110 $70,474,881 $56,926,310
Net income (loss)
before extraordinary item 1,181,760 (1,232,153) 574,522 (3,865,791)
Net income (loss)
per share before extraordinary item:
Basic .32 (.64) .15 (2.01)
Diluted .31 (.64) .15 (2.01)
</TABLE>
The unaudited pro forma financial information is not necessarily indicative of
the operating results that would have occurred had the CRU acquisition been
consummated as of the beginning of each period, nor is it necessarily indicative
of future operating results. The unaudited pro forma information should be read
in conjunction with the current report of the Company on Form 8-K dated August
20, 1999 and the current report of the Company on Form 8-K/A filed November 2,
1999.
8. Borrowings
In conjunction with the purchase of CRU in August 1999, the Company repaid its
$7,500,000 revolving line of credit and $19,250,000 long-term loan with funds
obtained from a $27,000,000 long-term loan and a $16,000,000 revolving line of
credit with other lenders. Also, a $1,500,000 seven and one-half year promissory
note was issued to the prior shareholders of CRU. Fees related to the
extinguished credit line are included in the extraordinary loss on
extinguishment of debt. At December 31, 1999 the long-term loans and a portion
of the revolving line of credit were accruing interest at LIBOR plus 3.25-3.50%
and the remaining portion of the revolving line of credit was accruing interest
at the prime rate plus 1.75%. In December 1999, the Company entered into an
interest rate swap agreement with its primary lender in order to fix the
interest rate on a portion of its long-term debt. At December 31, 1999, the
amount of debt subject to the fixed rate was $13,150,000, for which the rate was
9.69%. The bank line of credit is secured by substantially all of the Company's
assets. Loan fees paid to the banks and transaction fees relating to the term
loan, revolving line of credit and promissory note were $2,419,399 and have been
recorded in debt issuance costs. The current line of credit expires in September
2005 and the long-term debt expires June 30, 2005.
-8-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
The following discussion and analysis should be read in conjunction
with the financial statements and notes thereto appearing elsewhere herein.
This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements that involve a number
of risks and uncertainties. The following are among the factors that could cause
actual results to differ materially from the forward-looking statements:
business conditions and growth in the personal computer and workstation
industries; general economies, both domestic and international; lower than
expected customer orders or variations in customer order patterns; competitive
factors, including increased competition, new product offerings by competitors
and pricing pressures; the availability of parts and components; changes in
product mix; resource constraints encountered in developing new products; and
product shipment interruptions due to manufacturing difficulties. The
forward-looking statements contained in the MD&A regarding industry trends,
product development and liquidity and future business activities should be
considered in light of these factors.
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 $13,145,956 in cash and
$1,500,000 in debt. Concurrent with the acquisition of CRU, Labtec entered into
a $43,000,000 credit facility with a bank and also sold 312,500 shares of common
stock for $1,000,000. The net proceeds from the credit facility and proceeds
from the stock sale were used to retire outstanding debt and accrued interest of
$23,400,000, to pay issuance costs and loan fees on the new credit facility, to
pay for certain acquisition costs related to the purchase of CRU and to fund the
purchase of CRU. CRU designs, develops and markets computer peripheral products
principally in North America.
Three and Nine Months Ended December 31, 1999 and December 31, 1998
Net sales were $27,379,209 for the three months ended December 31, 1999
compared to $18,230,942 for the three months ended December 31, 1998 and
$64,565,793 for the nine months ended December 31, 1999 compared to $47,759,132
for the nine months ended December 31, 1998.
Three Months Ended Nine Months Ended
December 31, December 31,
------------ ------------
(in thousands, except %) (in thousands, except %)
1999 1998 %Change 1999 1998 %Change
---- ---- ------- ---- ---- -------
Net Sales $27,379 $18,231 50% $64,566 $47,759 35%
The increase in net sales over the periods was primarily due to the
increase in sales for the Company's PC Voice Access line of products and the
addition of sales from the 3D motion control line of products and data storage
products.
-9-
<PAGE>
COST OF SALES
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
------------ ------------
(in thousands, except %) (in thousands, except %)
1999 1998 %Change 1999 1998 %Change
---- ---- ------- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Cost of Sales $16,526 $12,017 37% $38,802 $30,407 28%
As a % of Net Sales 60.4% 65.9% 60.1% 63.7%
</TABLE>
Cost of sales increased for the three and nine months ended December
31, 1999 compared to the three and nine months ended December 31, 1998 primarily
as a result of higher net sales. Cost of sales as a percentage of net sales
decreased for the three and nine months ended December 31, 1999 compared to the
three and nine months ended December 31, 1998 primarily as a result of the
change in product mix from a larger portion of higher cost products (speakers)
to a larger portion of lower cost products (voice access and personal audio), as
well as the addition of the 3D controller in 1999 which has higher gross margin.
RESEARCH AND DEVELOPMENT
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
------------ ------------
(in thousands, except %) (in thousands, except %)
1999 1998 %Change 1999 1998 %Change
---- ---- ------- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Research & Development $ 633 $ 305 108% $ 1,706 $ 1,160 47%
As a % of Net Sales 2.3% 1.7% 2.6% 2.4%
</TABLE>
Research and development expenses increased over the periods primarily
due to the increased investment in the development of new speakers and voice
access products and the enhancement of current products. Also, the dollar
increase reflects the increased hiring of employees working in research and
development.
SELLING AND MARKETING
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
------------ ------------
(in thousands, except %) (in thousands, except %)
1999 1998 %Change 1999 1998 %Change
---- ---- ------- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Selling and Marketing $4,755 $4,299 11% $12,029 $10,751 12%
As a % of Net Sales 17.4% 23.6% 18.6% 22.5%
</TABLE>
Selling and marketing expenses increased in dollar amount in the three
and nine months ended December 31, 1999 compared to the three and nine months
ended December 31, 1998 primarily as a result of additional sales personnel,
higher travel costs to support the increased sales volume, increased variable
costs related to the increased sale volume and increased marketing efforts in
the North American retail portion of the business to maintain market share in
this very competitive market. Selling and marketing expenses as a percentage of
net sales decreased for the three and nine months ended December 31, 1999
compared to the three and nine months ended December 31, 1998 primarily because
a portion of selling and marketing expenses are fixed in nature.
-10-
<PAGE>
GENERAL AND ADMINISTRATIVE
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
------------ ------------
(in thousands, except %) (in thousands, except %)
1999 1998 %Change 1999 1998 %Change
---- ---- ------- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
General & Administrative $1,620 $1,091 48% $3,955 $4,282 (7%)
As a % of Net Sales 5.9% 6.0% 6.1% 9.0%
</TABLE>
General and administrative expenses, which include the Company's
corporate finance, human resources and administrative functions, increased in
dollar amount in the three months ended December 31, 1999 compared to the three
months ended December 31, 1998 primarily due to additional administrative
personnel and increased rent due to adding warehouse space to support the
increased sales volume. The dollar amount decreased in the nine months ended
December 31, 1999 compared to the nine months ended December 31, 1998 due to
severance costs related to the termination of one Company officer in 1998. As a
percentage of net sales, general and administrative expenses decreased for the
nine months ended December 31, 1999 compared to the same period ended December
31, 1998. The decrease as a percentage of net sales is due primarily to
compensation expense on common stock sold to management recorded during the
period in 1998.
DEPRECIATION
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
------------ ------------
(in thousands, except %) (in thousands, except %)
1999 1998 %Change 1999 1998 %Change
---- ---- ------- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Depreciation $ 427 $376 14% $1,186 $1,060 12%
As a % of Net Sales 1.6% 2.1% 1.8% 2.2%
</TABLE>
Depreciation dollar amounts increased for the three and nine months
ended December 31, 1999 compared to the three and nine months ended December 31,
1998 as the result of increased capital expenditures for computer equipment,
retail displays and tooling and molds for new products being developed. As a
percentage of net sales depreciation decreased primarily due to the increase in
net sales.
AMORTIZATION
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
------------ ------------
(in thousands, except %) (in thousands, except %)
1999 1998 %Change 1999 1998 %Change
---- ---- ------- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Amortization $682 $532 28% $2,611 $1,597 63%
As a % of Net Sales 2.5% 2.9% 4.0% 3.4%
</TABLE>
Goodwill (the purchase price paid for Spacetec and Connector Resources
Unlimited in excess of the fair value of net tangible assets) is being amortized
over three (3) years for Spacetec and twenty (20) years for CRU, which resulted
in an increase in the dollar amount and as a percentage of net sales for the
three and nine months ended December 31, 1999 compared to the three and nine
months ended December 31, 1998, since the CRU acquisition took place in 1999.
-11-
<PAGE>
INTEREST EXPENSE, NET
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
------------ ------------
(in thousands, except %) (in thousands, except %)
1999 1998 %Change 1999 1998 %Change
---- ---- ------- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Interest Expense $1,179 $870 36% $2,942 $2,635 12%
As a % of Net Sales 4.3% 4.8% 4.6% 5.5%
</TABLE>
Net interest expense increased for the three and nine months ended
December 31, 1999 compared to the three and nine months ended December 31, 1998
as the result of the Company refinancing and increasing its debt in conjunction
with the purchase of CRU. Net interest expense as a percentage of net sales
decreased due to the increase in net sales.
INCOME TAXES
The percentage and dollar amount increase in the income tax provision
for the three and nine months ended December 31, 1999 compared to 1998 is
primarily due to the increase in operating income and the result of the
amortization of goodwill being nondeductible for income tax purposes. During the
three months ended December 31, 1999, the Company's tax provision includes a
benefit of approximately $912,000 due to a reduction of the deferred tax
valuation allowance.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, the Company had $829,654 in cash and cash
equivalents and working capital of $11,511,928. The working capital balance
decreased from March 31, 1999 primarily due to the increase in borrowing on the
line of credit and increase in accounts payable which was partially offset by
the increase in accounts receivable and inventory.
Net cash provided by operating activities was $3,140,485 for the nine
months ended December 31, 1999, compared to cash provided by operating
activities of $3,682,097 for the nine months ended December 31, 1998. The
decrease in net cash provided by operating activities in 1999 was largely due to
the decreased change in accounts payable, the decrease in accrued payroll and
the increase in income from operations over the prior year loss from operations.
Net cash used for investing activities was $14,950,643 for the nine
months ended December 31, 1999 compared to $1,110,306 in 1998. The increase was
primarily due to the purchase of CRU in August 1999.
Financing activities provided net cash of $11,889,303 for the nine
months ended December 31, 1999, principally from the refinancing of the
Company's long-term debt and revolving line of credit in conjunction with the
purchase of CRU, as well as the issuance of additional common stock.
The Company refinanced its long-term debt and short-term revolving line
of credit in August 1999. Outstanding at December 31, 1999 was $26,300,000 on
long-term loans, $4,500,000 in subordinated debt, $9,202,248 on the line of
credit, $240,938 on a six-year promissory note that was issued to the holders of
Labtec common stock outstanding just prior to the time of the merger with
Spacetec and a $1,500,000 seven and one-half year promissory note issued to the
prior shareholders of CRU. At December 31, 1999, the long-term loans were
accruing interest at the LIBOR rate plus 3.25 - 3.50%, the subordinated note at
12%, the line of credit at the prime rate plus 1.75% and the promissory notes at
10% and 6%, respectively. In December 1999, the Company entered into an
interest rate swap agreement with its primary lender in order to fix the
interest rate on a portion of its long-term debt. At December 31, 1999, the
amount of debt subject to the fixed rate was $13,150,000, for which the rate was
9.69%.
-12-
<PAGE>
In December 1999 the Company completed a one-for-two reverse stock
split of its common stock. Subsequent to the reverse stock split, one of the
Company's subordinate debt holders converted $1,500,000 principal amount of its
Senior Subordinated Note due October 1, 2005 for 262,237 shares of common stock.
Also, the Company's majority shareholder converted $824,062 of the Unsecured
Subordinated Promissory Note due February 17, 2005 and $27,926 of accrued
interest for 148,949 shares of common stock.
Capital expenditures were $992,153 for the nine months ended December
31, 1999. This compares to $1,112,495 for the nine months ended December 31,
1998. These capital expenditures were primarily for the purchase of computer
equipment, tooling and molds and retail displays.
The Company believes that its existing cash and revolving line of
credit, together with future funds from operations, will satisfy its need for
working capital and other cash requirements for at least the next twelve-month
period.
YEAR 2000 ISSUES
The Year 2000 issue is the result of date-sensitive devices, systems
and computer programs that were deployed using two digits rather than four to
define the applicable year. Any such technologies may recognize a year
containing "00" as the year 1900 rather than the year 2000. This could result in
a system failure or miscalculation causing disruption of operations including,
among other things, a temporary inability to process transactions or engage in
similar normal business activities.
The Company did not experience any significant malfunctions or errors
in its information or business systems when the date changed from 1999 to 2000.
Based on its operations since January 1, 2000, the Company does not expect any
significant problems related to the Year 2000 issue. However, it is possible
that the full impact of the date change has not been fully recognized. For
example, it is possible that Year 2000 or similar issues, such as leap year
related problems, may occur with financial closings. The Company believes that
any such problems will be minor and easily corrected. In addition, the Company
could still be negatively impacted if the Year 2000 or similar issues adversely
affect its customers or suppliers. Currently, the Company is not aware of any
significant Year 2000 or similar problems that have arisen with its customers or
suppliers.
Disclosure Regarding Private Securities Litigation Reform Act of 1995
- - ---------------------------------------------------------------------
From time to time, the Company, through its management, may make
forward-looking public statements in press releases or other communications,
such as statements concerning then-expected future revenues or earnings or
concerning projected plans, performance, marketing initiatives, corporate
alliances, product development and commercialization as well as other estimates
relating to future operations. Forward-looking statements may be in reports
filed under the Securities Exchange Act of 1934, as amended, in press releases
or in oral statements made with the approval of an authorized executive officer.
The words or phrases "will likely result," "are expected to," "will continue,"
"is anticipated," "estimate," or similar expressions are intended to identify
"forward-looking statements" within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933,
as amended, as enacted by the Private Securities Litigation Reform Act of 1995.
The Company wishes to caution readers not to place undue reliance on
these forward-looking statements which speak only as of the date on which they
are made. Various factors could affect the Company's financial or other
performance and could cause the Company's actual results for future periods
-13-
<PAGE>
to differ materially from any opinions or statements expressed with respect to
future periods or events in any current statement. These factors include, but
are not limited to: business conditions and growth in the personal computer and
workstation industries and general economies, both domestic and international;
dependence on a limited number of retail customers; dependence on a limited
number of source suppliers; lower than expected customer orders or variations in
customer order patterns due to changes in demand for customers' products and
customers' inventory levels; competitive factors, including increased
competition, new product offerings by competitors and pricing pressures; changes
in product mix; dependency on proprietary technology; technological difficulties
and resource constraints encountered in developing new products; product
shipment interruptions; and other factors discussed herein and in the Company's
other filings with the Securities and Exchange Commission.
The Company will not undertake and specifically declines any obligation
to publicly release the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events which may cause management to re-evaluate such forward-looking
statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
None.
-14-
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The annual meeting of stockholders of the Company was held on
September 15, 1999 for the purpose of: (i) approving the amendment of the
Restated Articles of Organization to eliminate the Company's three classes of
directors in favor of one class of directors to be elected annually and (ii)
electing five directors. Proxies for the meeting were solicited pursuant to
Regulation 14A of the Securities Exchange Act of 1934, as amended, and there was
no solicitation in opposition.
The proposal to approve the amendment of the Restated Articles of
Organization to eliminate the Company's three classes of directors in favor of
one class of directors to be elected annually was approved by the following
vote:
For Against
--- -------
4,690,711 50,132
The following directors were elected by the following vote:
Votes
------------------------------------------
For Withheld
--- --------
J. Grant Jagelman 5,341,095 51,843
Julian Rubinstein 5,341,428 51,510
Jonathan Stearns 5,341,428 51,510
Joseph Pretlow 5,341,428 51,510
Robert G. Wick 5,341,428 51,510
(b) A special meeting of stockholders of the Company was held on
November 24, 1999 for the purpose of approving an amendment of the Company's
Restated Articles of Organization, as amended, in order to effect a one-for-two
reverse split of the Company's common stock. Proxies for the meeting were
solicited pursuant to Regulation 14A of the Securities Exchange Act of 1934, as
amended, and there was no solicitation in opposition.
The proposal to approve the amendment of the Restated Articles of
Organization, as amended, in order to effect a one-for-two reverse split of the
Company's common stock was approved by the following vote:
For Against
--- -------
4,361,682 4,110
-15-
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
Number Description of Exhibit Method of Filing
- - ------ ---------------------- ----------------
<S> <C> <C>
3.1 Restated Articles of Organization Incorporated by reference to Exhibit 3.1 to the
Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1999 (the "1999 Form
10-K")
3.2 Articles of Amendment Incorporated by reference to Exhibit 3.2 to the
1999 Form 10-K
3.3 Articles of Amendment Incorporated by reference to Exhibit 3.3 to the
Form 10-Q for the quarterly period ended
September 30, 1999
3.4 Articles of Amendment Filed herewith
3.5 Amended and Restated By-Laws of the Company Incorporated by reference to Exhibit 3.3 to the
1999 Form 10-K
4.1 Specimen certificate for shares of common Incorporated by reference to Exhibit 4.1 to the
stock of the Company 1999 Form 10-K
10.1 Labtec Inc. Amended and Restated 1997 Employee Incorporated by reference to Exhibit 10.1 to the
Stock Option Plan 1999 Form 10-K
10.2 1997 Employee Stock Option Plan - Option Incorporated by reference to Exhibit 10.2 to the
Certificate and Agreement 1999 Form 10-K
10.3 Amended and Restated 1997 Employee Stock Incorporated by reference to Exhibit 10.3 to the
Option Plan - Option Certificate and Agreement 1999 Form 10-K
10.4 Amended and Restated Stock Option Plan Incorporated by reference to Exhibit 10.1 to the
Company's Registration Statement on Form S-1
(Commission File No. 33-98064) (the
"Registration Statement")
10.5 Amended and Restated 1995 Director Stock Incorporated by reference to Exhibit 10.2 to the
Option Plan Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1997
10.6 1995 Employee Stock Purchase Plan Incorporated by reference to Exhibit 10.3 to the
Registration Statement
</TABLE>
-16-
<PAGE>
<TABLE>
<CAPTION>
Number Description of Exhibit Method of Filing
- - ------ ---------------------- ----------------
<S> <C> <C>
10.7 Amended and Restated Agreement and Plan of Incorporated by reference to Exhibit 2.1 to the
Merger among Spacetec IMC Corporation, SIMC Company's Current Report on Form 8-K dated
Acquisition Corporation and Labtec Inc., dated October 21, 1998 (date of earliest event
as of October 2, 1998, as amended and restated reported) filed with the Commission (File No.
as of November 13, 1998 0-27302) on November 17, 1998
10.8 Spacetec IMC Corporation Unsecured Incorporated by reference to Exhibit 10.8 to the
Subordinated Promissory Note for $1,065,000 1999 Form 10-K
dated February 17, 1999
10.9 Stock Purchase Agreement, dated as of August Incorporated by reference to Exhibit 2.1 to the
4, 1999, among the Purchaser, the Company and Company's Current Report on Form 8-K dated
each of the stockholders of Connector August 20, 1999 (date of earliest event
Resources Unlimited, Inc. reported) filed with the Commission (File No.
0-27302) on September 2, 1999 (the "1999 Form
8-K")
10.10 Promissory Note, dated as of August 20, 1999, Incorporated by reference to Exhibit 2.2 to the
issued by the Company and payable to Carl 1999 Form 8-K
Gromada, as collection agent for each of the
stockholders of Connector Resources Unlimited,
Inc.
10.11 Form of Credit Agreement, dated as of August Incorporated by reference to Exhibit 10.11 to
20, 1999, among the Company and certain the Form 10-Q for the quarterly period ended
subsidiaries, various guarantors, various September 30, 1999
lending institutions and The Chase Manhattan
Bank, as agent
10.12 Recapitalization Agreement and Plan of Merger Incorporated by reference to Exhibit 10.12 to
between Speaker Acquisition Corp. and LEI the 1999 Form 10-K
Holdings, Inc., dated as of August 26, 1997
10.13 Lease Agreement, dated April 24, 1997, between Incorporated by reference to Exhibit 10.13 to
Pacific Realty Associates, L.P., and Labtec the 1999 Form 10-K
Enterprises, Inc.
10.14 Lease Agreement, dated February 4, 1998, Incorporated by reference to Exhibit 10.14 to
between Columbia Tech Center, L.L.C., and the 1999 Form 10-K
Labtec Inc.
10.15 Labtec Enterprises, Inc. $6,000,000 Principal Incorporated by reference to Exhibit 10.16 to
Amount of Senior Subordinated Notes and 50,000 the 1999 Form 10-K
Shares of Common Stock Purchase Agreement,
dated October 7, 1997
</TABLE>
-17-
<PAGE>
<TABLE>
<CAPTION>
Number Description of Exhibit Method of Filing
- - ------ ---------------------- ----------------
<S> <C> <C>
10.16 Amendment to Purchase Agreement, dated as of Incorporated by reference to Exhibit 10.17 to
October 25, 1999 and effective as of August the Form 10-Q for the quarterly period ended
20, 1999, between Labtec Corporation and The September 30, 1999
KB Mezzanine Fund II, L.P.
10.17 Recognition, Non-Disturbance and Attorney Incorporated by reference to Exhibit 10.5 to the
Agreement, dated December 26, 1995, between 1996 Form 10-K
the Company and Historic Boott Mill Limited
Partnership
10.18 Royalty Agreement, dated May 29, 1991, between Incorporated by reference to Exhibit 10.6 to the
the Company and John A. Hilton Registration Statement
10.19 Resale Agreement, dated as of May 1, 1991, Incorporated by reference to Exhibit 10.8 to the
between the Company and Electronic Data Registration Statement. See also footnote 1
Systems Corporation (as successors to below.
McDonnell Douglas Corporation), as amended by
Amendment No. 1 dated December 23, 1993, and
Amendment No. 2 dated October 6, 1994
10.20 Distribution and Marketing Agreement, dated Incorporated by reference to Exhibit 10.9 to the
April 28, 1994, between the Company and Registration Statement. See also footnote 1
Sumisho Electronic Devices Corporation below.
10.21 Form of Confidentiality and Inventions Incorporated by reference to Exhibit 10.11 to
Agreement between the Company and its employees the Registration Statement.
10.22 Form of Non-Disclosure Agreement between the Incorporated by reference to Exhibit 10.12 to
Company and its consultants the Registration Statement.
10.23 Severance Agreement, dated March 18, 1998, Incorporated by reference to Exhibit 10.15 to
between the Company and Dennis T. Gain the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1998
10.24 Employment Agreement, dated June 1, 1998, Incorporated by reference to Exhibit 10.24 to
between the Company and Gregory Jones the 1999 Form 10-K
27.1 Financial Data Schedule Filed herewith
</TABLE>
- - --------
(1) Certain confidential material contained in the document has been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule
406 of the Securities Act of 1933, as
-18-
<PAGE>
amended, and Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
(b) Reports on Form 8-K
On November 1, 1999, the Company filed a Current Report on Form 8-K
relating to Item 5, Other Events, in connection with the filing of a September
30, 1999 balance sheet for the purpose of complying with Nasdaq requirements.
On December 1, 1999, the Company filed a Current Report on Form 8-K
relating to Item 5, Other Events, in connection with the conversion of a portion
of outstanding debt into equity for the purpose of complying with Nasdaq listing
requirements.
On November 2, 1999, the Company filed a Current Report on Form 8-K/A
relating to Item 7, Financial Statements, in connection with the CRU
acquisition.
-19-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements 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, thereunto duly authorized.
LABTEC INC.
Dated: February 11, 2000 By:/s/ Marc J. Leder
---------------------------------------
Marc J. Leder
Chief Financial Officer
-20-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
-------------
Exhibit Number Description
- - -------------- -----------
<S> <C>
3.1 Restated Articles of Organization
3.2 Articles of Amendment
3.3 Articles of Amendment
3.4 Articles of Amendment
3.5 Amended and Restated By-Laws of the Company
4.1 Specimen certificate for shares of common stock of the
Company
10.1 Labtec Inc. Amended and Restated 1997 Employee Stock
Option Plan
10.2 1997 Employee Stock Option Plan - Option Certificate and
Agreement
10.3 Amended and Restated 1997 Employee Stock Option Plan
- Option Certificate and Agreement
10.4 Amended and Restated Stock Option Plan
10.5 Amended and Restated 1995 Director Stock Option Plan
10.6 1995 Employee Stock Purchase Plan
10.7 Amended and Restated Agreement and Plan of Merger
among Spacetec IMC Corporation, SIMC Acquisition
Corporation and Labtec Inc., dated as of October 2, 1998,
as amended and restated as of November 13, 1998
10.8 Spacetec IMC Corporation Unsecured Subordinated
Promissory Note for $1,065,000 dated February 17, 1999
10.9 Stock Purchase Agreement, dated as of August 4, 1999,
among the Purchaser, the Company and each of the
stockholders of Connector Resources Unlimited, Inc.
10.10 Promissory Note, dated as of August 20, 1999, issued by
the Company and payable to Carl Gromada, as collection
agent for each of the stockholders of Connector Resources
Unlimited, Inc.
</TABLE>
-21-
<PAGE>
<TABLE>
<CAPTION>
Exhibit Number Description
- - -------------- -----------
<S> <C>
10.11 Form of Credit Agreement, dated as of August 20, 1999,
among the Company and certain subsidiaries, various
guarantors, various lending institutions and The Chase
Manhattan Bank, as agent
10.12 Recapitalization Agreement and Plan of Merger between
Speaker Acquisition Corp. and LEI Holdings, Inc., dated as
of August 26, 1997
10.13 Lease Agreement, dated April 24, 1997, between Pacific
Realty Associates, L.P., and Labtec Enterprises, Inc.
10.14 Lease Agreement, dated February 4, 1998, between
Columbia Tech Center, L.L.C., and Labtec Inc.
10.15 Labtec Enterprises, Inc. $6,000,000 Principal Amount
of Senior Subordinated Notes and 50,000 Shares of Common
Stock Purchase Agreement, dated October 7, 1997
10.16 Amendment to Purchase Agreement, dated as of October,
25, 1999 and effective as of August 20, 1999, between
Labtec Corporation and The KB Mezzanine Fund II, L.P.
10.17 Recognition, Non-Disturbance and Attorney Agreement,
dated December 26, 1995, between the Company and
Historic Boott Mill Limited Partnership
10.18 Royalty Agreement, dated May 29, 1991, between the
Company and John A. Hilton
10.19 Resale Agreement, dated as of May 1, 1991, between the
Company and Electronic Data Systems Corporation (as
successors to McDonnell Douglas Corporation), as amended
by Amendment No. 1 dated December 23, 1993, and
Amendment No. 2 dated October 6, 1994
10.20 Distribution and Marketing Agreement, dated April 28,
1994, between the Company and Sumisho Electronic
Devices Corporation
10.21 Form of Confidentiality and Inventions Agreement between
the Company and its employees
10.22 Form of Non-Disclosure Agreement between the Company
and its consultants
</TABLE>
-22-
<PAGE>
<TABLE>
<CAPTION>
Exhibit Number Description
- - -------------- -----------
<S> <C>
10.23 Severance Agreement, dated March 18, 1998, between the
Company and Dennis T. Gain
10.24 Employment Agreement, dated June 1, 1998, between the
Company and Gregory Jones
27.1 Financial Data Schedule
</TABLE>
-23-
The Commonwealth of Massachusetts
William Francis Galvin
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
ARTICLES OF AMENDMENT
(General Laws, Chapter 156B, Section 72)
<TABLE>
<CAPTION>
<S> <C>
We, Marc J. Leder "Vice President"
----------------------------------------------------------------------
and Rodger R. Krouse, "Clerk",
-------------------------------------------------------------------------------
of Labtec Inc.
-------------------------------------------------------------------------------------
(Exact name of corporation)
</TABLE>
located at Boot Cotton Mill, 100 Foot of John Street, Lowell, MA 01852 ,
-----------------------------------------------------------------------------
(Street address of corporation in Massachusetts)
certify that these Articles of Amendment affecting articles numbered:
Article III
- - --------------------------------------------------------------------------------
(Number those articles 1, 2, 3, 4, 5 and/or 6 being amended)
of the Articles of Organization were duly adopted at a meeting held on November
24, 1999, by vote of:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
shares of Common Stock of 7,225,863 shares outstanding,
- - ------------ --------------------- --------------
(type, class & series, if any)
as of the record date
shares of of shares outstanding, and
- - ------------ --------------------- ------------
(type, class & series, if any)
shares of of shares outstanding, and
- - ------------ ----------------------- ------------
(type, class & series, if any)
</TABLE>
1**being at least a majority of each type, class or series outstanding and
entitled to vote thereon:
* Delete the inapplicable words. **Delete the inapplicable clause
1 For amendments adopted pursuant to Chapter 156B, Section 70.
2 For amendments adopted pursuant to Chapter 156B, Section 71.
Note: If the space provided under any article or item on this form is
insufficient, additions shall be set forth on one side only of separate 8 1/2 x
11 sheets of paper with a left margin of at least 1 inch. Additions to more than
one article may be made on a single sheet so long as each article requiring each
addition is clearly indicated.
<PAGE>
To change the number of shares and the par value (if any) of any type, class or
series of stock which the corporation is authorized to issue, fill in the
following:
<TABLE>
<CAPTION>
The total presently authorized is:
<S> <C> <C> <C> <C>
- - ----------------------------------------------------------------------------------------------------------------------
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
- - ----------------------------------------------------------------------------------------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- - ------------------ ----------------------------- ---------------- ----------------------------- ----------------------
Common: Common:
- - ------------------ ----------------------------- ---------------- ----------------------------- ----------------------
- - ------------------ ----------------------------- ---------------- ----------------------------- ----------------------
Preferred: Preferred:
- - ------------------ ----------------------------- ---------------- ----------------------------- ----------------------
- - ------------------ ----------------------------- ---------------- ----------------------------- ----------------------
Change the total authorized to:
- - ----------------------------------------------------------------------------------------------------------------------
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
- - ----------------------------------------------------------------------------------------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- - ------------------ ----------------------------- ---------------- ----------------------------- ----------------------
Common: Common:
- - ------------------ ----------------------------- ---------------- ----------------------------- ----------------------
- - ------------------ ----------------------------- ---------------- ----------------------------- ----------------------
Preferred: Preferred:
- - ------------------ ----------------------------- ---------------- ----------------------------- ----------------------
- - ------------------ ----------------------------- ---------------- ----------------------------- ----------------------
</TABLE>
<PAGE>
ARTICLE III
-----------
The last two paragraphs of Article III of the Company's Restated
Articles of Organization, as amended, are to be deleted in their entirety and
the following is to be added immediately after the current first paragraph
thereof (which sets forth the number and par value of the Company's authorized
capital stock, none of which is being amended):
"Upon the filing of these Articles of Amendment with the
Massachusetts Secretary of the Commonwealth, each two (2) shares of Common Stock
of the Corporation, $.01 par value per share (the "Common Stock"), issued and
outstanding or held in the treasury of the Corporation shall be consolidated and
combined into one (1) share of Common Stock. There shall be no fractional shares
issued. Stockholders who otherwise would be entitled to receive fractional
shares shall be entitled to receive a cash payment in lieu thereof at a price
equal to the fraction to which the stockholder would otherwise be entitled
multiplied by the closing price of the Common Stock, as reported in The Wall
Street Journal, on the last trading day prior to the filing date of these
Articles of Amendment (or if such price is not available, the average of the
last bid and ask prices of the Common Stock on such day or other price
determined by the Board of Directors). The ownership of a fractional interest
will not give the holder thereof any voting, dividend or other rights except to
receive payment therefor as described herein."
The foregoing amendment(s) will become effective when these Articles of
Amendment are filed in accordance with General Laws, Chapter 156B, Section 6
unless these articles specify, in accordance with the vote adopting the
amendment, a later effective date not more than thirty days after such filing,
in which event the amendment will become effective on such later date.
Later effective date: .
-----------------------
<TABLE>
<CAPTION>
<S> <C>
SIGNED UNDER THE PENALTIES OF PERJURY, this 18th day of November , 1999.
------------------ ---------
/s/ Marc J. Leder , Vice President,
- - ------------------------------------------------------------------------
/s/ Rodger R. Krouse , Clerk
- - ------------------------------------------------------------------------
</TABLE>
*Delete the inapplicable words.
-3-
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
(General Laws, Chapter 156B, Section 72)
I hereby approve the within Articles of Amendment and, the
filing fee in the amount of $100 having been paid, said
articles are deemed to have been filed with me this ___ day of
November 1999.
Effective date:______________________
/s/ William Francis Galvin
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
TO BE FILLED IN BY CORPORATION
Photocopy of document to be sent to:
------------------------
------------------------
------------------------
Telephone:
-4-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 135,549
<SECURITIES> 0
<RECEIVABLES> 24,957,932
<ALLOWANCES> 1,540,554
<INVENTORY> 11,517,775
<CURRENT-ASSETS> 36,745,920
<PP&E> 7,159,219
<DEPRECIATION> 4,829,582
<TOTAL-ASSETS> 62,271,732
<CURRENT-LIABILITIES> 25,233,922
<BONDS> 0
0
0
<COMMON> 40,103
<OTHER-SE> 7,509,118
<TOTAL-LIABILITY-AND-EQUITY> 62,271,732
<SALES> 64,565,793
<TOTAL-REVENUES> 64,565,793
<CGS> 38,801,997
<TOTAL-COSTS> 21,486,889
<OTHER-EXPENSES> 62,335
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,941,876
<INCOME-PRETAX> 1,272,696
<INCOME-TAX> 626,092
<INCOME-CONTINUING> 646,604
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (1,015,550)
<NET-INCOME> (368,946)
<EPS-BASIC> (.10)
<EPS-DILUTED> (.10)
</TABLE>
