SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED MARCH 31, 2000
o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _______
Commission File No. 0-27302
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LABTEC INC.
(Exact name of Registrant as specified in its charter)
Massachusetts 04-3116697
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1499 Southeast Tech Center Drive, Suite 350, Vancouver, WA 98683
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(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code: (360) 896-2000
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Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act: Common Stock, $.01 par
value
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 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 ____
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Indicate by check mark if disclosure of delinquent filers in response to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Issuer's revenues for its most recent fiscal year: $90,512,495.
The aggregate market value, calculated on the basis of the average bid and asked
prices of such stock on the National Association of Securities Dealers Automated
Quotation System, of Common Stock held by non-affiliates of the Registrant as of
June 21, 2000 was approximately $38,366,182.
There were 4,013,199 shares of Common Stock outstanding as of June 21, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of the Registrant's Proxy Statement relating to its 2000 Annual Meeting
of Shareholders, which is to be filed pursuant to Regulation 14A, is
incorporated by reference herein.
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PART I
Item 1. Business.
Overview
Labtec Inc. (the "Company") was incorporated in Massachusetts in April 1991
under the name Spacetec IMC Corporation. On February 17, 1999, SIMC Acquisition
Corporation ("SIMC"), a newly formed, wholly owned subsidiary of the Company
incorporated in Delaware, merged with and into Labtec Corporation ("Labtec"), a
Delaware corporation formed in 1994. Labtec, formerly known as Labtec Inc., was
the surviving legal entity from the merger with SIMC. After the completion of
the merger, the Company changed its name from Spacetec IMC Corporation to Labtec
Inc. and contributed substantially all of its assets, except cash and cash
equivalents, and all of its liabilities to a newly formed, wholly owned
subsidiary, Spacetec Corporation, a Delaware corporation ("Spacetec").
The Company is a leading developer and marketer of high-technology peripheral
products and accessories for computing, communications, and entertainment. The
Company offers an array of proprietary products, including personal computer
("PC") speakers and subwoofers; PC Voice Access(TM) headsets and accessories,
and microphones; personal audio headphone and earphone products; and 3D motion
controllers. On August 20, 1999, the Company completed the acquisition of
Connector Resources Unlimited, Inc. ("CRU"), a California corporation which
develops, markets, and sells computer data storage products for secure computer
systems and networks.
The Company's strategy is to offer an assortment of high-technology products
based on proprietary technology through multiple channels of distribution. The
Company currently sells to numerous retailers (e.g., Best Buy, CompUSA, Dixons,
Fry's Electronics, Media Mart, Musicland, Office Depot, Sears, Staples, Target,
Vobis, and Wal-Mart), master distributors (e.g., Avnet, Ingram Micro, Merisel,
and Tech Data), and original equipment manufacturers ("OEMs") (e.g., ABS,
Compaq, Dell, Gateway, Hewlett Packard, and IBM). The Company serves these
multiple channels of distribution on a worldwide basis.
The Company maintains a leading market position in each of its product lines of
PC speakers, PC Voice Access(TM) products, 3D motion controllers, and computer
data storage products, and a second market position for its personal audio
product line.
The Company first introduced the PC speaker in the early 1990s and continues to
provide breadth of product, a recognized industry brand name, and consistent
technological innovations. Management believes the Company is strongly
positioned to grow this product category as the demand for speaker upgrades by
PC consumers continues to grow, and as MP3 and other Internet-based music
formats become increasingly popular. Through its personal audio line, the
Company has also taken advantage of growing consumer trends by offering the
first high-quality headphone marketed specifically for MP3 and other
Internet-based music applications.
The Company was the first to commercialize PC headsets and accessories, and
microphones, beginning in 1996. According to PC Data, the Company's PC Voice
Access(TM) products have the leading share of the United States market, as well
as a rapidly growing market share in Europe. Management believes its PC Voice
Access(TM) products will continue to rapidly expand to support the increasing
demand for voice-over-IP and speech recognition applications.
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The Company's 3D Motion Control Division is a leading developer and marketer of
controllers and related software enabling the user to manipulate
three-dimensional graphical images in real-time. Unlike traditional hardware
controllers such as keyboards, gamepads, mice, trackballs and joysticks, the
Company's products enable the user to manipulate images as if the user were
moving actual objects or moving through actual scenes in the real world. The
Company's products are used in the engineering and design computer-aided design
market, the consumer market, and the emerging desktop market supported by the
Internet. Management believes that the need for the Company's 3D motion
controllers will continue to grow as commercial markets quickly migrate from 2D
to 3D workstations, and as the Internet becomes more 3D enabled.
The Company's newest line of products is its computer data storage products
offered by its recently acquired subsidiary, CRU. The Company's management
expects to further grow sales of the CRU product line through increased product
development and greater distribution.
The Industry
The Company competes in the worldwide market for personal computer and
workstation products that is estimated at approximately $200 billion by
International Data Corporation ("IDC"). Personal computer shipments increased
approximately 22% to 110 million units in 1999, from 90 million units in 1998,
according to IDC. The workstation market increased approximately 9% in 1999 to
2.5 million units, compared to 2.3 million units in the prior year, according to
IDC. Despite this growth, the home penetration rate for PCs in the United States
is still far below that of many other consumer electronic items such as
televisions or VCR's. Furthermore, worldwide PC penetration is substantially
lower than in the United States. The Company believes that the high-technology
market niches that it targets are growing at or above the overall PC and
workstation industry rates.
Company Products
Within the category of PC peripheral products, the Company's product lines are
broadly grouped into five types: PC speakers, PC Voice Access(TM) products, 3D
motion controllers, personal audio products, and computer data storage products.
PC Speakers
In fiscal 2000, the PC speaker category represented the Company's largest
product category, contributing 42.3% of its gross sales. The Company offers a
line of 12 retail speaker models, ranging in suggested retail price from $19.99
to $149.99, which utilize proprietary technology such as Dynamic Bass
Equalization circuitry, the industry's first Laminar Bass Flow Port, and the
unique Clear Desk(TM) mounting system. Product positioning covers both
entry-level and upgrade speaker segments, encompassing most addressable industry
volume. The Company seeks to provide the best performing product based on sound
quality, industrial design, and product features at each retail price point.
The Company believes the following industry trends should support the continued
growth of the PC speaker segment: (i) shipments of new computer systems with
installed multimedia capabilities, often with low-quality, inexpensive speakers;
(ii) increasing capability and demand for MP3 and other Internet-based audio;
and (iii) introduction of new software titles with ever-improving audio
capabilities.
The Company's line of PC speakers is oriented toward three different user
groups: Edutainment for the users of basic multimedia software such as
educational or basic music software, Audio Enthusiasts desiring crisp audio
sound for music, and Gamers desiring a strong bass component in their systems.
The Company offers a variety of models across a wide price range targeted at
users in each of these groups.
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PC Voice Access(TM)
The Company offers a complete line of headsets and accessories, and microphones
sold under the Company's PC Voice Access(TM) brand name. This product line,
which represented 30.5% of total gross sales in fiscal 2000, is the Company's
fastest growing business segment, with sales increasing 73.6% compared with
fiscal 1999. This line is designed to complement several emerging applications,
including basic PC telephony (voice mail, call forwarding, etc.), voice-over-IP
communications (Internet long distance), speech recognition and voice command
software, gaming (multi-player interaction), and Internet-based audio (including
MP3).
The PC Voice Access(TM) line is composed of 19 retail and OEM products ranging
from $9.99 to $129.99 that break into two product classes: (i) headsets with
boom microphones that allow comfortable hands-free use of voice-over-IP and
speech recognition applications, and (ii) PC microphones that allow for
effective voice input for voice command and speech recognition software and
Internet formats. An important element of this emerging industry is the need for
the personal computer to clearly recognize voice input, in addition to
delivering quality sound. The Company developed and utilizes Noise Canceling and
Amplification Technology (NCAT(TM) and NCAT2(TM)) which improves performance (i)
by focusing on direct voice input, dramatically reducing ambient background
noise, and (ii) through a high output internal amplification stage, ensuring
output compatibility with virtually all Soundblaster(R) standard soundcards.
3D Motion Controllers
The Company is a leading provider of hardware controllers and software for use
with 3D graphical applications used on workstations, PC's, and specialized
graphical and/or digital video design systems. The Company's technology and
products provide simultaneous six degrees of freedom (6D) through all three
possible axes of motion, thereby enabling a user to intuitively manipulate 3D
images in real-time, as if the user were in the real world. The Company believes
its 3D motion control technology is the most robust life-like 3D motion control
user interface available commercially. This product line represented 7.7% of the
Company's gross sales in fiscal 2000.
Three-dimensional graphical capability, once found only in UNIX workstations, is
now widely available and used by computer-aided design engineers, architectural
engineers, industrial designers, film, video and broadcast television animators,
graphic artists, and video game developers. With both Microsoft and Intel
promoting 3D graphical interfaces, the Company believes the use of 3D graphical
capability will become increasingly available.
Personal Audio
Personal audio was the Company's first product line beginning in 1982. This
innovative group of headphones and earphones provides quality audio technology
and lightweight, stylish designs through 22 products ranging from $3.99 to
$29.99. In the past year, the Company produced the first high-quality headphone
marketed specifically for use with MP3 and other Internet-based audio. As a
result, this product line grew over 36.1% in fiscal 2000 and represented 11.4%
of the Company's gross sales for the year.
The Company is currently the second leading brand in the headphone and earphone
market in the U.S. retail sector. Efforts are well under way to significantly
refresh this line of products, including many new products with compelling
designs and innovative new packaging. The line is being segmented to
specifically appeal to popular customer profiles, specifically value-oriented,
fashion-oriented, performance-oriented, and eAudio-oriented customers. The
eAudio family of products will further last year's efforts to capitalize on the
emerging market for Internet audio based on MP3 and other electronic music
standards.
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Computer Data Storage
In August 1999, Labtec acquired CRU, a leading supplier of computer data storage
products. CRU's patented products include removable storage modules sold under
the brand name DataPort(TM), external drive enclosures, Redundant Array of
Independent Disks (RAID) subsystems, and associated mounting kits, cabling and
hardware.
CRU's DataPort(TM) product line has an installed-base of more than 1,000,000
units, making it a default standard in this category. Patents and compatibility
issues help protect this base from competitive pressures. The Company is focused
on growing sales further through increased product development and greater
distribution. In addition, recent events and their corresponding media coverage
have amplified security concerns throughout government and industry, creating
further opportunities for CRU's products with their security and mobility
features.
Customers
The Company's customers consist of many of the largest retailers, master
distributors, and OEM's in the United States and Europe. Because the Company's
customer base is so diverse, no customer accounted for more than 10% of net
sales during fiscal 2000. Ingram Micro accounted for 8.0%, 15.7%, and 14.6 % of
net sales in fiscal 2000, 1999 and 1998, respectively. However, the loss of this
customer or a substantial decrease in sales to such customer could have a
material adverse effect on the Company's sales and operating results. In
addition, customers may demand price concessions from the Company that could
adversely affect profit margins.
Research and Development
Product development at the Company begins with understanding customers' needs
and requirements. This process is typically accomplished through a combination
of primary market research; solicitation of suggestions from retail, master
distributor, and OEM partners; collaboration of industry partners; and internal
brainstorming sessions to anticipate future needs. In addition, technology
developments and the competitive environment are key inputs to the Company's
development efforts.
Throughout the development process, the Company involves internal engineers,
outside consultants, and its contract manufacturers to minimize the time to
market and to maximize the probability of a successful product. The product
development process can last up to 12 months for a brand new product, whereas a
derivative can take as little as three months.
Industrial, mechanical, electrical, and acoustical design is managed by the
Company's in-house engineering team in Vancouver, WA. The Company's software and
firmware engineers with capabilities in both UNIX and Windows NT are also
located in Vancouver, WA. The engineering team utilizes the Company's Hong Kong
subsidiary to search for components that meet desired specifications. The
Company believes this interaction between design engineers and component
manufacturers enables the Company to develop and produce innovative,
high-performance, low-cost products. Final specification of all components and
designs is the responsibility of the United States-based engineering team.
During the years ended March 31, 2000, 1999, and 1998, the Company expended
$2.34 million, $1.72 million, and $1.51 million, respectively, on its research
and development efforts.
Patents and Proprietary Rights
The Company relies on a combination of utility and design patents, trademarks,
copyrights, trade secrets, confidentiality procedures, and license arrangements
to establish and protect its proprietary technology.
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The Company has obtained 18 patents in the United States, Japan, Canada,
Australia, Germany, France, the United Kingdom, and other certain European
countries covering its core technologies relating to audio input and output, and
sensing input of its 3D motion controllers. The Company also has 24 pending
patent applications in the United States and elsewhere related to its core
technologies. In addition, the Company has four issued patents and four pending
patent applications covering other technologies.
In addition to the protection afforded by patent, trademark, copyright, and
trade secret laws, Company employees and consultants are generally required to
execute non-disclosure, non-use, and assignment agreements designed to protect
the Company's intellectual property. Additionally, certain senior officers and
technical personnel are required to sign non-competition agreements.
Manufacturing
The Company contracts its production requirements with a number of manufacturers
in Hong Kong, Taiwan, and China. From the Company's Hong Kong office, Company
personnel supervise daily production activities, initiate placement of orders,
expedite shipments, arrange and track transportation, and provide quality
assurance. The 20-person team at the Company's Hong Kong office plays an
important role in assuring a steady and timely supply of products to
distribution centers in the United States, Europe, and Canada.
Marketing and Distribution
The Company's sales and distribution strategy is to offer a broad line of
high-technology, multimedia peripheral products through multiple channels of
distribution. The Company currently sells through numerous retailers, master
distributors, and OEM accounts. In addition, the Company sells through each of
these three channels both domestically and worldwide.
Retailers. The Company maintains an extensive North American retail distribution
network, selling high-technology multimedia peripheral products to computer
superstores, consumer electronic chains, mass merchandisers, software retailers,
office superstores, and wholesale clubs. In fiscal 2000, the Company's retail
sales grew 19.8% and represented 64.3% of the Company's total gross revenues.
Master Distributors. The Company serves many small to mid-sized accounts through
master distributors, including Avnet, Ingram Micro, Merisel, and Tech Data.
OEM Accounts. Retail and master distributor sales are complemented by the
Company's sales in the OEM marketplace. Customers include primary computer
manufacturers, component manufacturers, Internet product suppliers, and
"bundlers" - firms which package the Company's PC speakers, PC Voice Access(TM)
products, and 3D motion controllers with other hardware components or complete
systems.
Although the Company profitably serves such OEM customers as Compaq, Dell,
Gateway, Hewlett Packard, and IBM, the Company also focuses its efforts on
serving the mid/small OEM market due to its growth potential. The Company has
grown its base of OEM customers from less than 15 in 1995 to over 50 today. In
fiscal 2000, the Company's sales through OEM distribution grew 23.3% and
represented 19.9% of total gross revenues.
International Sales. The Company's international distribution includes more than
40 distributors serving 24 countries. Key retail customers include Byte (U.K.),
Dixon's (U.K.), Fnac (France), Media Market (Germany), Staples (U.K.), Virgin
Megastores (U.K.), and Vobis (Germany). The establishment of subsidiary sales
offices in the U.K. and Germany has enhanced the Company's performance in
Europe. International gross sales grew 24.0% and represented 21.1% of total
sales in fiscal 2000.
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Competition
The computer peripherals industry is intensely competitive and rapidly changing.
The Company's competitors vary by product line. In the PC speaker business,
competitors include Altec Lansing Technologies, Inc. and Creative Technology,
Ltd. In the headset and microphone markets into which the Company sells its PC
Voice Access(TM) products, competitors include Andrea Electronics Corporation
and Telex Communications, Inc. In the 3D graphical applications market, the
Company's competitors include LogiCad 3d GmbH and LogiCad 3d Inc., each
partially owned by Logitech International SA. For the personal audio market, the
Company's primary competitor is Sony Corporation of America. In the computer
data storage market, the Company's competitors include Kingston Technology
Company and Lian Li Industrial Co., Ltd. Within each market, these competitors
offer similar products to the Company and target the same customers as the
Company. Further, many of these competitors are substantially larger and have
significantly greater financial, technical, and marketing resources than the
Company.
Employees
The Company currently employs approximately 140 individuals, including 110 in
the United States and 30 who staff the Company's U.K., Germany, and Hong Kong
subsidiaries. The Company is not subject to any collective bargaining
agreements, has never been subject to a work stoppage, and believes that its
employee relations are generally good.
Item 2. Properties.
The Company's corporate headquarters is located in 17,822 square feet of office
space in Vancouver, WA. The Company also leases an 80,000 square foot warehouse
facility in Vancouver, WA. The leases for the headquarters and the warehouse
facility have terms through April 2006. The Company also leases a 10,000 square
foot facility in Milpitas, CA, with a term through May 2001. In addition, the
Company maintains offices in the U.K., Germany, and Hong Kong. The Company's
management believes its current facilities are adequate to meet its requirements
for the near term.
Item 3. Legal Proceedings.
The Company filed a lawsuit in the Clark County Superior Court, State of
Washington, on or about December 9, 2000, against a competitor which has
infringed the intellectual property rights of the Company related to the
industrial and electrical design of certain computer speakers. The Company will
vigorously pursue protection of its intellectual property rights and believes it
will prevail in the lawsuit.
The Company is engaged in litigation with a former sales representative firm
which was terminated for good cause. The former sales representative firm filed
the action in the Hennepin County District Court, State of Minnesota, on or
about December 20, 1999, and the Company subsequently removed the action to the
U.S. District Court for the District of Minnesota on January 18, 2000. The
Company will vigorously defend itself and believes it will prevail in the
lawsuit. Upon information and belief, the Company believes that the former sales
representative firm has or will commence another action in the Hennepin County
District Court, State of Minnesota, asserting related claims which the former
sales representative firm failed to timely bring in the U.S. District Court.
Except as stated above, neither the Company nor any of its properties are
subject to any pending material legal proceedings, and to the knowledge of the
Company, no such legal proceedings are threatened.
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Item 4. Submission of Matters to a Vote of Security Holders.
Special Meeting of February 17, 1999
On February 17, 1999, the Company held a Special Meeting of Stockholders to
consider and vote upon the following proposals:
1. The issuance of approximately 14,363,954 shares of common stock of
the Company and such additional shares as have been required to be
issued in connection with the potential valuation or sale of the
Spacetec industrial business, in each case as pursuant to the
Agreement and Plan of Merger dated as of October 21, 1998, as
amended and restated on November 13, 1998, among the Company, SIMC
and Labtec. The Merger Agreement provided for, among other things,
the assumption of all outstanding options to purchase Labtec
common stock and the merger of Labtec with and into SIMC, with
Labtec being the surviving corporation and a wholly owned
subsidiary of the Company.
2. An amendment to the Amended and Restated Articles of Organization
of the Company (i) to increase the number of authorized shares of
the Company's common stock, $.01 par value per share (the "Common
Stock"), from 20,000,000 to 25,000,000 and (ii) to change the
corporate name of the Company from "Spacetec IMC Corporation" to
"Labtec Inc.," both subject to and upon completion of the merger.
3. An amendment to the Amended and Restated Articles of Organization
of the Company to authorize a reverse stock split whereby one
share of the Common Stock was to be issued in exchange for each
three shares of Common Stock outstanding immediately following the
merger, subject to completion of the merger (the "First Reverse
Stock Split").
4. To authorize the Company to adjourn the special meeting to solicit
additional proxies in the event that the number of proxies
sufficient to approve any of the proposals had not been received
by the date of the special meeting.
The proposals were approved based upon the following votes:
For Against Abstain
Proposal 1 4,062,965 102,221 18,396
Proposal 2 4,088,831 113,220 29,846
Proposal 3 3,921,684 244,452 17,446
Proposal 4 4,007,998 193,553 30,346
The Company's stockholders also elected twelve directors, four to each of Class
I, II and III, to serve terms of one, two and three years, respectively, subject
to and upon completion of the merger.
Proxies for the meeting were solicited pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended, there was no solicitation in
opposition to the management nominees as listed in the proxy statement and all
of such nominees were elected.
Annual Meeting of September 15, 1999
On September 15, 1999, the Company held an Annual Meeting of Shareholders to
consider and vote upon the following proposals:
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1. To approve the amendment of the Restated Articles of Organization, as
amended (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;
2. To elect five (5) Class I directors, each to hold office for a term of
three (3) years and until their successors are chosen and qualified;
provided, however, that if Proposal I is approved, the same five nominees
shall each hold office for a term to expire at the 2000 Annual Meeting of
Stockholders and until their respective successors are chosen and
qualified.
Proposal 1 was approved based upon the following vote:
For Against Abstain
4,690,711 50,132 18,977
The Company's shareholders also elected five (5) Class I directors, with each to
hold office for a term to expire at the 2000 Annual Meeting of Stockholders and
until their respective successors are chosen and qualified.
Proxies for the meeting were solicited pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended. There was no solicitation in
opposition to the management nominees as listed in the proxy statement and all
of such nominees were elected.
Special Meeting of November 24, 1999
On November 24, 1999, the Company held a Special Meeting of Shareholders to
consider and vote upon the following proposal:
1. To approve the amendment of the Restated Articles of Organization, in order
to effect a one-for-two reverse stock split ("Second Reverse Stock Split")
of the common stock of the Company ("Common Stock").
Proposal 1 was approved based upon the following vote:
For Against Abstain
4,365,792 4,110 0
Proxies for the meeting were solicited pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended. There was no solicitation in
opposition to the management nominees as listed in the proxy statement and all
of such nominees were elected.
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters.
The Common Stock is traded on the OTC Bulletin Board under the symbol LABT.
Effective February 19, 1999, the Company implemented the First Reverse Stock
Split, whereby one share of Common Stock was issued for each three shares of
Common Stock outstanding after the merger. Effective December 1, 1999, the
Company implemented the Second Reverse Stock Split, whereby one share of Common
Stock was issued for each two shares of Common Stock outstanding. The following
table sets forth the high and low closing bid prices for the Common Stock during
each quarter of the fiscal years ended March 31, 1999 and 2000, as reported by
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NASDAQ, adjusted to reflect both Reverse Stock Splits. The prices reported
reflect inter-dealer quotations, may not represent actual transactions, and do
not include retail mark-ups, mark-downs, or commissions.
High Low
Year ended March 31, 1999
First Quarter $18 3/4 $16 1/2
Second Quarter $17 1/4 $9 3/8
Third Quarter $16 7/8 $9 3/8
Fourth Quarter $13 1/8 $1 3/4
Year ended March 31, 2000
First Quarter $10 $8 1/2
Second Quarter $8 $7 1/2
Third Quarter $8 $ 1/2
Fourth Quarter $8 $7
As of June 21, 2000, there were 4,013,199 shares of Common Stock outstanding
held by 323 holders of record.
The Company has never declared or paid any cash dividends on its capital stock.
The Company currently anticipates that it will retain all future earnings, if
any, to fund the development and growth of its business, and does not anticipate
paying any cash dividends on its Common Stock in the foreseeable future.
The Company was incorporated in Massachusetts in April 1991 under the name
Spacetec IMC Corporation. On February 17, 1999, SIMC merged with and into
Labtec, with Labtec as the surviving legal entity. After the completion of the
merger, the Company changed its name from Spacetec IMC Corporation to Labtec
Inc. and contributed substantially all of its assets, except cash and cash
equivalents, and all of its liabilities to a newly formed, wholly owned
subsidiary, Spacetec Corporation.
Holders of shares of Labtec common stock outstanding at the time of the merger
received for each share of Labtec stock: (i) .55430739 shares of Common Stock,
and (ii) a pro rata share of all principal and interest payments made under a
six-year, 10% interest promissory note issued by the Company in the principal
amount of $1,065,000. Prior to completion of the merger, Labtec waived the right
of its shareholders to receive their pro rata share of additional shares, if
any, of Common Stock issuable in connection with a potential valuation or sale
of the Company's industrial business, which such shareholders had approved at
the February 17, 1999 special meeting. In addition, each outstanding option to
purchase a share of Labtec common stock was assumed by the Company and adjusted,
so that an option to purchase a share of Labtec common stock was converted into
a right to purchase .55430739 shares of Common Stock at a similarly adjusted
exercise price. The shares of the Common Stock were reissued in the current name
of the Company in connection with the First Reverse Stock Split and name change
by the Company.
The Common Stock issued pursuant to the merger was not registered with the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "Act"), and was offered solely in reliance on an exemption from
registration provided by Section 4(2) of the Act.
Item 6. Selected Financial Data.
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The following selected financial data has been derived from the Company's
audited financial statements. The Income Statement Data relating to the fiscal
years 2000, 1999, and 1998, and the Balance Sheet Data as of March 31, 2000 and
1999 should be read in conjunction with the Company's audited consolidated
financial statements and notes thereto appearing elsewhere herein. The selected
financial data set forth below for the Company as of March 31, 1998, 1997 and
1996, and for each of the two years in the period ended March 31, 1997 and 1996,
are derived from the financial statements not included elsewhere herein.
<TABLE>
Fiscal Year Ended March 31,
2000 1999 1998 1997 1996
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(in thousands, except per share data)
STATEMENTS OF OPERATIONS:
<S> <C> <C> <C> <C> <C>
Revenues........................................ $90,512 $64,273 $60,113 $61,943 $43,664
Income (loss from operations.................... 6,236 (2,533) 1,504 4,503 (324)
Net income (loss)............................... 176 (4,942) (2,277) 601 (2,578)
Basic:
Net income (loss) per share..................... 0.05 (1.98) (1.29) 0.48 (2.07)
Weighted average shares outstanding............. 3,684 2,493 1,770 1,253 1,248
Diluted:
Net income (loss) per share..................... 0.05 (1.98) (1.29) 0.32 (2.07)
Weighted average shares outstanding............. 3,715 2,493 1,770 1,861 1,248
BALANCE SHEET DATA:
Working capital................................. 13,078 14,935 19,544 3,407 2,997
Total assets.................................... 63,269 46,968 36,202 34,528 30,034
Long term liabilities, less current portion..... 28,747 26,086 31,986 4,407 6,598
Total shareholders' equity (deficit) ........... 8,111 4,701 (3,798) 6,667 6,027
</TABLE>
Item 7. 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, as well as other information in this Annual Report, 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; assertion of intellectual property
rights claimed by third parties; 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, liquidity, and future business activities
should be considered in light of these factors.
-11-
<PAGE>
On August 20, 1999, Labtec completed the acquisition of CRU. As a result, Labtec
acquired all the outstanding shares of CRU for $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.
Results of Operations
The following table sets forth certain operating data as a percentage of net
sales for the years ended March 31, 2000, 1999 and 1998.
Fiscal Year Ended March 31,
2000 1999 1998
---- ---- ----
Net sales 100.0% 100.0% 100.0%
Cost of sales 60.0 63.3 63.5
Gross margin 40.0 36.7 36.5
Selling and marketing 19.0 23.3 20.0
General and administrative 6.6 8.5 6.4
Research and development 2.6 2.7 2.5
Depreciation and amortization 5.0 6.2 5.1
Income (loss) from operations 6.8 (4.0) 2.5
Interest expense and other, net 4.6 5.5 5.4
---- ---- ----
Income (loss) before extraordinary
loss and income taxes 2.2 (9.5) (2.9)
Provision (benefit) for income taxes 0.9 (2.1) (0.0)
Extraordinary loss on extinguishment of debt (1.1) (0.4) (0.8)
---- ---- ----
Net income (loss) 0.2 (7.8) (3.7)
==== ==== ====
Fiscal 2000 Compared to Fiscal 1999
Net sales for fiscal 2000 increased $26,239,085 to $90,512,495 from $64,273,410
for fiscal 1999. The increase in net sales over the periods was primarily due to
the increase in sales for the Company's PC Voice Access(TM) line of products,
and the addition of sales from the 3D motion control and data storage product
lines. Also, the Company's North American retail and international business
increased substantially. The Company's largest customer represented 8.7% of
sales for fiscal 2000, as compared to 15.7% of sales for fiscal 1999.
Year Ended
March 31,
---------
(in thousands, except %)
2000 1999 %Change
---- ---- -------
Net Sales $90,512 $64,273 41%
-12-
<PAGE>
Cost of sales increased $13,686,477 to $54,343,838 in fiscal 2000 from
$40,657,361 in fiscal 1999. The increase over the periods was primarily the
result of an increase in net sales. As a percentage of net sales, the cost of
sales decreased to 60.0% for fiscal 2000 as compared to 63.3% for fiscal 1999.
The decrease as a percentage of net sales is attributable to a change in product
mix to a larger portion of lower cost products (PC Voice Access(TM) and 3D
motion controllers) from a larger portion of higher cost products (speakers), as
well as to a higher proportion of lower cost retail sales versus higher cost OEM
sales.
Year Ended
March 31,
---------
(in thousands, except %)
2000 1999 %Change
---- ---- -------
Cost of Sales $54,344 $40,657 34%
As a % of Net Sales 60.0% 63.3%
Selling and marketing expenses increased over the periods by $2,167,659 to
$17,161,283 from $14,993,624. As a percentage of net sales, selling and
marketing expenses decreased to 19.0% from 23.3%. The dollar increase is
primarily 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.
Year Ended
March 31,
---------
(in thousands, except %)
2000 1999 %Change
---- ---- -------
Selling and marketing $17,161 $14,993 14%
As a % of Net Sales 19.0% 23.3%
General and administrative expenses, which include the Company's corporate
finance, legal, human resources, and administrative functions, increased over
the periods by $512,019 to $5,969,246 from $5,457,227. As a percentage of net
sales, general and administrative expenses decreased to 6.6% from 8.5%. The
dollar increase is due primarily to building lease expense related to moving to
a larger warehouse, and to bonuses paid to the Company's executives. As a
percentage of net sales, general and administrative expenses decreased primarily
due to increased net sales.
Year Ended
March 31,
---------
(in thousands, except %)
2000 1999 %Change
---- ---- -------
General and administrative $5,969 $5,457 9%
As a % of Net Sales 6.6% 8.5%
Research and development expenses increased over the periods by $626,673 to
$2,343,378 from $1,716,705, primarily due to the increased investment in the
development of new speaker and PC Voice Access(TM) products and to the
enhancement of current products. Also, the dollar increase reflects the
increased hiring of employees working in research and development.
Year Ended
March 31,
---------
(in thousands, except %)
2000 1999 %Change
---- ---- -------
Research and development $2,343 $1,717 36%
As a % of Net Sales 2.6% 2.7%
-13-
<PAGE>
Depreciation increased over the periods by $69,844 to $1,514,152 from
$1,444,308. The increase was primarily the result of increased capital
expenditures for computer equipment, retail displays, and tooling and molds for
new products being developed. Depreciation decreased as a percentage of net
sales primarily due to the increase in net sales.
Year Ended
March 31,
---------
(in thousands, except %)
2000 1999 %Change
---- ---- -------
Depreciation $1,514 $1,444 5%
As a % of Net Sales 1.7% 2.2%
Amortization increased over the periods by $386,859 to $2,944,533 from
$2,537,674. This entire increase was the result of amortization of goodwill
associated with the Spacetec merger and the acquisition of CRU. Goodwill (the
purchase price paid for Spacetec and CRU in excess of the fair value of net
tangible assets) is being amortized over ten (10) years for Spacetec and twenty
(20) years for CRU, which resulted in an increase in the dollar amount. However,
amortization decreased as a percentage of net sales primarily due to the
increase in net sales.
Year Ended
March 31,
---------
(in thousands, except %)
2000 1999 %Change
---- ---- -------
Amortization $2,945 $2,538 16%
As a % of Net Sales 3.3% 3.9%
Interest expense increased over the periods by $598,162 to $4,114,715 from
$3,516,553, primarily as the result of the Company's 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.
Year Ended
March 31,
---------
(in thousands, except %)
2000 1999 %Change
---- ---- -------
Interest expense, net $4,115 $3,516 17%
As a % of Net Sales 4.5% 5.5%
The provision for income taxes was $776,142 for fiscal 2000, as compared to a
benefit for income taxes of $1,370,471 in fiscal 1999. The primary reason for
the provision in fiscal 2000 compared to a benefit in fiscal 1999 was the
pre-tax income of $1,967,845.
In fiscal 2000 there was an extraordinary loss of $1,015,550, after tax benefit
of $677,033, which was due to the write off of debt issuance costs related to
the extinguishment of debt in August 1999.
-14-
<PAGE>
Fiscal 1999 Compared to Fiscal 1998
Net sales for fiscal 1999 increased $4,159,958, or 6.9%, to $64,273,410 for 1999
from $60,113,452 for 1998. The increase in net sales over the period was
primarily due to the increase in sales for the Company's European operation. The
Company's largest customer represented 15.7% of sales for fiscal 1999, as
compared to 14.6% of sales for fiscal 1998.
Cost of sales increased $2,494,081, or 6.5%, to $40,657,361 in fiscal 1999 from
$38,163,280 in fiscal 1998. The increase over the periods was primarily the
result of an increase in net sales. As a percentage of net sales, the cost of
sales decreased slightly to 63.3% for fiscal 1999 as compared to 63.5% for
fiscal 1998. The decrease as a percentage of net sales is attributable to a
change in product mix to a larger portion of lower cost products (PC Voice
Access(TM) and personal audio) from a larger portion of higher cost products
(speakers), as well as to a higher proportion of lower cost retail sales versus
higher cost OEM sales.
Selling and marketing expenses increased over the periods by $2,984,273, or
24.9%, to $14,993,624 from $12,009,351. As a percentage of net sales, selling
and marketing expenses increased to 23.3% from 20.0%. The dollar increase and
the increase as a percentage of net sales are due primarily to costs incurred
relating to the introduction of the new PC Voice Access(TM) products and
increased sales efforts in the European and United States markets.
General and administrative expenses, which include the Company's corporate
finance, legal, human resources, and administrative functions, increased over
the periods by $1,599,936, or 41.5%, to $5,457,227 from $3,857,291. As a
percentage of net sales, general and administrative expenses increased to 8.5%
from 6.4%. The dollar increase and the increase as a percentage of net sales are
due primarily to costs related to the Spacetec merger, compensation expense on
Common Stock sold to management, and severance costs incurred by the Company in
connection with the termination of three Company officers during 1999.
Research and development expenses increased over the periods by $209,560, or
13.9%, to $1,716,705 from $1,507,145, primarily due to the increased investment
in the development of new speaker and PC Voice Access(TM) products and the
enhancement of current products.
Depreciation increased over the periods by $500,859, or 53.1%, to $1,444,308
from $943,449. The increase was primarily the result of increased capital
expenditures for tooling, molds, equipment, and retail displays during fiscal
1999 and 1998.
Amortization increased over the periods by $408,350, or 19.2%, to $2,537,674
from $2,129,324. This entire increase was the result of amortization of goodwill
associated with the Spacetec merger.
Interest expense increased over the periods by $262,758, or 8.1%, to $3,516,553
from $3,253,795, primarily due to the increased borrowing on the Company's line
of credit.
The benefit for income taxes was $1,370,471 for fiscal 1999, as compared to a
provision for income taxes of $13,555 in fiscal 1998. The primary reason for the
large benefit in fiscal 1999 was the loss of $6,041,871.
In fiscal 1999 there was an extraordinary loss of $270,754, after tax benefit of
$77,841, which was due to the write off of debt issuance costs related to the
extinguishment of debt on February 17, 1999.
Liquidity and Capital Resources
As of March 31, 2000, the Company had $1,372,840 in cash and cash equivalents
and working capital of $13,077,545. 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.
-15-
<PAGE>
Net cash provided by operating activities was $3,373,744 for fiscal 2000,
compared to cash provided by operating activities of $3,635,068 for fiscal 1999.
The slight decrease in net cash provided by operating activities in 2000 was
largely due to the increase in income from operations over the prior year loss
from operations, offset by decreases in accounts payable and accrued
liabilities.
Net cash used for investing activities was $14,395,974 for fiscal 2000 compared
to net cash provided by investing activities of $2,155,625 in 1999. The increase
was primarily due to the purchase of CRU in August 1999.
Financing activities provided net cash of $11,644,501 for fiscal 2000,
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 March 31, 2000 was $25,600,000 on
long-term loans, $4,500,000 in subordinated debt, $10,760,948 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 Spacetec merger,
and a $1,500,000 seven and one-half year promissory note issued to the prior
shareholders of CRU. At March 31, 2000, 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 March 31, 2000, the amount of debt subject to
the fixed rate was $12,800,000, for which the rate was 9.69%.
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
subordinated 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 $1,323,220 for fiscal 2000, compared to $1,437,498 for
fiscal 1999. 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.
Inflation and Seasonality
Inflation has not had any significant adverse effects on the Company's business,
and the Company does not believe it will have any significant effect on its
future business. The Company's business is seasonal, with slightly greater sales
in its second and third fiscal quarters, preceding and during the Christmas
season. The second and third fiscal quarters together accounted for 54% and 53%
of the Company's net annual sales in fiscal 2000 and 1999, respectively.
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.
-16-
<PAGE>
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 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 "believe," "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 and Section 27A of the Securities Act of 1933, 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 to differ
materially from any opinions or statements expressed with respect to future
periods or events in any current statement. These facts 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; dependence on proprietary technology; assertion of intellectual
property rights by third parties; 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 reevaluate such forward-looking statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
None.
-17-
<PAGE>
Item 8. Financial Statements and Supplementary Data.
CONSOLIDATED FINANCIAL STATEMENTS
AND REPORTS OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
LABTEC INC.
MARCH 31, 2000 AND 1999
-18-
<PAGE>
C O N T E N T S
Page
REPORTS OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 20-21
CONSOLIDATED FINANCIAL STATEMENTS
BALANCE SHEETS 22
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) 23
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT) 24-26
STATEMENTS OF CASH FLOWS 27-28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 29-44
-19-
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors and Stockholders
Labtec Inc.
We have audited the accompanying consolidated balance sheets of Labtec Inc. and
its subsidiaries as of March 31, 2000 and the related consolidated statements of
operations and comprehensive income (loss), changes in shareholders' equity and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Labtec
Inc. and its subsidiaries as of March 31, 2000, and the consolidated results of
their operations and their consolidated cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States.
/s/ GRANT THORNTON LLP
Portland, Oregon
May 15, 2000
- 20 -
<PAGE>
Report of Independent Public Accountants
To the Shareholders and Board of Directors of Labtec Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations and comprehensive income (loss), of
changes to shareholders' equity (deficit) and of cash flows present fairly, in
all material respects, the financial position of Labtec Inc. and its
subsidiaries (the Company) at March 31, 1999 and the results of their operations
and their cash flows for each of the two years in the period ended March 31,
1999, in conformity with accounting principles generally accepted in the United
States. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion express above.
/s/ PricewaterhouseCoopers LLP
May 21, 1999
- 21 -
<PAGE>
<TABLE>
<CAPTION>
Labtec Inc.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
March 31,
2000 1999
----------- -----------
ASSETS
<S> <C> <C>
Current assets
Cash $ 1,373 $ 768
Accounts receivable, net 22,120 17,890
Interest and other receivables 16 211
Income taxes receivable - 595
Inventories 13,955 10,662
Prepaid expenses 171 160
Current deferred income taxes 1,854 830
----------- -----------
Total current assets 39,489 31,116
Property and equipment - net 2,332 2,330
Noncurrent deferred income taxes 1,953 1,893
Debt issuance costs 2,277 1,984
Other noncurrent assets 180 253
Goodwill, net 17,038 9,392
----------- -----------
$ 63,269 $ 46,968
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Lines of credit $ 10,761 $ 4,000
Current portion of long-term debt 2,900 -
Accounts payable 9,411 8,492
Income taxes payable 185 -
Accrued payroll and benefits 1,359 1,589
Accrued interest 256 223
Other accrued expenses 1,539 1,877
----------- -----------
Total current liabilities 26,411 16,181
Long-term debt 28,747 26,086
----------- -----------
55,158 42,267
----------- ----------
Commitments and contingencies - -
Shareholders' equity:
Preferred stock, par value $.01, 1,000 shares authorized and no shares
outstanding at March 31, 2000 or 1999 - -
Common stock, par value $.01, 25,000 shares authorized, 4,013
and 6,904 shares issued and outstanding at March 31, 2000 and 1999 40 69
Additional paid-in capital 23,806 20,551
Common stock subscription receivable - (26)
Accumulated deficit (15,688) (15,864)
Accumulated other comprehensive income (loss):
Cumulative foreign currency translation adjustment (47) (29)
----------- -----------
8,111 4,701
----------- -----------
$ 63,269 $ 46,968
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
- 22 -
<PAGE>
<TABLE>
<CAPTION>
Labtec Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(In thousands, except per share amounts)
Years ended March 31,
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net sales $ 90,512 $ 64,273 $ 60,113
Cost of sales 54,344 40,657 38,163
----------- ----------- -----------
Gross profit 36,168 23,616 21,950
----------- ----------- -----------
Operating expenses:
Selling and marketing 17,161 14,993 12,009
General and administrative 5,969 5,457 3,857
Research and development 2,343 1,717 1,507
Depreciation 1,514 1,444 943
Amortization of goodwill 2,945 2,176 1,768
Amortization of noncompete agreement - 362 362
----------- ----------- -----------
29,932 26,149 20,446
----------- ----------- -----------
Income (loss) from operations 6,236 (2,533) 1,504
Interest expense, net 4,115 3,516 3,254
Other nonoperating (income) expense 153 (8) 2
----------- ----------- -----------
Income (loss) before extraordinary loss and income taxes 1,968 (6,041) (1,752)
Provision (benefit) for income taxes 776 (1,370) 14
----------- ----------- -----------
Income (loss) before extraordinary loss 1,192 (4,671) (1,766)
Extraordinary loss on extinguishments of debt, less applicable
income tax benefit of $677, $78, and $263, respectively (1,016) (271) (511)
----------- ----------- -----------
Net income (loss) $ 176 $ (4,942) $ (2,277)
=========== =========== ===========
Net income (loss) per share before extraordinary loss
Basic $ .3 $ (1.87) $ (1.00)
=========== =========== ===========
Diluted $ .3 $ (1.87) $ (1.00)
=========== =========== ===========
Net income (loss) per share
Basic $ .0 $ (1.98) $ (1.29)
=========== =========== ===========
Diluted $ .0 $ (1.98) $ (1.29)
=========== =========== ===========
Comprehensive income (loss)
Net income (loss) $ 176 $ (4,942) $ (2,277)
Foreign currency translation adjustment (18) (29) -
----------- ----------- -----------
Comprehensive income (loss) $ 158 $ (4,971) $ (2,277)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
- 23 -
<PAGE>
<TABLE>
<CAPTION>
Labtec Inc.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (Deficit)
(In thousands)
Years ended March 31, 2000, 1999 and 1998
Common Accumulated
Preferred stock Common stock Additional stock other
---------------- --------------- paid-in subscription Accumulated comprehensive
Shares Amount Shares Amount capital receivable deficit income Total
------ -------- ------ ------- ---------- ------------ ----------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1997 34 $ 2,500 79 $ 1 $ 7,924 $ (171) $ (3,588) $ - $ 6,666
Payments on common stock
subscription - - - - - 36 - - 36
Preferred stock dividend - - - - - - (435) - (435)
Preferred stock converted to
common stock (34) (2,500) 34 1 2,499 - - - -
Compensation expense on
stock options granted - - - - 73 - - - 73
Exercise of warrants
(including cancellation
of "put" rights) - - 5 - 1,902 - - - 1,902
Exercise of stock options - - 19 - 1,873 - - - 1,873
8.5853 to 1 stock split - - 1,039 10 (10) - - - -
Repurchase and retirement of
common stock - - (1,017) (10) (14,261) - (3,557) - (17,828)
Issuance of common stock - - 1,050 10 5,900 - - - 5,910
Issuance of shares to
subordinated debt holder - - 50 1 281 - - - 282
20 to 1 stock split - - 23,906 239 (239) - - - -
Net loss - - - - - - (2,277) - (2,277)
------ -------- ------ ------- --------- ------------- ----------- ------------- --------
Balance at March 31, 1998 - - 25,165 $ 252 $ 5,942 $ (135) $ (9,857) $ - (3,798)
====== ======== ====== ======= ========= ============= =========== ============= ========
</TABLE>
- 24 -
<PAGE>
<TABLE>
<CAPTION>
Labtec Inc.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (Deficit) - CONTINUED
(In thousands)
Years ended March 31, 2000, 1999 and 1998
Common Accumulated
Common stock Additional stock other
-------------- paid-in subscription Accumulated comprehensive
Shares Amount capital receivable deficit income Total
------- ------ ---------- --------------- ----------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1998 25,165 $ 252 $ 5,942 $ (135) $ (9,857) $ - $ (3,798)
Repurchase and retirement of
common stock (1,217) (12) (183) 135 - - (60)
Translation adjustment - - - - - (29) (29)
Issuance of common stock
to management 1,032 10 1,062 (26) - - 1,046
Reduction to common stock
outstanding related to
merger (11,133) (111) 111 - - - -
Issuance of shares for Spacetec
IMC Corporation acquisition 6,847 68 12,735 - - - 12,803
Common stock issued for the
Spacetec employee stock
purchase plan 18 - 4 - - - 4
Dividend declared to former
Labtec owners - - - - (1,065) - (1,065)
Stock options granted to
Spacetec employees - - 742 - - - 742
1 to 3 reverse stock split (13,808) (138) 138 - - - -
Net loss - - - - (4,942) - (4,942)
------- ------ ---------- --------------- ----------- ------------- --------------
Balance at March 31, 1999 6,904 $ 69 $ 20,551 $ (26) $ (15,864) $ (29) $ 4,701
======== ====== ========== =============== =========== ============= ==============
</TABLE>
- 25 -
<PAGE>
<TABLE>
<CAPTION>
Labtec Inc.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (Deficit) - CONTINUED
(In thousands)
Years ended March 31, 2000, 1999 and 1998
Common Accumulated
Common stock Additional stock other
----------------- paid-in subscription Accumulated comprehensive
Shares Amount capital receivable deficit income Total
------- -------- ------------- ------------ ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1999 6,904 $ 69 $ 20,551 $ (26) $ (15,864) $ (29) $ 4,701
Repurchase and retirement
of common stock (27) - (171) - - - (171)
Translation adjustment - - - - - (18) (18)
Issuance of common stock 313 3 997 - - - 1,000
Payment on stock subscription - - - 26 - - 26
Stock options exercised 11 - 45 - - - 45
Debt for equity swap 411 4 2,348 - - - 2,352
1 to 2 reverse stock split (3,599) (36) 36 - - - -
Net income - - - - 176 - 176
------- -------- ------------- ------------ ----------- ------------- ------------
Balance at March 31, 2000 4,013 $ 40 $ 23,806 $ - $ (15,688) $ (47) $ 8,111
======= ======== ============= ============ =========== ============= ============
</TABLE>
The accompanying notes are an integral part of these statements.
- 26 -
<PAGE>
<TABLE>
<CAPTION>
Labtec Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years ended March 31,
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ 176 $ (4,942) $ (2,277)
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities
Depreciation 1,514 1,444 943
Amortization of goodwill 2,945 2,176 1,768
Amortization of noncompete agreement - 362 362
Amortization of debt issuance costs 433 383 475
Change in deferred income taxes 302 (794) (350)
Loss on disposal of assets - - 1
Compensation expense on common stock sold to
management - 781 -
Compensation expense on stock options 10 - 73
Write-off of debt issuance costs 1,693 348 296
Write-off of unamortized discount on refinanced
subordinated debt - - 307
Changes in current assets and liabilities, net of effects of
acquisition:
Accounts receivable (1,885) (3,084) (3,143)
Inventories (1,074) 2,724 3,433
Interest and other receivables 195 47 5
Income taxes receivable 595 (595) -
Prepaid expenses (2) 32 -
Accounts payable (535) 3,225 (273)
Income taxes payable (150) (285) 27
Accrued interest 33 21 76
Accrued payroll and other expenses (876) 1,792 (533)
----------- ----------- -----------
Net cash provided by operating activities 3,374 3,635 1,190
----------- ----------- -----------
Cash flows from investing activities
Costs associated with purchase of CRU (13,146) - -
Costs associated with purchase of Spacetec - (1,633) -
Capital expenditures (1,323) (1,437) (1,473)
Other assets 73 20 (64)
Proceeds from sale of securities purchased from Spacetec - 5,206 -
----------- ----------- -----------
Net cash provided by (used in) investing activities (14,396) 2,156 (1,537)
----------- ----------- -----------
- 27 -
<PAGE>
Labtec Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
(In thousands)
Years ended March 31,
2000 1999 1998
----------- ----------- -----------
Cash flows from financing activities
Net increase in short-term credit facility $ 6,761 $ 1,500 $ 2,500
Net decrease in short-term borrowing facility - - (15,673)
Proceeds from issuance of long-term debt 27,000 - 33,000
Repayments of long-term debt (20,587) (7,590) (5,750)
Debt issuance costs (2,419) (100) (2,820)
Proceeds from exercise of stock options and warrants 35 - 2,323
Repurchase and cancellation of common stock (171) (61) (17,828)
Proceeds from issuance of common stock 1,000 4 5,911
Preferred stock dividend - - (435)
Payments on common stock subscription 26 265 36
----------- ----------- -----------
Net cash provided by (used in) financing activities 11,645 (5,982) 1,264
----------- ----------- -----------
Effect of foreign currency on cash (18) (29) -
----------- ----------- -----------
Net increase (decrease) in cash 605 (220) 917
Cash at beginning of year 768 988 71
----------- ----------- -----------
Cash at end of year $ 1,373 $ 768 $ 988
=========== =========== ===========
Cash paid during the year for $ 3,649 $ 3,160 $ 2,758
Interest
Income taxes $ - $ 200 $ 76
</TABLE>
The accompanying notes are an integral part of these statements.
- 28 -
<PAGE>
Labtec Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share amounts)
NOTE A - SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Labtec Inc. (Labtec) was formed October 7, 1997. On February 17, 1999, Labtec
Inc. acquired Spacetec IMC Corporation (Spacetec) (see Note B). On August 20,
1999, Labtec Inc. acquired Connector Resources Unlimited, Inc. (CRU) (see Note
B). The Company designs, manufactures and distributes multimedia computer
peripheral, three-dimensional motion control and data storage products. Its
worldwide customers include original computer equipment manufacturers,
distributors and retailers. The Company's products are manufactured by various
factory suppliers located in Asia and are imported to the Company's
headquarters in Vancouver, Washington and to warehouses in California, Great
Britain, the Netherlands and Canada for distribution.
The principal accounting policies followed by Labtec Inc. and its subsidiaries
in maintaining their financial records and preparing these consolidated
financial statements are as follows:
1. Principles of Consolidation
---------------------------
The accompanying financial statements include the accounts of the Company, as
well as all of the accounts of its wholly owned subsidiaries. All significant
intercompany transactions and balances have been eliminated.
2. Revenue Recognition
-------------------
Revenues are recognized upon shipment of the Company's products, net of an
estimated allowance for sales returns. Gross sales revenues from one customer
were $10.1 million and $8.8 million for the years ended March 31, 1999 and
1998, respectively. Each of these revenue amounts accounted for more than 10%
of consolidated sales for the respective period. There were no individual
customers that accounted for more than 10% of consolidated sales for the year
ended March 31, 2000.
3. Fair value of financial instruments
-----------------------------------
The recorded amounts of cash, accounts receivable, accounts payable, lines of
credit and current portion of long-term debt, and accrued liabilities as
presented in the financial statements approximate fair value because of the
short-term maturity of these instruments. The recorded amount of long-term
debt approximates fair value because actual interest rates approximate current
competitive rates.
4. Accounts receivable
--------------------
Accounts receivable are net of allowances for doubtful accounts and for sales
returns. The allowance for doubtful accounts was $706 and $938 at March 31,
2000 and 1999, respectively. The allowance for returns of merchandise was $584
and $505 at March 31, 2000 and 1999, respectively. At March 31, 2000 and 1999,
13%, and 18%, respectively, of receivables were from one customer.
-29-
<PAGE>
Labtec Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Dollar amounts in thousands, except per share amounts)
NOTE A - SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
5. 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 receivables
are directly associated with the results of the technology industry.
6. Inventories
-----------
Inventories are stated at the lower of landed cost (first-in, first-out
method) or market. Landed cost includes the cost of merchandise, freight, duty
and handling fees.
7. Property and equipment
----------------------
Property 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 years ended March 31, 2000, 1999 and
1998 was $1,514, $1,444 and $943, respectively. Repair and maintenance costs
are expensed as incurred.
8. Debt issuance costs
-------------------
Debt issuance costs, including bank fees of $2,419 and other transaction fees
relating to the Company's debt, are included in debt issuance costs and
represent all costs and fees incurred to obtain bank financing for the
refinancing of debt in August 1999 (see Notes B and F). These costs are being
amortized over the term of the related debt. Debt of $19.25 million was paid
off in August 1999. Therefore, debt issuance costs of $1,693 were written off
and included in extraordinary loss on extinguishments of debt in fiscal 2000.
Debt of $5 million was paid off on February 17, 1999. Therefore, debt issuance
costs of $349 were written off and included in extraordinary loss on
extinguishments of debt in fiscal 1999. Debt issuance costs of $296 related to
financing arrangements prior to the Recapitalization (see Note I) were written
off and included in extraordinary loss on extinguishments of debt in October
1997. Amortization expense for fiscal years 2000, 1999 and 1998 was $433, $383
and $286, respectively, and is included in interest expense.
9. Goodwill and other intangible assets
------------------------------------
Goodwill represents the excess of acquisition costs over the fair market value
of the net assets of acquired businesses and is being amortized on a
straight-line basis over estimated useful lives ranging from five to twenty
years. Periodically, the Company reviews the recoverability of its intangible
assets based on estimated undiscounted future cash flows from operating
activities compared with the carrying value of the intangible assets. If the
aggregate future cash flows are less than the carrying value, a write-down
would be required, measured by the difference between the fair value and the
carrying value of the intangible assets. The Company has not recorded any
provision related to impairment of intangible assets.
-30-
<PAGE>
NOTE A - SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES - Continued
10. Discount of subordinated debt
-----------------------------
In connection with the Recapitalization, the Company issued 93 shares of
common stock to a subordinated lender and recorded the $282 of fair value of
these shares as a discount on the face amount of the debt. This non-cash
transaction is excluded from the accompanying statement of cash flows. The
discount is being amortized using the effective interest method over eight
years, which is the life of the subordinated note. Amortization during fiscal
years 2000, 1999 and 1998 aggregated $35, $35 and $18 respectively.
11. Stock subscription
------------------
During fiscal year 1999, the Company sold shares of common stock to certain
members of management for a note aggregating $26. This note receivable was
recorded as a reduction of shareholders' equity and was fully repaid during
fiscal 2000.
In fiscal year 1995 the Company issued 28 shares of common stock to the
Company's president in exchange for a note aggregating $177. This note
receivable was recorded as a reduction to shareholders' equity. During fiscal
year 1999, the unpaid balance of $135 was forgiven.
12. Research and development costs
------------------------------
Research and development costs are expensed as incurred.
13. Advertising expenses
--------------------
The Company expenses advertising costs when incurred. Total advertising
expenses for the years ended March 31, 2000, 1999 and 1998 were $674, $782 and
$819, respectively.
14. Income taxes
------------
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS 109), Accounting for Income
Taxes. SFAS 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, SFAS 109 generally considers all expected future events
other than enactments of changes in tax law or statutorily imposed rates.
15. Foreign currency translation
-----------------------------
The financial statements and transactions of the Company's foreign
subsidiaries are maintained in their functional currency and translated into
U.S. dollars for purposes of consolidation. Translation adjustments are
accumulated as a separate component of shareholders' equity. The translation
adjustment for 1998 was not significant.
-31-
<PAGE>
NOTE A - SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES - Continued
16. Earnings per share
------------------
Basic earnings per share (EPS) is computed by dividing net income (loss) by
the weighted-average common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if contracts to issue common
stock were exercised or converted to common stock. All amounts below and
earnings per share amounts in the statement of operations are calculated after
retroactively considering the stock splits that occurred during fiscal 2000
and 1999, and the conversion of Labtec shares as discussed in Note B.
The following table sets forth the reconciliation of the denominator utilized
in the computation of basic and diluted income (loss) per share (in thousands,
except per share amounts).
Fiscal 2000
-----------------------------
Per
Income Average share
(loss) shares amount
--------- --------- ---------
Income before extraordinary item $ 1,192 3,684 $ .32
Extraordinary loss, net of tax (1,016) 3,684 (.27)
--------- ---------
Income per common share 176 3,684 .05
Effect of dilutive securities
Stock options - 31 -
--------- --------- ---------
Income per share-assuming dilution $ 176 3,715 $ .05
========= ========= =========
Fiscal 1999
-----------------------------
Per
Income Average share
(loss) shares amount
--------- --------- ---------
Loss before extraordinary item $ (4,671) 2,493 $ (1.87)
Extraordinary loss, net of tax (271) 2,493 (.11)
--------- ---------
Loss per common share (4,942) 2,493 (1.98)
Effect of dilutive securities
Stock options - - -
--------- --------- ---------
Loss per share-assuming dilution $ (4,942) 2,493 $ (1.98)
========= ========= =========
-32-
<PAGE>
NOTE A - SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES - Continued
Fiscal 1998
-----------------------------
Per
Income Average share
(loss) shares amount
--------- --------- ---------
Loss before extraordinary item $ (1,766) 1,770 $ (1.00)
Extraordinary loss, net of tax (511) 1,770 (.29)
--------- --------- ---------
Loss per common share (2,277) 1,770 (1.29)
Effect of dilutive securities
Stock options - - -
--------- --------- ---------
Loss per share-assuming dilution $ (2,277) 1,770 $ (1.29)
========= ========= =========
17. Comprehensive income
--------------------
The Company adopted SFAS No. 130, Reporting Comprehensive Income as of April
1, 1998. Comprehensive income is defined by SFAS No. 130 as the changes in
equity of a business enterprise during a period that results from transactions
and other economic events and circumstances from non-shareholder sources. It
includes all changes in equity during a period except those resulting from
investments by shareholders. Consequently, the Company has reported its
Foreign Currency Translation Adjustment, as required by SFAS No. 130, as other
comprehensive income in the appropriate consolidated financial statements
presented herein.
18. Segment reporting
-----------------
The Company has adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information in fiscal year 1999. This statement
establishes standards for reporting information about operating segments in
annual financial statements and requires selected information about operating
segments in interim financial reports issued to shareholders. The Company
does not have separate operating segments which meet the requirements for
SFAS No. 131 disclosure. The Company does sell its products internationally.
Sales to Europe and Asia were as follows:
Year ended March 31
2000 1999 1998
--------------- --------------- ----------------
Europe $ 18,071 $ 13,397 $ 9,561
Asia $ 1,322 $ 770 $ 1,168
19. Related parties
---------------
The former controlling shareholders of the Company provided certain management
services for which they charged a monthly fee of approximately $15 for April
1, 1997 through September 1, 1997 (prior to the Recapitalization (see Note
I)).
The majority shareholders charge an annual management services fee of $500, of
which $500, $500 and $250 was charged during fiscal 2000, 1999 and 1998,
respectively, and $375 and $750 remained payable at March 31, 2000 and 1999,
respectively.
-33-
<PAGE>
NOTE A - SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES - Continued
20. Use of estimates
----------------
The preparation of financial statements in conformity with generally accepted
accounting principals requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Significant estimates and
judgments made by the Company include items such as the collectibility of
accounts receivable; the level of sales returns; realizability of inventories
and relizability of intangible assets and deferred income tax assets.
21. Recent accounting pronouncements
--------------------------------
In June 1998 the Financial Accounting Standards Board issued Statement on
Financial Accounting Standards No. 133 (SFAS 133), Accounting for Derivative
Instruments and Hedging Activities. The Statement is effective beginning with
the Company's fiscal year ended March 31, 2002, and will require the Company
to record all derivative instruments at fair value on its balance sheet. The
Company has not elected to adopt the statement early, and does not expect the
standard to have a material effect on the Company's financial position or
results of operations upon adoption.
NOTE B - ACQUISITIONS
Purchase of Spacetec IMC Corporation
------------------------------------
Effective February 17, 1999, Labtec merged with Spacetec IMC Corporation, a
publicly traded company. Spacetec is involved in the development, manufacture
and distribution of three-dimensional (3D) input controller devices for the PC
and workstation marketplace used in both CAD/CAM industrial applications and
in consumer electronic games. The merger called for issuance of 0.55430739
(pre-stock split) of Spacetec common shares for each Labtec common share
outstanding. As a result of the merger, Labtec shareholders acquired 67% of
Spacetec and therefore, Labtec has accounted for the transaction as a purchase
of Spacetec in a "reverse acquisition."
The acquisition of Spacetec for 3,424 common shares valued at $12.8 million
has been accounted for under the purchase method of accounting. The financial
statements reflect the allocation of the purchase price and assumption of
Spacetec's liabilities and include its operating results from the date of the
acquisition.
-34-
<PAGE>
NOTE B - ACQUISITIONS - Continued
The following sets forth the reconciliation of fair value of the assets
acquired and the liabilities assumed.
Purchase price $ 12,804
Fair value of tangible assets acquired (8,528)
Liabilities assumed 2,539
Fair value of options granted to Spacetec employees 742
Direct costs of acquisition 2,243
------------
Excess of purchase price over fair value of tangible assets $ 9,800
============
The excess of purchase price over fair value of tangible assets acquired is
being amortized over an estimated useful life of ten years.
In conjunction with the closing of the merger, Spacetec issued a six year
promissory note in the principal amount of $1,065 payable to the holders of
Labtec common stock outstanding just prior to the time of the merger. This
transaction was accounted for as a dividend distribution. This note is
unsecured and accrues interest at the rate of 10% per year.
In conjunction with the acquisition, the Company accrued costs associated with
closing of certain acquired facilities and severance payments to terminate
employees of the acquired company. The following table presents the activity
in the related accrued liabilities:
Facility
closure Employee
costs severance Total
---------- ---------- ----------
Balance at March 31, 1999 $ 426 $ 873 $ 1,299
Payments in fiscal 2000 118 750 868
---------- ---------- ----------
Balance at March 31, 2000 $ 308 $ 123 $ 431
========== ========== ==========
These items are included in accrued payroll costs and other accrued
liabilities in the accompanying balance sheet.
Purchase of Connector Resources Unlimited, Inc. (CRU)
-----------------------------------------------------
On August 20, 1999, the Company completed the acquisition of all the
outstanding shares of CRU for $13,146 in cash and $1,500 in debt. Concurrent
with the acquisition of CRU, Labtec entered into a $43,000 credit facility
with a lender and also sold 313 shares of common stock for $1,000. 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; 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.
-35-
<PAGE>
NOTE B - ACQUISITIONS - Continued
The following sets forth the reconciliation of fair value of the assets
acquired and the liabilities assumed.
Purchase price $ 14,646
Fair value of tangible assets acquired (5,338)
Liabilities assumed 2,098
Direct costs of acquisition 755
------------
Excess of purchase price over fair value of tangible assets $ 12,161
============
The excess of the purchase price over fair value of tangible assets acquired
is being amortized over an estimated useful life of twenty years.
In conjunction with the acquisition, the Company accrued costs associated with
closing of certain acquired facilities and severance payments to terminate
employees of the acquired company. The following table presents the activity
in the related accrued liabilities:
Facility
closure Employee
costs severance Total
---------- ---------- ----------
Balance at March 31, 1999 $ - $ - $ -
Additions 335 420 755
Payments in fiscal 2000 158 154 312
---------- ---------- ----------
Balance at March 31, 2000 $ 177 $ 266 $ 443
========== ========== ==========
These items are included in accrued payroll costs and other accrued
liabilities in the accompanying balance sheet.
The following unaudited pro forma information presents the results of the
Company's operations assuming both the Spacetec and the CRU acquisitions
occurred at the beginning of each period presented:
Year ended March 31
------------------------------------
2000 1999 1998
------------------------------------
(Unaudited)
Net sales $ 96,422 $ 70,411 $ 66,704
Net income (loss) 243 (11,424) (8,351)
Net income (loss) per share:
Basic and diluted $.06 $(2.29) $(2.36)
The pro forma financial information is not necessarily indicative of the
operating results that would have occurred had both the Spacetec and the CRU
acquisitions been consummated as of the beginning of each period, nor is it
necessarily indicative of future operating results.
-36-
<PAGE>
NOTE C - GOODWILL
Cost in excess of the fair value of tangible assets of CRU acquired in fiscal
2000 (Note B) consisted of goodwill associated primarily with the existing
technology acquired and was recorded at $11,406. Direct costs of acquisition
totaled $755. These costs have also been capitalized as part of cost in excess
of fair value of tangible assets acquired. Amortization expense recognized
related to this goodwill was $355 for the year ended March 31, 2000.
Cost in excess of the fair value of tangible assets of Spacetec acquired in
fiscal 1999 (Note B) consisted of goodwill associated primarily with the
existing technology acquired and was recorded at $7,558. Direct costs of
acquisition totaled $2,243. These costs have also been capitalized as part of
cost in excess of fair value of tangible assets acquired. In the fourth
quarter of the year ended March 31, 2000, the Company determined that the
estimated life for goodwill associated with Spacetec should be revised from
three to ten years. This change was accounted for prospectively as of January
1, 2000 and reduced goodwill amortization in the quarter by approximately
$597. Amortization expense recognized related to this goodwill was $2,590 and
$408 in fiscal 2000 and 1999, respectively.
Costs in excess of the fair value of the net tangible assets of Labtec
acquired in fiscal 1995 consisted primarily of goodwill associated with
product trade names originally recorded at $8,838 and a $3,350 noncompete
agreement with the former owner. Goodwill was being amortized using the
straight-line method over 5 years, which represents the estimated lives of the
underlying product trade names. The noncompete agreement was being amortized
using the double-declining balance method over the agreement's life of 5 years
to reflect management's belief that the noncompete provision has more value in
the earliest years of the noncompete period. Amortization expense recognized
related to this goodwill was $1,768 for years ended March 31, 1999 and 1998.
Amortization expense recognized related to the noncompete agreement was $0,
$362 and $362 for the years ended March 31, 2000, 1999 and 1998, respectively.
NOTE D - INVENTORIES
Inventories represent merchandise produced for the Company by foreign
factories subcontracted by the Company. Of the total inventories, $450 and
$2,170 was in transit at March 31, 2000 and 1999, respectively.
NOTE E - PROPERTY AND EQUIPMENT
Property and equipment consist of:
March 31,
2000 1999
---------- ----------
Leasehold improvements $ 256 $ 239
Tooling and molds 2,588 2,329
Furniture and equipment 2,473 1,879
Retail displays 2,145 1,527
---------- ----------
7,462 5,974
Less accumulated depreciation and amortization (5,130) (3,644)
---------- ----------
$ 2,332 $ 2,330
========== ==========
-37-
<PAGE>
NOTE F - LONG-TERM DEBT
In conjunction with the purchase of CRU in August 1999, the Company repaid its
$7,500 revolving line of credit and $19,250 long-term loan with funds obtained
from a $27,000 long-term loan and a $16,000 revolving line of credit with
other lenders. Also a $1,500 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 extinguishments of debt.
At March 31, 2000 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 March 31, 2000 the amount of debt subject to
the fixed rate was $12,800 for which the rate was 9.69%. The bank line of
credit is collateralized 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 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.
Long-term debt consists of:
<TABLE>
March 31,
2000 1999
---------- ----------
<S> <C> <C>
Bank note payable with varying quarterly payments,
interest at the bank's LIBOR rate plus 3.25-3.50%,
(9.69% at March 31, 2000), with the final payment due
June 30, 2005, collateralized by the Company's assets $ 25,600 $ -
Bank note payable with varying quarterly payments,
interest at the bank's Eurodollar rate plus 3%, (8% at
March 31, 1999), with the final payment due
September 30, 2004, collateralized by the Company's assets - 19,250
Bank subordinated note payable (net of $194 and
$229 discount at March 31, 2000 and 1999
respectively) at 12% with principal due October 1, 2005 4,306 5,771
Note payable to former Labtec shareholders; interest at
10%, with principal due February 17, 2005 (Note B) 241 1,065
Note payable to former CRU shareholders; interest at 6%,
with principal due February 28, 2005 (Note B) 1,500 -
---------- ----------
31,647 26,086
Less amounts payable in one year 2,900 -
---------- ----------
Total long-term debt $ 28,747 26,086
========== ==========
</TABLE>
The bank line of credit agreement and long-term debt agreements are subject to
certain restrictive covenants. The Company was in compliance with these
covenants for all periods presented in the accompanying financial statements.
Interest payments for the years ended March 31, 2000, 1999 and 1998 were
$3,649, $3,160 and $2,758, respectively.
-38-
<PAGE>
NOTE F - LONG-TERM DEBT - Continued
Principal repayments of the long-term debt are required as follows:
Fiscal year
2001 $ 2,900
2002 3,000
2003 3,300
2004 3,700
2005 4,341
Thereafter 14,600
Less debt discount (194)
----------
$ 31,647
==========
NOTE G - EMPLOYEE BENEFITS
The Company has a defined contribution profit sharing plan for its employees
who meet certain requirements of age and length of service. Employees may
voluntarily contribute up to a maximum of 20% of their annual compensation to
the plan. During fiscal year 2000, the Company matched 50% of the employee
contributions up to a maximum of 6%. There was no Company match during fiscal
1999 and during a portion of fiscal 1998 the Company matched 50% of the
employee contributions up to a maximum of 5%. For the years ended March 31,
2000, 1999 and 1998, matching contributions for eligible employees amounted
to $29, $0 and $56, respectively.
Discretionary bonuses of $991, $141 and $175 were awarded to employees for the
years ended March 31, 2000, 1999 and 1998, respectively.
NOTE H - INCOME TAXES
The income tax provision (benefit) consists of the following:
Fiscal year ended March 31,
2000 1999 1998
---------- ---------- ----------
Current tax expense (benefit) $ 474 $ (576) $ 364
Deferred tax expense (benefit) 302 (794) (350)
---------- ---------- ----------
$ 776 $ (1,370) $ 14
========== ========== ==========
-39-
<PAGE>
NOTE H - INCOME TAXES - Continued
Deferred tax assets are comprised of the following:
March 31,
2000 1999
---------- ----------
Nondeductible accruals and allowances $ 1,214 $ 652
Capitalized inventory costs 69 177
Property and equipment depreciation 707 536
Intangibles 1,203 1,357
Research and experimentation credits 522 523
Net operating loss carryforward 2,691 2,986
---------- ----------
Gross deferred tax asset 6,406 6,231
Valuation allowance (2,599) (3,508)
---------- ----------
Net deferred tax assets $ 3,807 $ 2,723
========== ==========
The net decrease of $909 in the valuation allowance for fiscal year 2000
relates to a portion of the net operating loss carryforwards and research and
experimentation credits resulting from the acquisition of Spacetec in fiscal
year 1999. The Company's net operating loss carryforwards aggregate
approximately $7.7 million at March 31, 2000 and expire in 2012-2014. The
utilization of the Spacetec net operating loss carryforwards are limited to
approximately $600 per year for income tax purposes as well as being limited
to the taxable earnings of Spacetec. The credit carryforwards also have a
yearly limitation amount as well as being limited to taxable earnings of
Spacetec and expire in 2012 and 2013. As of March 31, 2000, a valuation
allowance has been provided for a portion of these deferred tax assets because
management cannot conclude that it is presently more likely than not that such
deferred income tax assets will be utilized.
The income tax provision is reconciled to the tax computed at the statutory
federal rate as follows:
<TABLE>
Fiscal year ended March 31,
2000 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
Tax expense (benefit) at federal statutory rate 34.00% (34.00)% (34.00)%
Foreign taxes (7.65) .09 .39
Foreign sales corporation benefit (39.01) - -
Permanent differences 17.71 11.41 35.38
Other 34.39 (.18) (1.00)
---------- ---------- ----------
39.44% (22.68)% .77 %
========== ========== ===========
</TABLE>
Permanent differences primarily include nondeductible goodwill and
nondeductible meals and entertainment expense. Other differences include state
income taxes net of the Federal benefit.
-40-
<PAGE>
NOTE I - SHAREHOLDERS' EQUITY
On October 7, 1997 the Company undertook the Recapitalization whereby the
Company: (i) refinanced its existing debt by obtaining a $13 million line of
credit, a $27 million term note and a $6 million subordinated term note, and
by issuing 550 shares of common stock for aggregate proceeds of $6,192
representing approximately 87.4% of the stock ownership of the Company; and
(ii) repurchased 509 shares of its previously existing outstanding stock for
aggregate cash consideration of $17,828, including direct expenses of
approximately $690. The repurchase of existing stock resulted in the old
shareholder group maintaining an approximate 12.6% interest in the Company.
All holders of common stock are entitled to one vote per share and are
entitled to dividends, provided that equivalent dividends are declared and
paid on all outstanding shares of common stock. The Company has granted stock
options and warrants to purchase shares of Class A common stock of the
Company.
In fiscal year 1996, the Company authorized and issued 34 shares of preferred
stock. At March 31, 1996 and 1997, 34 shares were issued and outstanding.
During fiscal year 1998 all shares of preferred stock were converted to shares
of common stock. The shares were converted in accordance with the original
terms of the preferred stock, resulting in no beneficial conversion interests.
Certain employees of Spacetec were eligible to participate in an Employee
Stock Purchase Plan. This plan terminated upon Spacetec being acquired by
Labtec and 9 shares were issued at such time.
On September 30, 1998 the Company sold 96 shares of common stock (post stock
splits) to certain members of management for $3.05 per share. Of this, $265
was received in cash and the remaining $26 in proceeds was recorded as a stock
subscription receivable. The difference between the fair market value of the
Company's common stock and the proceeds received was recorded as compensation
expense aggregating $781 during the year ended March 31, 1999. During the year
ended March 31, 1998, the Company effected a 8.5853 to 1 stock split followed
by a second split at 20 to 1. On February 17, 1999, directly following the
acquisition of Spacetec, the Company effected a 1 for 3 reverse stock split.
On December 1, 1999, the Company effected a 1 for 2 reverse stock split. All
share and per share amounts in the consolidated statement of operations and
comprehensive income (loss) and the notes to consolidated financial statements
have been retroactively adjusted for these splits.
The Company provided an employee stock option plan (the Plan) which commenced
on January 27, 1995. 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 over ten years from the
time the options were granted, and vested over a period of three years.
Compensation cost recognized on the Company's stock option grants which
provided an exercise price below the fair value on the date of the grant was
$73 for the year ended March 31, 1998.
The Plan allowed the granting of options to purchase up to an aggregate of 496
shares (before considering stock splits) of the Company's Class A common
stock. Options granted under the Plan were nonqualified stock options as
defined by the Internal Revenue Code. All options were exercised and the Plan
was terminated pursuant to the completion of the Recapitalization in October
of 1997.
In connection with the Recapitalization, the Company established a new
employee stock option plan, which commenced on October 7, 1997 (the New Plan).
The Company reserved 443 shares of common stock for issuance to certain
employees under the New Plan. The exercise price of these options range from
$3.0481
-41-
<PAGE>
NOTE I - SHAREHOLDERS' EQUITY - Continued
(estimated fair value based upon the price paid for new shares) to $9.1444 per
share. Such options may be exercised generally over 10 years from the time the
options are granted, and vest over a period of four years.
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 required by SFAS No.
123, Accounting for Stock Based Compensation, and has been determined as if
the Company had accounted for its employee stock options under the fair value
method of that statement. The 1998 options were valued using the minimum value
pricing model as prescribed by SFAS 123 for nonpublic companies. The options
issued subsequent to fiscal 1998 have been valued using the Black-Scholes
pricing model as prescribed by SFAS 123.
The following weighted-average assumptions have been used for grants of stock
options.
2000 1999 1998
---------- ---------- ----------
Risk-free interest rate 5.45% 5.20% 5.61%
Expected dividend yield - - -
Expected lives 5 years 5 years 5 years
Expected volatility 103% 71% -
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options, which have no vesting restrictions and are
fully transferable. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in the Company's opinion the existing available models do
not necessarily provide a reliable single measure of the fair value of the
Company's employee stock options.
Using the Black-Scholes option valuation model, the weighted-average grant
date value of options granted during fiscal 2000 and 1999 was $7.98 and $8.06
per option, respectively.
The pro forma effect of applying FAS 123 would have an immaterial effect for
fiscal 1998 and 1997 based on the above assumptions. The Company's pro forma
information for fiscal 2000 and 1999 is as follows:
Year ended Year ended
March 31, 2000 March 31, 1999
-------------------- --------------------
Reported Pro forma Reported Pro forma
-------- --------- -------- ---------
Net income (loss) (in thousands) $ 176 $ (166) $(4,942) $ (4,988)
Net income loss per share
Basic and diluted $ 0.05 $ (.04) $ (1.98) (2.00)
-42-
<PAGE>
NOTE I - SHAREHOLDERS' EQUITY - Continued
The following table summarizes the stock option transactions under the Plan and
New Plan described above.
Shares Average
under exercise
option price
---------- ----------
Balance, March 31, 1997 1,730 $ 1,082.44
Options exercised (1,730) 1,082.44
Options granted 358,591 5.08
Options cancelled (34,182) 5.08
----------
Balance, March 31, 1998 324,409 5.08
Options granted 153,925 14.78
Options cancelled (233,510) 5.08
----------
Balance, March 31, 1999 244,824 12.24
Options granted 216,325 9.50
Options exercised (6,925) 5.08
Options cancelled (82,892) 5.08
----------
Balance, March 31, 2000 371,332 $ 9.24
========== ==========
A summary of options outstanding and exercisable at March 31, 2000 is as
follows:
<TABLE>
Options Outstanding Options Exercisable
----------------------------------------------- ------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Number Remaining Exercise Number Exercise
outstanding Life Price Exercisable Price
------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
$0.00 - $5.00 78,777 3.42 $ 3.05 28,447 $ 3.05
$5.01 - $9.00 71,029 8.10 $ 7.68 3,292 $ 6.33
$9.01 - $10.00 109,812 8.08 $ 9.69 30,583 $ 9.48
$10.01 - $20.00 111,714 7.89 $ 14.15 61,839 $ 16.89
</TABLE>
NOTE J - COMMITMENTS AND CONTINGENCIES
1. Commitments
-----------
The Company is contractually obligated under various operating lease
agreements for warehouse and office space until April of 2006. The total rent
expense related to warehouse and office space under leases amounted to $982,
$621 and $352 for the fiscal years ended March 31, 2000, 1999 and 1998,
respectively.
-43-
<PAGE>
NOTE J - COMMITMENTS AND CONTINGENCIES - Continued
Future minimum lease payments under these leases are as follows:
Fiscal year
2001 $ 989
2002 968
2003 903
2004 860
2005 838
Thereafter 911
-------------
-------------
Total minimum lease payments $ 5,469
=============
2. Contingencies
-------------
Pursuant to the Recapitalization agreement, the shareholder group that
received redemption proceeds are contingently entitled to receive from the
Company up to $1,500 upon a "Change in Control" (as defined in the
Stockholders Agreement), or up to $3,000 in the event of an "Initial Public
Offering" (as defined in the Stockholders Agreement).
The Company becomes involved in litigation, disputes, employment matters and
other proceedings in the normal course of its business. In the opinion of
management, and after consultation with legal counsel, the Company's
liability, if any, under any pending matters would not materially affect its
financial condition or results of operations.
-44-
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
----------------------------------------------------------------------
Financial Disclosure.
---------------------
As reported in the Form 8-K filed by the Company on February 15, 2000, the
Company changed its independent public accountants to Grant Thornton LLP,
effective February 8, 2000.
PART III
--------
Item 10. Directors and Executive Officers of the Registrant.
--------------------------------------------------
The information required by this item is incorporated by reference herein in the
"Election of Directors" section of the Company's Proxy Statement to be filed
pursuant to Regulation 14A.
Item 11. Executive Compensation.
----------------------
The information required by this item is incorporated by reference herein in the
"Executive Compensation" section of the Company's Proxy Statement to be filed
pursuant to Regulation 14A.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
--------------------------------------------------------------
The information required by this item is incorporated by reference herein in the
"Security Ownership of Management" section of the Company's Proxy Statement to
be filed pursuant to Regulation 14A.
Item 13. Certain Relationships and Related Transactions.
----------------------------------------------
The information required by this item is incorporated by reference herein in the
"Certain Transactions" section of the Company's Proxy Statement to be filed
pursuant to Regulation 14A.
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
---------------------------------------------------------------
(A) 1. Financial Statements
The financial statements are listed beginning on page 18 of this report.
2. Financial Statement Schedules
The following schedule is filed as part of this report:
Schedule II - Valuation and Qualifying Accounts
No other schedules are included because the required information is
inapplicable, not required, or is presented in the financial statements or the
notes thereto.
3. Exhibits
The exhibits are listed below under Part IV, Item 14(C) of
this report.
(B) Reports on Form 8-K:
On May 4, 1999, the Company filed a report on Form 8-K/A relating to the
amendment of Item 7, Financial Statements, Pro Forma Financial Information and
Exhibits, to provide financial statements and pro forma financial information.
-45-
<PAGE>
On September 2, 1999, the Company filed a report on Form 8-K relating to Item 2,
Acquisition of Assets, in connection with the Company's purchase of all the
outstanding stock of Connector Resources Unlimited, Inc.
On November 1, 1999, the Company filed a report on Form 8-K relating to Item 5,
Other Events, in connection with the listing of the Company's securities on the
Nasdaq National Market.
On November 2, 1999, the Company filed a report on Form 8-K/A relating to the
amendment of Item 7, Financial Statements, Pro Forma Financial Information and
Exhibits, to provide the financial statements of Connector Resources Unlimited,
Inc.
On December 1, 1999, the Company filed a report on Form 8-K relating to Item 5,
Other Events, in connection with the listing of the Company's securities on the
Nasdaq National Market.
On February 15, 2000, the Company filed a report on Form 8-K relating to Item 4,
Changes in Registrant's Certifying Accountant, in connection with the retainer
of Grant Thornton LLP as the Company's independent public accountants.
<TABLE>
(C) Exhibits:
<S> <C> <C>
Number Description of Exhibit Method of Filing
1 Letter Agreement between the Issuer and Sun Incorporated by reference to Exhibit 1 to
Multimedia Partners, L.P. the Form SC 13D/A filed by Labtec Inc. on
February 10, 2000
2.1 Stock Purchase Agreement, dated as of August 4, Incorporated by reference to Exhibit 2.1
1999, among the Purchaser, the Company and each to the Form 8-K filed by Labtec Inc. on
of the stockholders of Connector Resources September 2, 1999 ("Labtec September 2,
Unlimited, Inc. 1999 Form 8-K")
2.2 Promissory Note, dated as of August 20, 1999, Incorporated by reference to Exhibit 2.2
issued by the Company and payable to Carl W. to the Labtec September 2, 1999 Form 8-K
Gromada, as collection agent for each of the
stockholders of Connector Resources Unlimited,
Inc.
Incorporated by reference to Exhibit 3.1
3.1 Restated Articles of Organization to the Labtec Inc. Annual Report on Form
10-K for the fiscal year ended March 31,
1999 ("Labtec 1999 Form 10-K")
Incorporated by reference to Exhibit 3.2
3.2 Articles of Amendment to the Labtec 1999 Form 10-K
3.3 Amended and Restated By-Laws of the Company Incorporated by reference to Exhibit 3.3
to the Labtec 1999 Form 10-K
3.4 Articles of Amendment Incorporated by reference to Exhibit 3.3
to the Form 10-Q filed by Labtec Inc. on
November 15, 1999 ("Labtec November 15,
1999 Form 10-Q")
4.1 Specimen certificate for shares of common stock Incorporated by reference to Exhibit 4.1
of the Company to the Labtec 1999 Form 10-K
</TABLE>
-46-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: June 29, 2000
LABTEC INC.
By: s/ Robert G Wick
--------------------
Robert G. Wick
President and CEO
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ------ ----
/s/ Robert G. Wick President, CEO, and Director June 29, 2000
------------------------- (principal executive officer)
Robert G. Wick
/s/ Marc J. Leder Co-Chairman, Senior Vice President, June 29, 2000
------------------------- Finance, Chief Financial Officer,
Marc J. Leder Director and Treasurer (principal
financial officer and principal
accounting officer)
/s/ Rodger R. Krouse Co-Chairman, Vice President, June 29, 2000
------------------------- Director
Rodger R. Krouse
/s/ Clarence Terry Vice President, Director June 29, 2000
-------------------------
Clarence Terry
/s/ Bradley A. Krouse Director June 29, 2000
-------------------------
Bradley A. Krouse
/s/ George R. Rea Director June 29, 2000
-------------------------
George R. Rea
/s/ Patrick J. Sullivan Director June 29, 2000
-------------------------
Patrick J. Sullivan
/s/ Joseph Pretlow Director June 29, 2000
-------------------------
Joseph Pretlow
-47-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of Labtec Inc.
Our audit of the consolidated financial statements referred to in our report
dated May 15, 2000 in this Form 10-K also includes an audit of the Financial
Statement Schedule listed in Item 14(a)(2) of this Form 10-K. In our opinion,
this Financial Statement Schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
/s/ Grant Thornton LLP
Portland, Oregon
May 15, 2000
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of Labtec Inc.
Our audits of the fiscal 1999 consolidated financial statements referred to in
our report dated May 21, 1999 in this Form 10-K also includes an audit of the
fiscal 1999 Financial Statement Schedule listed in Item 14(a)(2) of this Form
10-K. In our opinion, this Financial Statement Schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related fiscal 1999 consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
Portland, Oregon
May 21, 1999
<PAGE>
Schedule II
Labtec, Inc.
Valuation and Qualifying Accounts
------------------------------------
1998 1999 2000
---- ---- ----
Bad Debt Reserve
----------------
Beginning Balance 120,000 89,736 937,990
Additions - charged to expense 62,910 762,163 146,948
Spacetec Reserve - purchase accounting 252,845
CRU Reserve - purchase accounting 12,059
Writeoffs 93,174 166,754 391,083
Ending Balance 89,736 937,990 705,914
Inventory Reserve
-----------------
Beginning Balance 200,000 - 399,851
Additions - charged to expense 500,000 186,064
CRU Reserve - purchase accounting 102,403
Writeoffs 200,000 100,149
Ending Balance - 399,851 688,318
Returns & Allowances Reserve
----------------------------
Beginning Balance 599,162 578,067 505,153
Additions - charged to expense 2,509,109 2,077,055 2,461,579
CRU Reserve - purchase accounting 42,706
Deletions 2,530,204 2,149,969 2,425,594
Ending Balance 578,067 505,153 583,844
Advertising Allowance Reserve
-----------------------------
Beginning Balance 241,821 233,392 297,987
Additions - charged to expense 2,284,720 3,459,843 4,461,996
Deletions 2,293,149 3,395,248 4,185,100
Ending Balance 233,392 297,987 574,883
Allowance for Deferred Tax Asset
--------------------------------
Beginning Balance - - -
Additions - charged to expense 3,508,392 2,599,000
Deletions 3,508,392 2,599,000
Ending Balance - - -
