<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 30, 1999.
REGISTRATION NO. 333-78357
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
JORE CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
MONTANA 3423 81-0465233
(State or other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification Number)
Incorporation or Organization)
45000 HIGHWAY 93 SOUTH
RONAN, MONTANA 59864
(406) 676-4900
(Address and Telephone Number of
Registrant's Principal Executive Offices)
DAVID H. BJORNSON, ESQ.
CHIEF FINANCIAL OFFICER
JORE CORPORATION
45000 HIGHWAY 93 SOUTH
RONAN, MONTANA 59864
TELEPHONE: (406) 676-4900
(Name, Address and Telephone Number of
Agent for Service)
</TABLE>
------------------------------
COPIES TO:
<TABLE>
<S> <C> <C>
William E. Van Valkenberg, Esq. Matthew B. Jore Ronald J. Lone, Esq.
Jonathan K. Wright, Esq. Chief Executive Officer Christopher J. Voss, Esq.
Van Valkenberg Furber Law Group P.L.L.C. Jore Corporation Stoel Rives LLP
1325 Fourth Avenue, Suite 1200 45000 Highway 93 South 3600 One Union Square
Seattle, Washington 98101-2509 Ronan, Montana 59864 600 University Street
Telephone: (206) 464-0460 Telephone: (406) 676-4900 Seattle, Washington 98101-3197
Facsimile: (206) 464-2857 Facsimile: (406) 676-8400 Telephone: (206) 624-0900
Facsimile: (206) 386-7500
</TABLE>
------------------------------
Approximate date of commencement of proposed sale to the public:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT
------------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
The information in this Prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This Prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 30, 1999
4,000,000 Shares
[LOGO]
Common Stock
This is the initial public offering of Jore Corporation common stock. We are
selling 3,700,000 shares and one of our shareholders is selling 300,000 shares.
We will not receive any of the proceeds from the sale of shares by our
shareholder. No public market currently exists for our shares. We anticipate
that the initial public offering price will be between $9.00 and $11.00 per
share. We intend to list our common stock on the Nasdaq National Market under
the symbol "JORE."
We have granted the underwriters a 30 day option to purchase a maximum of
600,000 additional shares to cover over-allotments of shares.
--------------
Investing in the common stock involves risks.
See "Risk Factors" starting on page 4.
--------------
<TABLE>
<CAPTION>
Proceeds to
Underwriting Proceeds to Selling
Price to Public Discount Company Shareholder
<S> <C> <C> <C> <C>
Per Share..................... $ $ $ $
Total......................... $ $ $ $
</TABLE>
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
--------------
D.A. DAVIDSON & CO.
JANNEY MONTGOMERY SCOTT LLC
FIRST SECURITY VAN KASPER
The date of this prospectus is , 1999
<PAGE>
DESCRIPTION OF PHOTOGRAPHS AND OTHER ARTWORK
Inside front and back covers--Jore Corporation logo including "Where innovation
meets reality" slogan
Gatefold pages--On left page--Caption of "Innovative Products"
- Photograph of an assortment of power tool accessories, such as drill bits,
quick connectors, screwdriver bits, and saw blades under a variety of
brand names, including Stanley and Craftsman
- Photograph of an end-cap display of our products under the Speed-Lok brand
at a Sear's store
- Photograph of a quarter pallet display of Jore products under the Stanley
brand
On right page--Caption of "Innovative Processes"
- Photograph of a Stratasys prototyping machine
- Photograph of a design engineer creating a product/packaging schematic
- Photograph of Jore drill bit manufacturing equipment
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary.............................. 1
Risk Factors.................................... 4
Use of Proceeds................................. 13
S Corporation Distribution...................... 13
Dividend Policy................................. 13
Capitalization.................................. 14
Dilution........................................ 15
Selected Consolidated Financial Data............ 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 17
Business........................................ 26
<CAPTION>
PAGE
---------
<S> <C>
Management...................................... 38
Certain Transactions............................ 44
Principal and Selling Shareholders.............. 47
Description of Capital Stock.................... 48
Shares Eligible for Future Sale................. 49
Underwriting.................................... 51
Legal Matters................................... 53
Experts......................................... 53
Change in Accountants........................... 53
Additional Information.......................... 53
Index to Consolidated Financial
Statements.................................... F-1
</TABLE>
------------------------
JORE-TM-, SPEED-LOK-TM-, SPEED SHANK-REGISTERED TRADEMARK-,
QUAD-DRIVER-REGISTERED TRADEMARK-, BIT-LOK-REGISTERED TRADEMARK-, HIGH TORQUE
POWER DRIVER-TM-, MONTANA TOOL CORPORATION-TM-, TORQUE DRIVER-TM-, ULTRA
CUT-TM-, JORETECH-TM-, WHERE INNOVATION MEETS REALITY-TM- and AUTO JAW-TM- are
trademarks of Jore Corporation. All other trademarks or service marks appearing
in this prospectus are trademarks or service marks of their respective owners.
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS THE MOST IMPORTANT INFORMATION ABOUT THIS OFFERING.
THIS SUMMARY IS NOT COMPLETE AND DOES NOT CONTAIN ALL OF THE INFORMATION THAT
YOU SHOULD CONSIDER BEFORE INVESTING IN THE COMMON STOCK. YOU SHOULD READ THE
ENTIRE PROSPECTUS CAREFULLY, IN PARTICULAR THE RISKS OF INVESTING IN THE COMMON
STOCK DISCUSSED UNDER "RISK FACTORS" ON PAGES 4 TO 12.
JORE CORPORATION
Jore Corporation is a leader in the design, manufacture and marketing of
innovative power tool accessories and hand tools for the do-it-yourself and
professional craftsman markets. We offer a comprehensive system of proprietary
drilling and driving products that save users time through enhanced
functionality, productivity and ease of use. We manufacture our products using
advanced technologies and equipment designs, thus achieving competitive
advantages in cost, quality and production capacity. Our products are sold under
private labels to the industry's largest retailers and power tool manufacturers,
such as Sears, Roebuck and Co., TruServ Corporation, Black & Decker Corporation
and Makita Corporation. In addition, we recently signed an agreement with The
Stanley Works that grants us an exclusive license to sell power tool accessories
under the STANLEY-REGISTERED TRADEMARK- brand. From 1996 to 1998, we increased
our annual net revenues from $9.7 million to $44.9 million. Income from
operations increased from a loss of $63,000 to a profit of $7.7 million during
the same period.
The cornerstone of our power tool accessories portfolio is a patented quick
change drilling and driving system that enables single-handed interchangeability
of a full range of hex-shank drilling, driving and surface preparation
accessories. In addition to quick interchangeability, our hex-shank accessories
provide enhanced torque transmission as compared to traditional round-shank
products. Our system also includes our patented reversible drill and driver and
screw guide accessories. We are broadening our product portfolio to include a
variety of other power tool accessories such as saw blades, router bits and
other accessories. We also have recently begun to offer several proprietary hand
tools with innovative features for improved functionality.
The development and commercial availability of cordless power tools since
the early 1980s has created a growing installed base of these tools among
do-it-yourself consumers, professional craftsmen and industrial users. The
increased use of cordless power tools has led to a growing demand for new and
improved power tool accessories. According to industry sources and our market
research, we believe that the worldwide addressable market for our products is
approximately $13.0 billion per year. In the United States, our addressable
market is approximately $5.7 billion per year, consisting of $3.0 billion for
power tool accessories and $2.7 billion for hand tools. The drilling and driving
accessories market represents approximately $1.3 billion of the domestic power
tool accessories market. The remainder of the power tool accessories market
consists of saw blades, router bits and other accessories.
Our objective is to be the leading manufacturer of innovative products for
the global power tool accessories market. Our growth strategy includes the
following specific elements:
- EXPAND THE INSTALLED BASE AND APPLICATIONS OF OUR DRILLING AND DRIVING
SYSTEM--The base of consumers using our proprietary quick change
connectors is rapidly expanding. We believe that we can provide many new
and complementary hex-shank accessory products into this growing installed
base. Accordingly, we intend to develop and introduce new accessories
within our drilling and driving system.
- BROADEN OUR PRODUCT PORTFOLIO--We are broadening our product portfolio to
include other innovative products, such as select hand tools with
proprietary features. In addition, we are using our proprietary
manufacturing processes to achieve cost leadership in producing
traditional round-shank drill bits. We also will introduce other power
tool accessories and hand tools under
1
<PAGE>
the STANLEY-REGISTERED TRADEMARK- brand and our customers' private labels.
We will continue to seek opportunities to license new or existing products
and technologies to complement our internal product development efforts.
- ENHANCE EXISTING CUSTOMER RELATIONSHIPS--We believe that there are
significant opportunities to expand our sales to existing customers. We
plan to increase the number of products available to our customers,
establish a presence in customer stores at which Jore Corporation products
are currently not sold, and offer our products under different brands to
enable our customers to effectively target various price points and
consumer segments.
- DEVELOP NEW CUSTOMER RELATIONSHIPS--In order to broaden our customer base,
we are developing and expanding our relationships with retailers such as
The Home Depot Inc., Lowes Companies, Inc., Ace Hardware Corporation and
others. We believe that our ability to offer our products under both
private labels and the STANLEY-REGISTERED TRADEMARK- brand greatly
improves our ability to supply these retailers.
- EXPAND INTO THE INDUSTRIAL MARKET--We believe that the rapid
interchangeability of our accessories will also offer productivity
enhancements to industrial users. Consequently, we intend to introduce our
drilling and driving system to the industrial market, which we believe is
approximately equal in size to the retail market that we presently serve.
We also plan to competitively supply the industrial market with our
internally produced round-shank drill bits.
- EXPAND INTO FOREIGN MARKETS--We have expanded the distribution of our
products into Canada and intend to begin selling our products in Europe.
We will continue to evaluate opportunities to offer our products in other
foreign markets.
Our principal offices are located at 45000 Highway 93 South, Ronan, Montana
59864. Our telephone number is (406) 676-4900.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by Jore Corporation..... 3,700,000 shares
Common stock offered by the
selling shareholder........................ 300,000 shares
Common stock to be outstanding
after the offering......................... 13,222,800 shares
Use of proceeds.............................. For repayment of debt, funding the S
corporation distribution, capital
expenditures and working capital and general
corporate purposes. See "Use of Proceeds."
Proposed Nasdaq National Market symbol....... JORE
</TABLE>
This table is based on shares outstanding as of August 15, 1999 and
excludes:
- 1,224,692 shares of common stock issuable upon exercise of outstanding
options;
- 386,372 shares available for future issuance under our 1997 Stock Plan, as
amended; and
- 611,214 shares of common stock issuable upon exercise of outstanding
warrants.
2
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The information below should be read in conjunction with our Consolidated
Financial Statements and the Notes thereto, and the sections captioned "Selected
Consolidated Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------
STATEMENT OF OPERATIONS DATA: 1996 1997 1998 SIX MONTHS
--------- --------- --------- ENDED
JUNE 30,
1994 1995 -------------
------------- ------------- 1998
(UNAUDITED) (UNAUDITED) -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net revenues.................................. $ 9,590 $ 9,416 $ 9,686 $ 23,656 $ 44,888 $ 14,881
Gross profit.................................. 2,216 1,658 1,269 6,558 13,721 5,060
Income (loss) from operations................. 886 561 (63) 3,445 7,734 3,102
Net income (loss) as reported................. 625 189 (558) 2,541 6,240 2,484
Pro forma provision (benefit) for income
taxes....................................... 205 95 (199) 900 2,343 932
------ ------ --------- --------- --------- -------------
Pro forma net income (loss)................... $ 420 $ 94 $ (359) $ 1,641 $ 3,897 $ 1,552
------ ------ --------- --------- --------- -------------
------ ------ --------- --------- --------- -------------
Pro forma basic net income per common share... $ 0.40
---------
---------
Pro forma diluted net income per common
share....................................... $ 0.40
---------
---------
Pro forma weighted shares outstanding:
Basic....................................... 9,793
---------
---------
Diluted..................................... 9,816
---------
---------
<CAPTION>
STATEMENT OF OPERATIONS DATA:
1999
<S> <C>
Net revenues.................................. $ 18,057
Gross profit.................................. 5,312
Income (loss) from operations................. 2,011
Net income (loss) as reported................. 957
Pro forma provision (benefit) for income
taxes....................................... 366
-------------
Pro forma net income (loss)................... $ 591
-------------
-------------
Pro forma basic net income per common share... $ 0.06
-------------
-------------
Pro forma diluted net income per common
share....................................... $ 0.06
-------------
-------------
Pro forma weighted shares outstanding:
Basic....................................... 9,884
-------------
-------------
Diluted..................................... 10,056
-------------
-------------
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1999
-----------------------------------
PRO FORMA PRO FORMA
BALANCE SHEET DATA: ACTUAL ----------- AS ADJUSTED
--------- (UNAUDITED) -----------
(UNAUDITED)
<S> <C> <C> <C>
Working capital (deficit).................................................... $ (8,444) $ (11,808) $ 21,602
Property, plant and equipment, net........................................... 31,727 31,727 31,727
Total assets................................................................. 56,735 56,980 90,390
Operating line of credit..................................................... 10,279 10,279 10,279
Long-term debt, net of current portion....................................... 18,326 18,326 18,326
Total shareholders' equity................................................... 7,496 2,957 36,367
</TABLE>
For all periods presented, we operated as an S corporation and were not
subject to federal and state income taxes. Upon the completion of this offering,
we will become subject to federal and state income taxes. Pro forma net income
(loss) reflects federal and state income taxes as if we had not elected S
corporation status for income tax purposes. Pro forma net income per share is
based on the weighted average number of shares of common stock outstanding
during the period plus 360,900 shares, the estimated portion of the shares being
offered that would be necessary to fund the distribution of previously taxed but
undistributed S corporation earnings, which is estimated to be $3.6 million at
June 30, 1999. See Note 2 of Consolidated Financial Statements.
The preceding table summarizes:
- the pro forma balance sheet reflecting the declaration and payment of the
S corporation distribution, which is estimated to be $3.6 million at June
30, 1999. It also reflects the deferred income tax assets and liabilities
that would have been recorded at that date.
- the pro forma as adjusted balance sheet reflecting our sale of 3,700,000
shares of common stock in this offering at an assumed initial public
offering price of $10.00 per share, after deducting underwriting discounts
and our estimated offering expenses.
EXCEPT AS OTHERWISE NOTED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES NO
EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION AND GIVES EFFECT TO A
216.017-FOR-ONE SPLIT OF OUR COMMON STOCK CONSUMMATED ON MAY 12, 1999.
3
<PAGE>
RISK FACTORS
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. IF ANY OF THE FOLLOWING RISKS
MATERIALIZE, OUR BUSINESS, OPERATING RESULTS, AND FINANCIAL CONDITION COULD BE
MATERIALLY HARMED. THIS COULD CAUSE THE TRADING PRICE OF OUR COMMON STOCK TO
DECLINE, AND YOU COULD LOSE ALL OR PART OF YOUR INVESTMENT.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE KNOWN AND
UNKNOWN RISKS AND UNCERTAINTIES, SUCH AS STATEMENTS OF OUR PLANS, OBJECTIVES,
EXPECTATIONS, AND INTENTIONS. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
DISCUSSED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS,
INCLUDING THOSE SET FORTH BELOW. YOU SHOULD CAREFULLY CONSIDER THE RISKS AND
UNCERTAINTIES DESCRIBED BELOW AND THE OTHER INFORMATION IN THIS PROSPECTUS
BEFORE INVESTING IN OUR COMMON STOCK.
OUR RAPID GROWTH MAY MAKE IT DIFFICULT TO EFFECTIVELY ALLOCATE OUR RESOURCES AND
MANAGE OUR BUSINESS
We are experiencing significant growth in the sales of our products, the
number of employees and the amount of our production and cannot assure that we
will be able to manage any future growth effectively. We recently expanded our
operations by hiring additional personnel, increasing production capacity and
upgrading our information systems. Continued growth could strain our management,
production, engineering, financial and other resources. To manage our growth
effectively, we must add manufacturing capacity while maintaining high levels of
quality, manufacturing efficiency and customer service. We also must continue to
enhance our operational, financial and management systems and successfully
attract, train, retain and manage our employees. Any failure to manage our
growth effectively could have a material adverse effect on our business,
financial condition and results of operations, such as declines in revenues and
profit margins.
THE LOSS OF A LARGE CUSTOMER COULD RESULT IN A SUBSTANTIAL DECREASE IN REVENUES
Historically, most of our sales have been derived from a small number of
customers and, due to the continuing consolidation of the industry's
distribution channels, we expect a significant portion of our future sales to
remain concentrated among a limited number of customers. In 1997, sales to
Sears, Black & Decker/DeWalt, Makita and Home Depot accounted for 31.9%, 21.5%,
25.6% and 17.0%, respectively, of our net revenues. In 1998, sales to Sears,
Black & Decker/DeWalt and Makita accounted for 60.2%, 17.2% and 14.5%,
respectively, of our net revenues. A significant decrease in sales to, or the
loss of, any of our major customers would have a material adverse effect on our
business, prospects, operating results and financial condition, such as a
substantial decline in revenues.
THE MARKETING OF OUR PRODUCTS UNDER THE STANLEY-REGISTERED TRADEMARK- BRAND MAY
BE UNSUCCESSFUL AND MAY ADVERSELY AFFECT OUR RELATIONSHIPS WITH EXISTING
CUSTOMERS
In April 1999, we signed an agreement with The Stanley Works that grants us
the exclusive license to sell power tool accessories under the
STANLEY-REGISTERED TRADEMARK- brand and indemnifies us for damages and costs
incurred in connection with any infringement claims arising out of our use of
Stanley's trademarks and trade dress. Some of our existing customers may view
our license arrangement with Stanley unfavorably, and therefore reduce or stop
purchases of our products. For example, in June 1999, Black & Decker advised us
that our proposed introduction of STANLEY-REGISTERED TRADEMARK- branded power
tool accessories in yellow and black packaging would violate Black & Decker's
trademark rights under its DEWALT-REGISTERED TRADEMARK-brand. In response to
Black & Decker's assertions, Stanley filed a lawsuit, which we joined as a co-
plaintiff, seeking a judgment that, among other things, the use of the colors
yellow and black with the STANLEY-REGISTERED TRADEMARK- name or trademark on
power tool accessories does not infringe or dilute Black & Decker's trademark
rights. On July 7, Black & Decker asserted counterclaims against Stanley and
Jore for unfair
4
<PAGE>
competition and trademark and trade dress infringement. This lawsuit, which is
described more fully in "Business--Legal Proceedings" on page 36, poses the
risks that:
- We may be required to modify the colors of the packaging and promotional
materials for our STANLEY-REGISTERED TRADEMARK--branded products which
could diminish the value of, and limit our sales and growth prospects
associated with, the STANLEY-REGISTERED TRADEMARK- brand;
- We could incur significant expenses and be required to pay damages if
Stanley fails to fulfill its indemnification obligations to us; and
- Black & Decker could limit or terminate its business relationship with us.
The occurrence of any of these events could have a material adverse effect on
our business, operating results and financial condition by increasing our costs,
reducing our sales and diverting management resources.
In addition, retailers may choose not to offer our products under the
STANLEY-REGISTERED TRADEMARK- brand. We cannot be certain that the time and
resources we will spend marketing our products under the STANLEY-REGISTERED
TRADEMARK- brand will lead to increased sales and profitability. Other potential
risks in connection with this licensing agreement include:
- The failure by Stanley to maintain the integrity and quality of its brand
image in the minds of its consumers; and
- Our inability to meet the performance requirements of the licensing
agreement may cause Stanley to terminate our agreement.
OUR FAILURE TO DEVELOP NEW DISTRIBUTION CHANNELS COULD DIMINISH OUR REVENUE
GROWTH
We cannot assure that we will be able to develop new distribution channels
or penetrate the industrial market or that this growth strategy can be
implemented profitably. Our growth depends, in part, on our ability to develop
new distribution channels, including penetration of the industrial market for
our products. Challenges that we face in developing new distribution channels
include:
- Obtaining customer acceptance of our products;
- Managing existing customer relationships;
- Establishing relationships with new customers;
- Displacing incumbent vendor relationships; and
- Successfully introducing new products under the STANLEY-REGISTERED
TRADEMARK- brand.
Our failure to develop new distribution channels could have a material
adverse effect on our business, operating results, and financial condition,
particularly future revenue levels.
THE LOSS OF ANY OF OUR KEY PERSONNEL COULD ADVERSELY AFFECT OUR ABILITY TO
MANAGE OUR BUSINESS
Our performance and future success depends to a significant extent on our
senior management and technical personnel, and in particular on the skills,
experience, and continued efforts of Matthew Jore, Jore Corporation's founder,
President and Chief Executive Officer. The loss of Matthew Jore or any of our
other key personnel could have a material adverse effect on our business and
prospects. We have an employment agreement with Matthew Jore but do not have
employment agreements with any of our other employees.
5
<PAGE>
OUR PRODUCTION PROCESSES COULD BE DISRUPTED AND OUR COST OF PRODUCTION COULD
INCREASE SIGNIFICANTLY IF OUR MANUFACTURING EQUIPMENT DOES NOT MEET
PERFORMANCE EXPECTATIONS OR IS NOT AVAILABLE FOR FUTURE PURCHASE
The failure of our manufacturing equipment to perform reliably and as
designed, our inability to source such equipment from present suppliers, or the
obsolescence of our equipment could disrupt our production processes, reduce our
sales and increase production costs. Our business is dependent on the successful
implementation and operation of advanced manufacturing technologies. Our
manufacturing equipment may fail to meet our performance requirements or
continue to operate reliably because of unexpected design flaws or manufacturing
defects. Moreover, we may be unable to continue to obtain equipment and supplies
from our present suppliers if they cease producing or selling such equipment or
supplies or opt not to sell to us. In addition, we cannot be certain that our
manufacturing processes will remain competitive with new and evolving
technologies.
OUR INABILITY TO INTRODUCE NEW PRODUCTS THAT ARE ACCEPTED BY THE MARKET COULD
ADVERSELY AFFECT OUR SALES, OUR REPUTATION AS AN INNOVATIVE MANUFACTURER AND
OUR ABILITY TO OBTAIN NEW CUSTOMERS
Our future success will depend in part on our continuous and timely
development and introduction of new products that address evolving market
requirements. We cannot assure that our new products will be introduced on a
timely basis or will achieve market acceptance. We may be unable to successfully
develop and produce new products because of a lack of market demand, production
capacity constraints or the lack of relevant technical and engineering
expertise. Factors affecting the market acceptance of our new products include:
- Functionality, quality and pricing;
- Demand from end-users;
- Favorable reviews in trade publications;
- Adequate marketing support;
- The introduction of competitive products; and
- General trends in the power and hand tool industries and the home
improvement market.
OUR GROWTH STRATEGY DEPENDS IN PART ON OUR EXPANSION INTO FOREIGN MARKETS, WHICH
MAY BE DIFFICULT OR UNPROFITABLE
We intend to expand distribution of our products in foreign markets. Because
of the size and continued growth of the power tools accessories market outside
North America, the failure to successfully enter foreign markets could limit our
growth prospects. In our attempt to enter foreign markets, we may expend
financial and human resources without a corresponding increase in revenues and
profitability. We cannot assure that we will be able to penetrate foreign
markets or that this growth strategy can be implemented profitably. Penetrating
and conducting business in foreign markets involves challenges, including:
- Local acceptance of our products;
- Currency controls and fluctuations in foreign exchange rates;
- Regulatory requirements such as tariffs and trade barriers;
- Longer payment cycles and increased difficulty in collecting accounts
receivable;
- Unfavorable tax consequences; and
- Transportation and logistics.
6
<PAGE>
WE FACE COMPETITION IN THE POWER TOOL ACCESSORIES AND HAND TOOLS MARKETS
The power tool accessories and hand tools markets are mature and highly
competitive. We cannot assure that we will be able to compete in our target
markets. In the power tool accessory market competitors include Vermont American
Corporation, Black & Decker Corporation, Greenfield Industries, Inc., a
wholly-owned subsidiary of Kennametal Inc., American Tool Companies, Inc.,
Snap-On Incorporated and others, as well as a number of other companies that
supply products under private labels to OEM and retail customers. Some of these
competitors offer products similar to ours or different products with similar
functionalities. In particular, Black & Decker has developed a product line with
similar characteristics to our quick-change system. In the hand tool market,
competitors include American Tool Companies, Inc., Cooper Industries, Inc., The
Stanley Works and others, including foreign manufacturers such as Sandvik AB.
Many of our competitors are established companies that have significantly
greater financial, technical, manufacturing, sales and marketing, and support
resources than Jore Corporation. In addition, many of our competitors own
well-known brands, enjoy large end-user bases, and benefit from long-standing
customer relationships. We believe that consumers in our markets generally are
loyal to a particular brand. Therefore, it may be difficult to generate sales to
consumers who have purchased products from competitors. Our failure to compete
successfully against current or future competitors would have material adverse
effects on our business, operating results, and financial condition including
loss of customers, declining revenues and loss of market share.
OUR DEPENDENCE ON CUSTOMER FORECASTS TO MANAGE OUR BUSINESS MAY CAUSE US TO
MISALLOCATE OUR PRODUCTION, INVENTORY OR OTHER RESOURCES
Significant or numerous cancellations, reductions or delays in orders by a
principal customer or a group of customers could have a material adverse effect
on our revenues, inventory levels and profit margins. We rely on our customers'
forecasts to anticipate their future volume of orders, which typically do not
become contractual obligations until approximately 30 days prior to shipment. We
rely on these forecasts when making commitments regarding the level of business
that we will seek and accept, the mix of products that we intend to manufacture,
the timing of production schedules, and our use of equipment and personnel. The
size and timing of orders placed by our customers varies due to a number of
factors, including consumer demand, inventory management by customers, our
customers' manufacturing or marketing strategies, and fluctuations in demand for
competing and complementary products. In addition, a variety of economic
conditions, both specific to individual customers and generally affecting the
markets for our products, may cause customers to cancel, reduce or delay orders
that were previously made or anticipated.
OUR BUSINESS IS SEASONAL AND OUR OPERATING RESULTS ARE SUBJECT TO QUARTERLY
FLUCTUATIONS
Seasonality and unanticipated changes in customer demand could cause our
revenue, expenses, inventory levels and operating results to fluctuate.
Currently, the majority of our sales occur during the third and fourth fiscal
quarters and our operating results depend significantly on the holiday selling
season. In 1997 and 1998, approximately 69% and 67%, respectively, of our net
revenues were generated during the third and fourth quarters. To support this
sales peak, we anticipate demand and build inventories of finished goods
throughout the first two fiscal quarters. In addition, our customers may reduce
or delay their orders during the first two fiscal quarters to balance their
inventory between the holiday selling seasons. As a result, our levels of raw
materials and finished goods inventories tend to be at their highest, relative
to sales, during the first half of the year. These factors can cause variations
in our quarterly operating results and potentially expose us to greater adverse
effects of changes in economic and industry trends.
7
<PAGE>
In addition, a substantial portion of our sales depends upon receiving
purchase orders for products to be manufactured and shipped in the same quarter
in which these orders are received. While we monitor our customers' needs, we
typically have a small backlog relative to net revenues, and a significant
portion of our orders are placed for production and delivery within a few weeks
from receipt of the order. As a result, the timing of revenue may be affected by
changes in production volume in response to fluctuations in customer and
end-user demand, introduction of new products by customers, and balancing of
customers' inventory to their sales estimates.
UNSATISFACTORY PERFORMANCE OF OUR NEW INFORMATION TECHNOLOGY SYSTEM COULD SLOW
OUR GROWTH
The satisfactory performance and reliability of our information systems are
essential to our operations and continued growth. We have implemented a new
information technology system that became operational during August 1999. If the
system fails to perform reliably or otherwise does not meet our expectations, we
could experience design, manufacturing, and shipping delays which, in turn,
could increase our costs and result in deferred or lost sales. Failure to
maintain our new information system, or unsatisfactory performance of the
system, could disrupt manufacturing operations and reporting systems, cause
delays in production and shipping of product, and adversely affect our
responsiveness to customers.
THE LOSS OR NON-PERFORMANCE OF OUR SALES REPRESENTATIVE COULD DISRUPT OUR SALES
EFFORTS
We coordinate our sales and marketing activities with a sales
representative, Manufacturers' Sales Associates, LLC. In 1998, Manufacturers'
Sales Associates and its affiliate received a commission on all of our sales.
The failure or inability of Manufacturers' Sales Associates to represent us
effectively, maintain relationships with our customers, attract new customers,
or satisfactorily perform marketing activities could adversely affect our
business, customer relationships, reputation and prospects for growth. Moreover,
Manufacturers' Sales Associates can terminate its relationship with us at any
time without penalty. Termination of this relationship would require us either
to conduct all of our sales and marketing activities internally or retain
another sales and marketing representative. Any such change could disrupt our
sales efforts and damage our customer relationships.
EXISTING AND POTENTIAL LITIGATION MAY DIVERT MANAGEMENT RESOURCES AND COULD
ADVERSELY AFFECT OUR OPERATING RESULTS
From time to time we have been, and expect to continue to be, subject to
legal proceedings and claims in the ordinary course of our business. Such
claims, even if not meritorious, could require the expenditure of significant
financial and managerial resources.
On August 16, 1999, Pete K. Block and Paul K. Block instituted separate
actions in Montana District Court against us, Matthew Jore individually and dba
Jore Enterprises, Michael Jore and Merle Jore. In their complaints, the Blocks
alleged, among other things, that they are collectively entitled to a 25%
interest in the capital stock of Jore Enterprises and any successor corporation.
Their lawsuits are based in part upon an agreement, dated October 10, 1989,
between the Blocks and Matthew, Michael and Merle Jore. The Blocks seek as
remedies dissolution of Jore Corporation and a preliminary injunction preventing
us from proceeding with this offering. In addition, the Blocks have alleged that
they have suffered damages of not less than $10 million and are seeking
compensatory and punitive damages, attorneys' fees and costs, and injunctive
relief preventing any reorganization or sale that would cause them to
collectively own less than 25% of the equity of Jore Enterprises and any
successor corporation.
Litigation is inherently uncertain, and we cannot assure that we and/or the
Jores will prevail in the suit. To the extent that the Blocks become entitled to
shares of our common stock as a result of the suit, we may be required to
recognize an expense equal to the number of shares issued multiplied by the fair
value of the common stock on the date of issuance. Satisfaction of such
liabilities through the
8
<PAGE>
issuance of shares could result in the recognition of future expenses, which
could have a material adverse effect on our results of operations. For further
discussion of this matter, see "Business--Legal Proceedings."
WE SUBSTANTIALLY RELY ON CONTRACTS WITH AFFILIATES WHOSE INTERESTS MAY NOT
ALWAYS COINCIDE WITH THOSE OF OUR PUBLIC SHAREHOLDERS
The existence of, or potential for, conflicts-of-interest between two of our
directors and us could adversely influence decisions relating to sales and
marketing and printing and packaging of our products. We rely substantially on
our sales representative, Manufacturers' Sales Associates, for sales and
marketing assistance and on Printing Press Incorporated for printing and
packaging materials. Our director William M. Steele is the managing member and
owns 50% of Manufacturers' Sales Associates, and our director Bruce Romfo owns
30% of Printing Press Incorporated. In 1998, Manufacturers' Sales Associates and
its affiliate earned an aggregate of $1.8 million in sales commissions and we
purchased $2.0 million printing and packaging materials from Printing Press.
Because of their significant ownership stakes in these two entities, the
interests of Messrs. Steele and Romfo may diverge from those of Jore Corporation
and its public shareholders.
UNFAVORABLE CHANGES IN COSTS AND AVAILABILITY OF RAW MATERIALS MAY ADVERSELY
AFFECT OUR MANUFACTURING OPERATIONS AND ABILITY TO SATISFY OUR CUSTOMERS'
ORDERS
We purchase raw materials, key components and certain products from third
party vendors. Although there are alternative sources for these raw materials,
components, and products, we could experience manufacturing and shipping delays
if it became necessary to change or replace current suppliers, or to produce
certain components or products internally. In addition, the prices of raw
materials supplied by certain vendors are influenced by a number of factors,
including general economic conditions, competition, labor costs, and general
supply levels. Our inability to obtain reliable and timely supplies of
out-sourced products and components and raw materials on a cost effective basis,
or any unanticipated change in suppliers, could have a material adverse effect
on our manufacturing operations, revenues and profitability.
WE DEPEND ON PATENT, TRADEMARK AND TRADE SECRET PROTECTION TO MAINTAIN OUR
MARKET POSITION
Our success depends in part on our ability to obtain patent protection for
our products, maintain trade secret protection for our proprietary processes,
and operate without infringing on the proprietary rights of others. Our existing
U.S. and foreign patents expire between 2002 and 2012. We have filed, and intend
to file, applications for additional patents covering our products. We cannot be
certain that any of these patent applications will be granted, that any future
inventions that we develop will be patentable or will not infringe the patents
of others, or that any patents issued to or licensed by us will provide us with
a competitive advantage or adequate protection for our technology. In addition,
we cannot assure that any patents issued to or licensed by us will not be
challenged, invalidated or circumvented by others.
We believe that trademarks owned or licensed by us enhance our position in
the marketplace and are important to our business. Our inability to use any of
our trademarks could adversely affect our customer relationships and revenues.
We cannot be certain that we will retain full rights to use our trademarks in
the future. For further discussion of these matters, see "Business--Intellectual
Property" and "Business--Legal Proceedings."
THE COST OF PROTECTING AND DEFENDING OUR PATENTS, TRADEMARKS AND TRADE SECRETS
MAY BE SIGNIFICANT
The defense and prosecution of patent claims, and litigation involving
intellectual property rights generally, is both costly and time consuming. If
any of our products are found to have infringed any
9
<PAGE>
patent or other third party proprietary right, we may be unable to obtain
licenses to continue to manufacture and sell such products or may have to pay
damages as a result of such infringement.
We endeavor to protect our trade secrets by entering into confidentiality
agreements with third parties, employees and consultants and generally control
access to our facilities and distribution of our proprietary documentation and
other materials. Confidentiality and non-disclosure obligations are difficult to
enforce, however, and we may lack an adequate remedy for breach of a
confidentiality agreement. Moreover, a third party could gain access to our
trade secrets through means other than by breach of a confidentiality agreement,
or could develop independently a process substantially similar to our trade
secrets. In addition, the laws of other countries in which we market or may
market our products may afford little or no effective protection of our
intellectual property.
WE COULD BECOME SUBJECT TO PRODUCT LIABILITY LAWSUITS
We face a potential risk of product liability claims because our products
may be used in activities where injury may occur such as the building and
construction industries. Although we have product liability insurance coverage,
we cannot be certain that this insurance will adequately protect us against
product liability claims or that we will be able to maintain this insurance at
reasonable cost and on reasonable terms. To the extent that we are found liable
for damages with respect to a product liability claim and lack adequate
insurance coverage to satisfy such claim, our business, operating results, and
financial condition could be materially and adversely affected.
AFTER THIS OFFERING, THE JORE FAMILY WILL CONTINUE TO CONTROL ALL MATTERS
REQUIRING SHAREHOLDER APPROVAL POSSIBLY IN CONFLICT WITH YOUR INTERESTS
Upon completion of the offering, Matthew Jore, acting alone, or the Jore
family, acting together, will be able to control all matters requiring
shareholder approval. Matthew Jore, President and Chief Executive Officer, his
brother Michael Jore, Executive Vice President, trusts controlled by Matthew and
Michael Jore, and other members of the Jore family will beneficially own
approximately 66.2% of our outstanding common stock or 64.3% if the
underwriters' overallotment option is exercised in full. Our Articles of
Incorporation and Bylaws do not provide for cumulative voting; therefore, the
Jore family will have the ability to elect all of our directors. The Jore family
also will have the ability to approve or disapprove significant corporate
transactions without further vote by the investors who purchase common stock in
this offering. This ability to exercise control over all matters requiring
shareholder approval could prevent or significantly delay another company or
person from acquiring or merging with us. For additional information about the
control of Jore Corporation by the Jore family, see "Management" and "Principal
and Selling Shareholders."
WE MAY NEED ADDITIONAL CAPITAL WHICH WOULD DILUTE YOUR INTEREST IN THE COMPANY
We believe that our cash resources, including borrowings under our credit
facilities and cash from operations, and the net proceeds from this offering
will be sufficient to finance our anticipated growth for approximately the next
12 months. However, we may be required to raise additional equity or debt
capital to continue our current levels of operations and to enhance our
financial position for future operations. Financings may be unavailable to us
when needed or, if available, may be on unfavorable terms or may be dilutive to
our shareholders. If financing is unavailable to us or is available only on a
limited basis, we may be unable to develop or enhance our products, take
advantage of business opportunities or respond to competitive pressures, any of
which could have a material adverse effect on our business, operating results,
and financial condition.
WE USE DEBT WHICH CREATES FINANCIAL AND OPERATING RISK
We have relied on debt and may seek additional debt funding in the future.
As of June 30, 1999, we had approximately $18.3 million of outstanding long-term
debt, net of current portion, which
10
<PAGE>
accounted for 71.0% of our total capitalization. Our leverage poses the risks
that:
- We may be unable to repay our debt due to a decline in revenues or
disruption in cash flow;
- We may be unable to obtain additional financing;
- We must dedicate a substantial portion of our cash flow from operations to
servicing the interest and principal payments on our debt, and any
remaining cash flow may be inadequate to fund our planned operations;
- We have pledged substantially all of our inventory and accounts receivable
as collateral; and
- We may be more vulnerable during economic downturns, less able to
withstand competitive pressures and less flexible in responding to
changing business and economic conditions.
ANY FAILURE OF OUR INFORMATION TECHNOLOGY AND COMPUTER CONTROLLED SYSTEMS TO BE
YEAR 2000 COMPLIANT COULD SUBJECT US TO UNFORESEEN EXPENSES
We may not accurately identify all potential Year 2000 problems within our
business, and the corrective measures that we implement may be ineffective or
incomplete. Any such problems could interrupt our ability to manufacture our
products, process orders, accurately report operating and financial data or
service our customers. Similar problems and consequences could result if any of
our key suppliers or customers experience Year 2000 problems. Our failure or the
failure of our significant suppliers and customers to adequately address the
Year 2000 issue could adversely affect our business, operating results and
financial condition. For more information about our Year 2000 compliance
efforts, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Impact of the Year 2000 Computer Problem."
OUR LOCATION ON PRIVATE PROPERTY WITHIN A NATIVE AMERICAN RESERVATION COULD
SUBJECT US TO UNFORESEEN REGULATION
Our corporate offices and manufacturing facilities are located on private
property within the Flathead Indian Reservation. We may be or become subject to
the jurisdiction of the tribal government or court in any disputes involving any
of the three tribes located on the reservation or their members. In particular,
the tribal government may seek to assert civil regulatory authority over the
conduct of our business under federal laws and treaties under which any of the
tribes, their members, or non-member successors to ownership of land formerly
owned by members of any of the tribes have senior priority. In addition, the
tribal government may have the ability to regulate certain of our activities if
those activities are shown to directly affect any of the tribes, if we enter
into contracts with a tribe or its members, or if a tribe implements laws
governing our business conduct. Currently, the tribal government does not
regulate any of our business activities, however, any regulations that it may
seek to impose could have a material adverse effect on our business, operating
results and financial condition.
FUTURE SALES OF CURRENTLY OUTSTANDING SHARES COULD NEGATIVELY AFFECT OUR STOCK
PRICE
The market price of our common stock could decrease as a result of sales of
a large number of shares in the market after this offering or in response to the
perception that such sales could occur. All of the 4,000,000 shares sold in this
offering will be freely tradable, while the 9,222,800 other shares outstanding
after this offering, based on the number of shares outstanding on August 15,
1999, will be "restricted securities" as defined in Rule 144 of the Securities
Act of 1933. Of these restricted securities 8,974,903 will be subject to 180-day
lock-up agreements. After expiration of the lock-up period, all of such shares
will be eligible for immediate sale, in certain instances subject to the volume
limitations of Rule 144. D.A. Davidson & Co. can release shares from one or more
of the lock-up agreements
11
<PAGE>
without our approval. For additional information on shares that are currently
outstanding, see "Shares Eligible for Future Sale."
CERTAIN PROVISIONS UNDER STATE CORPORATE LAW AND OUR CORPORATE CHARTER COULD
HAVE AN ADVERSE EFFECT ON OUR STOCK PRICE
Certain provisions of our Articles of Incorporation, Bylaws and Montana
corporate law could be used by our incumbent management to make it substantially
more difficult for a third party to acquire control of Jore Corporation. These
provisions could discourage potential takeover attempts and could adversely
affect the market price of our common stock. For additional information and
further discussion of charter provisions and corporate law, see "Description of
Capital Stock--State Corporate Law and Certain Charter Provisions."
POTENTIAL INVESTORS SHOULD NOT RELY ON STATEMENTS MADE IN OUR PRESS RELEASES
WHEN DECIDING WHETHER TO PURCHASE OUR COMMON STOCK
From time to time, we issue press releases concerning our products and
business. In April 1999, for example, we issued a press release announcing a
relationship with Time Domain Corporation. It contained statements regarding our
belief that this relationship will allow us to produce an entirely new
generation of tools. These statements may not be verifiable by third parties and
were based on our internal development efforts and projections based on our
understanding of Time Domain's inventions. As a result, these statements are
subject to potential risks and uncertainties including many of the risks
described in this prospectus. You should not rely on any of the statements from
our press releases when deciding whether to purchase our common stock. Instead,
you should rely only on the information contained in this prospectus when making
an investment decision.
WE HAVE ISSUED WARRANTS IN CONNECTION WITH OUR RECENT PRIVATE PLACEMENT THAT MAY
BE DILUTIVE TO NEW INVESTORS
In connection with our recent private placement of subordinated notes and
warrants, we issued common stock purchase warrants that may be exercisable at a
price below the initial public offering price. We issued 539,343 warrants to
purchase common stock at an exercise price of $9.10 and 50,000 warrants to
purchase common stock at an exercise price of $10.00. If the price of our common
stock is greater than the exercise price of the warrants when they are
exercised, then new investors will suffer dilution and the holders of the
warrants will obtain gains.
12
<PAGE>
USE OF PROCEEDS
At an assumed initial public offering price of $10.00 per share the net
proceeds from the sale of shares of common stock to be sold by Jore Corporation
are expected to be approximately $33.4 million, after deduction of underwriting
discounts and estimated offering expenses payable by us. We will not receive any
proceeds from the sale of common stock by the selling shareholder.
We intend to use the net proceeds from this offering approximately as
follows:
- $12.9 million to repay indebtedness under bridge loans incurred between
April and August 1999;
- $3.6 million to fund the S corporation distribution to our current
shareholders; and
- $16.9 million to undertake capital expenditures and for additional working
capital and general corporate purposes.
Bridge loans incurred between April and August 1999 bear interest at rates
ranging from 6.5% to 7.0%. Of these bridge loans, $12.9 million in principal
amount will mature five days after the completion of this offering and the
balance will mature beginning in April 2000 and ending in December 2000.
In addition to the uses set forth above, we also may use a portion of the
net proceeds to license or acquire new products or technologies or to acquire or
invest in businesses complementary to ours, although we currently have no
agreements or commitments to do so.
The amounts that we actually expend for capital expenditures, working
capital and general corporate purposes may vary depending on a number of
factors, including future revenue growth, if any, and the amount of cash that we
generate from operations. As a result, we will retain discretion in the
allocation of the net proceeds of this offering. Pending application, we intend
to invest the net proceeds of this offering in short-term, investment-grade,
interest-bearing securities.
S CORPORATION DISTRIBUTION
Prior to the offering, we have been a corporation subject to taxation under
Subchapter S of the Internal Revenue Code of 1986. As a result, our net earnings
have been taxed, for federal and state income tax purposes, as income of our
shareholders. We have periodically paid dividends to our shareholders in amounts
exceeding their liabilities for taxes. For further discussion of 1997 and 1998 S
corporation distributions, see "Certain Transactions."
We will terminate our S corporation status prior to the completion of this
offering and agree to distribute to our current shareholders a final amount
representing our previously taxed but undistributed S corporation earnings
through the S corporation termination date. The amount of the final distribution
would have been approximately $3.6 million at June 30, 1999, but the amount
distributed will include our actual taxable income through the S corporation
termination date. Purchasers of shares of common stock in the offering will not
receive any portion of the S corporation distribution.
DIVIDEND POLICY
Except for the S corporation distribution discussed above, we do not
anticipate paying cash dividends in the foreseeable future, but intend to retain
any future earnings for reinvestment in the operation and expansion of our
business. Any determination to pay cash dividends will be at the discretion of
the Board of Directors and will be dependent upon our financial condition,
results of operations, capital requirements and such other factors as the Board
of Directors deems relevant.
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<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of Jore Corporation as of
June 30, 1999:
- On an actual basis;
- On a pro forma basis to give effect to S corporation distributions after
June 30, 1999 and to create deferred tax balances as a C corporation; and
- On a pro forma as adjusted basis to give effect to the receipt by us of
the estimated $33.4 million of net proceeds from this offering.
The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and related Notes thereto
included elsewhere in this prospectus. The following table is based on shares
outstanding as of June 30, 1999. It excludes:
- 972,076 shares reserved for issuance under our stock plan, of which
877,791 were issuable upon exercise of stock options outstanding as of
June 30, 1999, with a weighted average exercise price of $6.63 per share;
- 311,064 shares issuable upon the exercise of stock options granted outside
our stock plan outstanding as of June 30, 1999, with a weighted average
exercise price of $9.26 per share; and
- 285,614 shares issuable upon the exercise of warrants outstanding as of
June 30, 1999, with a weighted average exercise price of $9.07 per share.
See "Management--Employee Benefit Plans" and Note 5 of Notes to Consolidated
Financial Statements.
<TABLE>
<CAPTION>
JUNE 30, 1999
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- -----------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Long-term debt, net of current portion..................................... $ 18,326 $ 18,326 $ 18,326
Shareholders' equity:
Preferred stock, no par value per share; 30,000,000 shares authorized, no
shares issued and outstanding, actual, pro forma, and pro forma as
adjusted............................................................... -- -- --
Common stock, no par value per share; 100,000,000 shares authorized,
9,522,800 shares issued and outstanding, actual; 9,903,000 shares
issued and outstanding, pro forma; 13,403,000 shares issued and
outstanding, pro forma as adjusted..................................... 1,952 3,230 36,640
Deferred compensation stock options...................................... (5) (4) (4)
Retained earnings........................................................ 5,549 (269) (269)
--------- ----------- -----------
Total shareholders' equity............................................. 7,496 2,957 36,367
--------- ----------- -----------
Total capitalization................................................. $ 25,822 $ 21,283 $ 54,693
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
14
<PAGE>
DILUTION
As of June 30, 1999, our net tangible book value was approximately
$2,709,000, or $0.28 per share of common stock after giving effect to an S
corporation distribution of $3,609,000 expected to be declared upon completion
of the offering. Net tangible book value per share represents the amount of our
tangible assets less the amount of our total liabilities, divided by the number
of shares of common stock outstanding.
Without taking into account any adjustment in net tangible book value
attributable to operations subsequent to June 30, 1999, after giving effect to
the sale by us of 3,700,000 shares of common stock in the offering at an assumed
initial public offering price of $10.00 per share and after deducting estimated
underwriting discounts and offering expenses and applying the net proceeds of
this offering, Jore Corporation's net tangible book value as of June 30, 1999
would have been approximately $36.1 million, or $2.73 per share. This represents
an immediate increase in net tangible book value of $2.45 per share to existing
shareholders and an immediate dilution of $7.27 per share to new investors. The
following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.......................... $ 10.00
---------
Net tangible book value per share as of June 30, 1999.................. 0.66
---------
Net decrease per share attributable to S corporation and tax-related
distributions........................................................ (0.38)
---------
Increase per share attributable to new investors....................... 2.45
---------
Adjusted net tangible book value per share after this offering........... 2.73
---------
Dilution per share to new investors...................................... $ 7.27
---------
---------
</TABLE>
The following table summarizes as of June 30, 1999, the relative investment
of all existing shareholders and the purchasers of shares of common stock in
this offering giving effect to the sale by us of the 3,700,000 shares at an
assumed initial public offering price of $10.00 per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders..................... 9,522,800 72.0% $ 1,770,742 4.6% $ 0.19
New investors............................. 3,700,000 28.0 37,000,000 95.4 $ 10.00
------------ ----- ------------- -----
Total................................... 13,222,800 100.0% $ 38,770,742 100.0%
------------ ----- ------------- -----
------------ ----- ------------- -----
</TABLE>
The above information assumes no exercise of any outstanding options or
warrants. As of June 30, 1999, there were outstanding options to purchase an
aggregate of 1,188,855 shares of common stock at a weighted average price of
$7.31 per share and outstanding warrants to purchase an aggregate of 285,614
shares of common stock at a weighted average price of $9.07 per share. Assuming
all of these options or warrants are exercised, dilution per share to new
investors would be $7.03 per share. We also may issue additional shares of
common stock to effect future acquisitions or upon exercise of future stock
option grants, which could result in additional dilution to our shareholders.
See "Management--Employee Benefit Plans" and Note 5 of Notes to Consolidated
Financial Statements.
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below as of December 31,
1997 and 1998 and for the years ended December 31, 1996, 1997 and 1998 are
derived from our consolidated financial statements, which have been audited by
Deloitte & Touche LLP, independent auditors. The selected consolidated financial
data as of December 31, 1994, 1995 and 1996 and for the years ended December 31,
1994 and 1995 are derived from our unaudited consolidated financial statements.
The selected balance sheet data as of June 30, 1999 and the selected
consolidated statement of operations data for the six months ended June 30, 1998
and 1999 are derived from our unaudited consolidated financial statements. In
the opinion of management, the unaudited consolidated financial statements have
been prepared on a basis consistent with the audited consolidated financial
statements which appear elsewhere in this prospectus and include all
adjustments, which are only normal recurring adjustments, necessary for a fair
statement of the financial position and results of operations for the unaudited
periods. Results for the six months ended June 30, 1999 are not necessarily
indicative of results for the year. You should read the data set forth below
together with "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and our Consolidated Financial Statements and the Notes
thereto appearing elsewhere in this prospectus.
For all periods presented, we were an S corporation for income tax purposes
and therefore not subject to federal and state income taxes. We have paid
distributions in the past to permit our shareholders to pay their income taxes
associated with our earnings. Our S corporation status will terminate upon
completion of this offering. The pro forma net income available to common
shareholders has been computed by adjusting net income, as reported, to record
the incremental income tax expense that would have been recorded had we been a C
corporation. The pro forma basic and diluted weighted average shares outstanding
include the estimated number of shares required to pay the S corporation
distribution.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED
(IN THOUSANDS, EXCEPT PER SHARE DATA) JUNE 30,
----------------------------------------------------- --------------------
STATEMENT OF OPERATIONS DATA: 1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues........................... $ 9,590 $ 9,416 $ 9,686 $ 23,656 $ 44,888 $ 14,881 $ 18,057
Cost of goods sold..................... 7,374 7,758 8,417 17,098 31,168 9,821 12,745
--------- --------- --------- --------- --------- --------- ---------
Gross profit......................... 2,216 1,658 1,269 6,558 13,720 5,060 5,312
Operating expenses:
Product development.................. 185 147 1 151 495 104 225
Sales and marketing.................. 20 27 31 620 2,509 711 759
General and administrative........... 1,125 923 1,300 2,342 2,983 1,144 2,317
--------- --------- --------- --------- --------- --------- ---------
Total operating expense............ 1,330 1,097 1,332 3,113 5,987 1,959 3,301
Income (loss) from operations.......... 886 561 (63) 3,445 7,733 3,102 2,011
Other expense.......................... 261 372 495 904 1,497 (617) (1,054)
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) as reported.......... 625 189 (558) 2,541 6,240 2,484 957
Pro forma provision (benefit) for
income taxes......................... 205 95 (199) 900 2,343 933 366
--------- --------- --------- --------- --------- --------- ---------
Pro forma net income (loss)............ $ 420 $ 94 $ (359) $ 1,641 $ 3,897 $ 1,551 $ 591
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Pro forma basic net income per common
share................................ $ 0.40 $ 0.06
--------- ---------
--------- ---------
Pro forma diluted net income per common
share................................ $ 0.40 $ 0.06
--------- ---------
--------- ---------
Pro forma weighted average shares
outstanding:
Basic................................ 9,793 9,884
--------- ---------
--------- ---------
Diluted.............................. 9,816 10,056
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1999
----------------------------------------------------- ----------------------
BALANCE SHEET DATA: 1994 1995 1996 1997 1998 ACTUAL PRO FORMA
--------- --------- --------- --------- --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Working capital (deficit).................... $ 29 $ (765) $ (44) $ 826 $ 28 $ (8,444) (11,808)
Property, plant and equipment, net........... 1,683 3,022 4,196 6,081 19,816 31,727 31,727
Total assets................................. 3,916 5,169 9,548 17,759 45,963 56,735 56,980
Operating line of credit..................... 302 900 1,094 4,673 13,525 10,279 10,279
Long-term debt, net of current portion....... 1,095 1,541 4,189 4,689 14,589 18,326 18,326
Total shareholders' equity................... 277 763 149 2,521 6,289 7,496 2,957
</TABLE>
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH
"SELECTED FINANCIAL DATA" AND JORE CORPORATION'S CONSOLIDATED FINANCIAL
STATEMENTS AND RELATED NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS. ALL
STATEMENTS, TREND ANALYSIS AND OTHER INFORMATION CONTAINED IN THIS PROSPECTUS
RELATIVE TO MARKETS FOR JORE CORPORATION'S PRODUCTS AND TRENDS IN REVENUE, GROSS
MARGIN AND ANTICIPATED EXPENSE LEVELS, AS WELL AS OTHER STATEMENTS INCLUDING
WORDS SUCH AS "SEEK," "ANTICIPATE," "BELIEVE," "PLAN," "ESTIMATE," "EXPECT" AND
"INTEND" AND OTHER SIMILAR EXPRESSIONS, CONSTITUTE FORWARD-LOOKING STATEMENTS.
THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO BUSINESS AND ECONOMIC RISKS, AND
OUR ACTUAL RESULTS OF OPERATIONS MAY DIFFER MATERIALLY FROM THOSE CONTAINED IN
THE FORWARD-LOOKING STATEMENTS. FOR A MORE DETAILED DISCUSSION OF THESE AND
OTHER BUSINESS RISKS, SEE "RISK FACTORS" BEGINNING ON PAGE 4.
OVERVIEW
Jore Corporation was founded to develop and produce innovative power tool
accessories to meet the increasing demand resulting from the growth in the
cordless power tool market. Our revenues have grown substantially through the
addition of new customers, increased sales to established customers and expanded
product offerings. Our business commenced in 1987, when we began selling a
limited number of drilling and driving accessories to independent local and
regional hardware stores and building supply centers. In 1990, Makita became our
first national customer and we devoted significant resources to servicing its
demand for our products. By 1996, we had expanded our product portfolio to
include our reversible drill and drivers and contractor versions of our
products. We also began to diversify our customer base by selling products to
Black & Decker/DeWalt, as well as to retail customers. In 1997 and 1998 we
continued to expand our customer base by selling to Sears, Home Depot, Canadian
Tire and TruServ and further expanded our product line by introducing our quick
change system and new drilling and driving accessories such as wood boring and
masonry bits. We expect to increase our revenues and margins by pursuing direct
relationships with major retailers through sales of private label and
STANLEY-REGISTERED TRADEMARK- branded products, increasing sales to existing
customers, and augmenting our existing product portfolio.
In 1999, we have incurred several significant non-recurring expenses in
order to position us for future growth. These expenses include the direct and
indirect costs to:
- Construct and reorganize our manufacturing, engineering and administrative
facilities;
- Purchase, install and test our new drill bit manufacturing equipment;
- Install our new management information system and train our personnel to
use it;
- Assess our Year 2000 readiness and implement our compliance program; and
- Perform a comprehensive three year audit of our financial statements.
Direct costs included the tangible, out-of-pocket costs incurred by us that
related to each activity. Indirect costs resulted from the diversion of time and
resources away from our normal operations while we administered these
activities.
In addition, we have undertaken several initiatives to enhance our
productivity. In the third and fourth quarters of 1998, for example, we more
than doubled our work force from 410 to 839 people. Although necessary at the
time to meet production schedules, this rapid increase in personnel resulted in
significant inefficiencies as we trained and integrated these employees into our
operations. We retained a significant number of employees from the year ended
December 31, 1998, to assist us in maintaining quality personnel and to increase
our productivity during the second half of the year when the majority of our
sales occur. Furthermore, to ensure an adequate supply of drill bits while we
began our internal production, we purchased an excess amount of drill bit
inventory from our existing
17
<PAGE>
supplier. We expect to consume this excess inventory by the fourth quarter of
1999 and to fill most of our future requirements from our own production
capacity.
Net revenues are recognized at the time of shipment and sales terms are
typically net 60 or 90 days. Historically, we have experienced negligible bad
debt and do not expect bad debt to be material in the future. Cost of goods sold
consists primarily of raw materials, labor, shipping and other manufacturing
expenses associated with the production and packaging of products.
Our operating expenses include product development costs, sales and
marketing expenses and general and administrative expenses. Product development
expenses consist principally of personnel costs and material associated with the
development of new products and changes to existing products, which are charged
to operations as incurred. Some expenses relating to product development are
classified in other expense categories, such as cost of goods sold and general
and administrative expenses. Sales and marketing expenses consist of salaries
and employee benefits for internal sales personnel, selling commissions paid to
Manufacturers' Sales Associates, our sales representative, and costs of
promotional events. General and administrative expenses consist primarily of
salaries and employee benefits for executive, managerial and administrative
personnel, license fees, facility leases, depreciation and amortization of
capitalized equipment costs and travel and business development costs. Other
expense consists primarily of interest expense associated with our borrowings
and interest income on cash and cash equivalents.
In connection with this offering we will terminate our S corporation status
and distribute to our current shareholders all of their previously taxed but
undistributed S corporation earnings. Prior to this offering, we engaged in
transactions to consolidate and combine related entities including Montana
American Equipment, LLC and Montana American Manufacturing Corporation. See
"Certain Transactions" and Notes 1, 2 and 8 of Notes to Consolidated Financial
Statements.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain financial
data as a percentage of net revenues:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues................................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold........................... 76.9 82.4 86.9 72.3 69.5 66.0 70.6
--------- --------- --------- --------- --------- --------- ---------
Gross profit............................... 23.1 17.6 13.1 27.7 30.5 34.0 29.4
Operating expenses:
Product development........................ 1.9 1.6 0.1 0.6 1.1 0.7 1.2
Sales and marketing........................ 0.2 0.3 0.3 2.6 5.6 4.8 4.2
General and administrative................. 11.7 9.8 13.4 9.9 6.6 7.7 12.8
--------- --------- --------- --------- --------- --------- ---------
Total operating expense.................. 13.9 11.7 13.8 13.1 13.3 13.2 18.3
Income (loss) from operations................ 9.2 5.9 (0.7) 14.6 17.2 20.8 11.1
Other expense:
Interest expense........................... 1.0 3.0 5.0 3.4 3.0 (3.5) (5.8)
Other income expense....................... 1.7 0.9 0.1 0.5 0.3 (0.7) 0
--------- --------- --------- --------- --------- --------- ---------
Net other expense........................ 2.7 3.9 5.1 3.9 3.3 (4.1) (5.8)
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) as reported................ 6.5% 2.0% (5.8)% 10.7% 13.9% 16.7% 5.3%
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
18
<PAGE>
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
NET REVENUES. Net revenues increased from $14.9 million for the six months
ended June 30, 1998 to $18.1 million for the six months ended June 30, 1999,
representing a 21.5% increase. Of the $3.2 million increase, sales to existing
customers accounted for $2.8 million and sales to new customers accounted for
$361,000. Most of this increase resulted from additional sales to Black &
Decker, Sears and Makita.
COST OF GOODS SOLD. Cost of goods sold increased from $9.8 million for the
six months ended June 30, 1998 to $12.7 million for the six months ended June
30, 1999, representing a 29.5% increase. Cost of goods sold as a percentage of
revenues increased from 66.0% for the six months ended June 30, 1998 to 70.6%
for the six months ended June 30, 1999. This increase is attributable to greater
indirect overhead, including several non-recurring start-up expenses related to
new manufacturing processes, and equipment depreciation associated with
expanding our internal manufacturing capabilities. Having fully absorbed these
costs during the first half of 1999, we expect to realize the benefits of these
initiatives in the third and fourth quarters of 1999.
PRODUCT DEVELOPMENT EXPENSES. Product development expenses increased from
$104,000 for the six months ended June 30, 1998 to $225,000 the six months ended
June 30, 1999, representing a 116.3% increase. Professional and technical labor
accounted for the majority of the increase as we hired additional engineers and
machinists to develop our proprietary products and corresponding processes. In
addition to the labor expensed for the six months ended June 30, 1998 and for
the six months ended June 30, 1999, we capitalized $66,000 and $648,000,
respectively, of labor related to equipment constructed in-house. These amounts
are included in property, plant and equipment on the balance sheet and
depreciated over the life of the equipment.
SALES AND MARKETING EXPENSES. Sales and marketing expenses increased from
$711,000 for the six months ended June 30, 1998 to $759,000 for the six months
ended June 30, 1999, representing a 6.8% increase. Advertising and promotion
expenses increased by $250,000 due to increased retail advertising, but this
increase was partially offset by a decrease in the sales commission percentage
paid to our sales representative. We increased our internal marketing and
graphics staff to accommodate increased sales and customer support activities as
our customer diversification efforts required us to produce more packaging and
merchandising materials.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased from $1.1 million for the six months ended June 30, 1998 to $2.3
million for the six months ended June 30, 1999, representing a 102.5% increase.
The increase is primarily a result of an increase in depreciation of equipment
from $330,000 for the six months ended June 30, 1998 to $869,000 for the six
months ended June 30, 1999, a 163.3% increase. The increase was also a result of
our initiatives to expand our operating capacity and administrative
infrastructure, as well as an increase in professional fees, including several
non-recurring expenses related to the audit of our financial statements and the
consolidation and combination of our operations. Further, we increased our
finance and administrative staff from 52 at June 30, 1998 to 94 at June 30,
1999. Having fully absorbed these costs during the first half of 1999, we expect
to realize the benefits of these initiatives in the third and fourth quarters of
1999.
OTHER EXPENSE. Other expense increased from $617,000 for the six months
ended June 30, 1998 to $1.1 million for the six months ended June 30, 1999,
representing a 70.8% increase. This increase in other expense is primarily
attributable to a larger amount of borrowings and a corresponding increase in
interest expense.
19
<PAGE>
PRO FORMA NET INCOME. As a result of all these factors, our pro forma net
income decreased from $1.6 million for the six months ended June 30, 1998 to
$591,000 for the six months ended June 30, 1999, representing a 61.9% decrease.
1998 COMPARED TO 1997
NET REVENUES. Net revenues increased from $23.7 million in 1997 to $44.9
million in 1998, representing an 89.8% increase. Of the $21.2 million increase,
sales to existing customers accounted for $19.0 million and sales to new
customers accounted for $2.2 million. In particular, we doubled our shelf space
at most Sears stores, increased the number of products sold to them and
increased the number of Sears stores carrying our products. These factors
combined to more than triple our sales to Sears during 1998.
COST OF GOODS SOLD. Cost of goods sold increased from $17.1 million in 1997
to $31.2 million in 1998, representing an 82.3% increase. Cost of goods sold
decreased as a percentage of revenues from 72.3% in 1997 to 69.4% in 1998. This
decrease is primarily attributable to the greater absorption of manufacturing
overhead associated with increased revenues and the efficiencies gained from
manufacturing our products internally but was partially offset by the
inefficiencies associated with hiring and training more than 400 new employees
during the year. We believe that our gross margins will improve as we continue
to vertically integrate our manufacturing operations and that the effects of
such integration will impact our margins in the third and fourth quarters of
1999.
PRODUCT DEVELOPMENT EXPENSES. Product development expenses increased from
$151,000 in 1997 to $495,000 in 1998, representing a 228.6% increase.
Professional and technical labor accounted for the majority of the increase as
we hired additional engineers and machinists to develop our proprietary products
and corresponding processes. In addition to the labor expensed in 1997 and 1998,
we capitalized $182,000 and $211,000, respectively, of labor related to
equipment constructed in-house. These amounts are included in property, plant
and equipment on the balance sheet and depreciated over the life of the
equipment.
SALES AND MARKETING EXPENSES. Sales and marketing expenses increased from
$620,000 in 1997 to $2.5 million in 1998, representing a 305.0% increase. Sales
commissions represented $1.3 million of the increase. Advertising and promotion
expenses increased by $474,000 due to increased retail advertising. We increased
our internal marketing and graphics staff to accommodate increased sales and
customer support activities as our customer diversification efforts required us
to produce more packaging and merchandising materials.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased from $2.3 million in 1997 to $3.0 million in 1998, representing a
27.4% increase. The increase is a result of our growth and expansion.
Administrative salaries and related benefits increased as professional level
staff members were added, increasing the overall salary base. The total number
of administrative staff increased from 86 at the end of 1997 to 111 at the end
of 1998.
OTHER EXPENSE. Other expense increased from $904,000 in 1997 to $1.5
million in 1998. This increase in other expense is primarily attributable to a
larger amount of borrowings and a corresponding increase in interest expense.
PRO FORMA NET INCOME. As a result of all of these factors our pro forma net
income increased from $1.6 million in 1997 to $3.9 million in 1998, representing
a 137.5% increase.
20
<PAGE>
1997 COMPARED TO 1996
NET REVENUES. Net revenues increased from $9.7 million in 1996 to $23.7
million in 1997, representing a 144.2% increase. Of the $14.0 million increase,
sales to existing customers accounted for $2.5 million and sales to new
customers accounted for $11.5 million.
COST OF GOODS SOLD. Cost of goods sold increased from $8.4 million in 1996
to $17.1 million in 1997, representing a 103.1% increase. Cost of goods sold
decreased as a percentage of sales from 86.9% in 1996 to 72.3% in 1997. This
decrease was primarily attributable to manufacturing efficiencies, decreased
unit costs and the allocation of our fixed costs to a larger revenue base.
PRODUCT DEVELOPMENT EXPENSES. Product development expenses increased from
less than $1,000 in 1996 to $151,000 in 1997. There were fewer engineers and
machinists in 1996 compared to 1997, and the majority of their labor was
capitalized to equipment contructed in-house and to new product tooling. The
amounts capitalized in 1996 were $175,000 compared to $184,000 in 1997. These
amounts are included in property, plant and equipment on the balance sheet and
depreciated over the life of the equipment.
SALES AND MARKETING EXPENSES. Sales and marketing expenses increased from
$32,000 in 1996 to $620,000 in 1997. This increase was primarily attributable to
a sharp rise in sales commissions paid on our increased sales. We paid $17,000
in commissions in 1996 compared to $481,525 in 1997.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased from $1.3 million in 1996 to $2.3 million in 1997, representing an
80.1% increase. The primary reason for this change was an increase in
administrative personnel, depreciation expense and fees for professional
services.
OTHER EXPENSE. Other expense increased from $495,000 in 1996 to $904,000 in
1997. This increase in other expense is primarily attributable to a larger
amount of borrowings and an increase in interest expense.
PRO FORMA NET INCOME. As a result of all of these factors, our pro forma
net income increased from a loss of $359,000 in 1996 to net income of $1.6
million in 1997.
21
<PAGE>
SELECTED QUARTERLY OPERATING RESULTS
The following table sets forth consolidated statements of operations data
for our six most recent quarters, as well as such data expressed as a percentage
of revenues. This information has been derived from our unaudited consolidated
financial statements. In management's opinion, this unaudited information has
been prepared on the same basis as the annual consolidated financial statements
and includes all adjustments, consisting only of normal recurring adjustments,
necessary for fair presentation of the quarters presented. This information
should be read in conjunction with our Consolidated Financial Statements and
Notes thereto included elsewhere in this prospectus. The operating results for
any quarter are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER MARCH 31, JUNE 30,
1998 1998 1998 31, 1998 1999 1999
----------- ----------- ------------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net revenues....................... $ 7,579 $ 7,303 $ 10,548 $ 19,458 $ 9,798 $ 8,259
Cost of goods sold................. 4,926 4,895 7,411 13,936 6,858 5,886
----------- ----------- ------------- ----------- ----------- -----------
Gross profit..................... 2,653 2,408 3,137 5,522 2,940 2,373
Operating expenses:
Product development.............. 54 50 102 289 117 109
Sales and marketing.............. 338 373 597 1,201 376 382
General and administrative....... 538 606 630 1,209 1,150 1,167
----------- ----------- ------------- ----------- ----------- -----------
Total operating expense........ 930 1,029 1,329 2,699 1,643 1,658
----------- ----------- ------------- ----------- ----------- -----------
Income from operations............. 1,723 1,379 1,808 2,823 1,297 715
Other expense...................... 352 265 387 489 457 598
----------- ----------- ------------- ----------- ----------- -----------
Net income as reported............. $ 1,371 $ 1,114 $ 1,421 $ 2,331 $ 840 $ 117
----------- ----------- ------------- ----------- ----------- -----------
----------- ----------- ------------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF REVENUES
--------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1998 1998 1998 1998 1999 1999
----------- ----------- ------------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net revenues............................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold...................... 65.0 67.0 70.3 71.6 70.0 71.3
----------- ----------- ------------- ------------- ----------- -----------
Gross profit.......................... 35.0 33.0 29.7 28.4 30.0 28.7
Operating expenses:
Product development................... 0.7 0.7 1.0 1.5 1.2 1.3
Sales and marketing................... 4.5 5.1 5.6 6.2 3.9 4.6
General and administrative............ 7.1 8.3 6.0 6.2 11.7 14.1
----------- ----------- ------------- ------------- ----------- -----------
Total operating expense............. 12.3 14.1 12.6 13.9 16.8 20.1
----------- ----------- ------------- ------------- ----------- -----------
Income from operations.................. 22.7 18.9 17.1 14.5 13.2 8.6
Other expense........................... (4.6) (3.6) (3.6) (2.5) (4.6) (7.2)
----------- ----------- ------------- ------------- ----------- -----------
Net income as reported.................. 18.1% 15.3% 13.5% 12.0% 8.6% 1.4%
----------- ----------- ------------- ------------- ----------- -----------
----------- ----------- ------------- ------------- ----------- -----------
</TABLE>
Our net revenues and results of operations have fluctuated significantly
from quarter to quarter in the past and we expect these fluctuations to continue
in the future. The following discussion highlights significant events that have
affected our net revenues and financial results for the six quarters ended June
30, 1999.
NET REVENUES. Our net revenues generally follow seasonal retailing trends
in which sales in the third and fourth quarters increase to coincide with the
holiday shopping season. In the first two quarters of each year, our sales were
affected by carryover purchases from the holiday season, inventory adjustments
by our retail customers and Father's Day promotions.
22
<PAGE>
COST OF GOODS SOLD. Cost of goods sold as a percentage of revenues
increased throughout 1998, primarily as a result of the inefficiencies
associated with a rapid increase in the number of employees engaged in
production, partially offset by an increase in higher margin sales. Cost of
goods sold as a percentage of revenues was higher in the first two quarters of
1999 compared to the first two quarters of 1998 because we retained a
significant number of employees from the year-end 1998 to ensure that they were
properly trained and integrated into our operations in anticipation of higher
sales volumes in the third and fourth quarters of 1999. In addition, we
continued to make the transition to internal production of drill bits, and
incurred substantial costs associated with the purchase, installation, testing
and training on new drill bit manufacturing machines.
OPERATING EXPENSES. As a percentage of revenues, operating expenses
remained relatively constant throughout 1998. In the first two quarters of 1999,
operating expenses as a percentage of revenues increased primarily due to
increased equipment depreciation, initiatives to expand our operating capacity
and professional fees incurred to consolidate and combine our operations. We
also increased our sales, engineering and administrative staff, but this
increase was partially offset by a decrease in the commission percentage paid to
our sales representative organization.
INTEREST EXPENSE. Interest expense increased as a result of a significant
increase in borrowings to fund expansion of our production facilities and
working capital needs.
LIQUIDITY AND CAPITAL RESOURCES
Historically, we have funded operations with short term lines of credit and
term loans for equipment purchases and, to a lesser extent, net income from
operations. Net cash used by operating activities was $1.0 million in 1996, $2.0
million in 1997 and $1.6 million in 1998. The net cash used in operations
consisted primarily of increases in accounts receivable and inventory which were
partially offset by increased accounts payable and accrued expenses. Net cash
used by investing activities was $1.8 million in 1996, $2.7 million in 1997 and
$14.0 million in 1998. Cash used in investing activities consists primarily of
property and equipment purchases. Net cash provided by financing activities was
$2.8 million in 1996, $4.8 million in 1997 and $15.6 million in 1998. Cash
provided from financing activities was primarily from net proceeds from term
debt and net borrowings on the line of credit.
We recently obtained a revolving line of credit with First Security Bank,
N.A., with a maximum borrowing limit of $25.0 million. Advances on the line are
limited to 85% of eligible accounts receivable and 65% of eligible inventory.
Trade accounts receivable and inventory are assigned as collateral. We have
drawn approximately $8.0 million of the line to finance our real estate,
including our new drill bit manufacturing facility. The revolving line of credit
provides that we must repay these advances within 180 days. Interest on the
revolving credit line is at the prime rate plus 1% or, at our option, LIBOR plus
3%. The applicable interest rate will be reduced by one-half percent upon
closing of this offering. The term of the agreement is through August 2001. This
line is secured by receivables, inventory, real estate, equipment and general
intangibles.
Capital expenditures and financing associated with those expenditures have
been primary factors affecting our financial condition over the last three
years. Total capital expenditures net of dispositions were $14.5 million in 1998
compared to $2.7 million in 1997 and $1.6 million in 1996. A significant portion
of these expenditures have been related to the acquisition of manufacturing
equipment to increase production. We anticipate 1999 capital expenditures of
approximately $27.0 million. A significant portion of our 1999 capital
expenditures has been and will continue to be for additional investment in
manufacturing equipment for anticipated increases in production levels. We
anticipate spending approximately $7.8 million in 1999 to purchase specialized
drill bit production equipment. In order to maintain an exclusive relationship
with the manufacturer of such equipment we must continue to purchase
approximately $5.3 million of equipment per year over the next five years.
23
<PAGE>
We believe that existing cash balances, new borrowings and cash generated
from operations, together with the net proceeds from this offering, will be
sufficient to meet our anticipated cash needs for working capital and capital
expenditures for approximately the next 12 months. There can be no assurance
that the underlying assumed levels of revenues and expenses will prove to be
accurate. We may seek additional funding through public or private financings or
other arrangements prior to such time. Adequate funds may not be available when
needed or may not be available on terms favorable to us. If additional funds are
raised by issuing equity securities, dilution to existing shareholders will
result. If funding is insufficient at any time in the future, we may be unable
to develop or enhance our products, take advantage of business opportunities or
respond to competitive pressures, any of which could have a material adverse
effect on our business, financial condition and results of operations.
IMPACT OF THE YEAR 2000 COMPUTER PROBLEM
In the beginning of July 1999, we completed the installation of new billing,
accounting and administrative information systems which are fully operational
and which have been represented to be fully Year 2000 compliant. Failures of our
internal systems could temporarily prevent us from processing orders, issuing
invoices, manufacturing and developing products and could require us to devote
significant resources to correcting such problems.
We have tested all of our PCs and laptop computers for Year 2000 compliance
with Year 2000 compliance testing software. All of our PCs and laptop units are
Year 2000 compliant. Because of our inability to undertake testing of certain of
our third party equipment, we addressed processors embedded in our manufacturing
systems on a prioritized piece-by-piece basis. We have received written
assurances from the manufacturers of the PCs and embedded processors used in our
manufacturing facility that all are Year 2000 compliant. In order to determine
Year 2000 compliance of our vendors, we ranked our vendors according to the lead
times that we believed they needed to correct Year 2000 problems and contacted
them to request their Year 2000 compliance status. All of the vendors that we
have identified as critical vendors have informed us that they are Year 2000
compliant and that they have contingency plans in place. We have also received
Year 2000 compliance statements from all of our major suppliers.
Approximately 50% of our customer base has provided us with statements of
compliance, and all of our customers have stated they will be or plan to be
compliant by the end of December 1999. If our customers are not Year 2000
compliant, they may experience material costs to remedy problems, may face
litigation costs and may delay purchases of our products. As a result, our
business, financial condition and results of operations could be seriously
harmed.
We have funded our Year 2000 plan from cash balances. As of June 30, 1999,
we have spent approximately $361,900 to address the Year 2000 problem and expect
to spend approximately $7,800 more toward that objective. We will incur
additional costs related to the Year 2000 plan for administrative personnel to
manage the project, outside contractor assistance and software. In addition, we
may experience material problems and costs with Year 2000 compliance that could
seriously harm our business, financial condition and results of operations.
Finally, we are also subject to external forces that might generally affect
industry and commerce, interruptions caused by Year 2000 compliance failures.
We have completed a Year 2000 contingency plan. It designates employees from
five information systems divisions to respond to any unexpected failure of any
of our systems due to a Year 2000 compliance problem. The five divisions are
hardware, software, production equipment, utilities and financials. We have
identified each of these five divisions as critical to our continued production
and operations. In the event of any Year 2000 compliance problem, one of our
designated employees will contact the responsible vendor and work with that
vendor towards a solution. We will also identify
24
<PAGE>
alternate vendors and make appropriate scheduling changes to assure
uninterrupted production in the event that the designated employee and
responsible vendor cannot reach a solution.
RECENT ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1998, we adopted the provision of SFAS No. 130,
REPORTING COMPREHENSIVE INCOME. SFAS No. 130 establishes the standards for
reporting comprehensive income and its components in financial statements.
Comprehensive income as defined includes all changes in equity (net assets)
during a period from non-owner sources. Examples of items to be included in
comprehensive income, which are excluded from income, include foreign currency
translation adjustments and unrealized gains/losses on available-for-sale
securities. Reclassification of financial statements for earlier periods
provided for comparative purposes is required upon adoption. SFAS No. 130 does
not address issues of recognition or measurement for comprehensive income and
its components, and therefore, it had no impact on our financial condition or
results of operation upon adoption. Currently, there are no transactions that
would give rise to reporting or disclosure differences between reported income
and comprehensive income.
Effective January 1, 1998, we adopted the provisions of SFAS No. 131,
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. The
statement requires, among other things, that we provide financial and
descriptive information about our reportable operating segments. Operating
segments are defined as components of an enterprise about which separate
financial information is available and is regularly evaluated by the
enterprise's chief operating decision-maker in deciding how to allocate
resources and in assessing performance. Currently, we believe that we operate in
only one reportable segment.
In June, 1998, the Financial Accounting Standards Board issued SFAS No. 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133
requires companies to recognize all derivative contracts as either assets or
liabilities in the balance sheet and to measure them at fair value. If certain
conditions are met, a derivative may be used specifically as a hedge, the
objective of which is to match the timing of gain or loss recognition on the
hedging derivative with the recognition of the changes in the fair value of the
hedged asset or liability that are attributable to the hedged risk, or the
earnings effect of the hedged forecasted transaction. For a derivative not
designated as a hedging instrument, the gain or loss is recognized in income in
the period of change. SFAS No. 133 is effective for all fiscal quarters of
fiscal years beginning after July 1, 2000. Historically, we have not entered
into derivative contracts either to hedge existing risks or for speculative
purposes.
INFLATION AND INTEREST RATE RISK
Our operating results may be affected by changes in rates of inflation and
market interest rates. In particular, increases in market interest rates will
adversely affect our net income, as most of our indebtedness bears interest at
floating rates tied to the prime rate or other interest rate benchmarks.
Inflation does not currently affect our operating results materially, and we do
not expect inflation to materially affect our operations in the foreseeable
future.
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BUSINESS
GENERAL
Jore Corporation is a leader in the design, manufacture and marketing of
innovative power tool accessories and hand tools for the do-it-yourself and
professional craftsman markets. We offer a comprehensive system of proprietary
drilling and driving products that save users time through enhanced
functionality, productivity and ease of use. We manufacture our products using
advanced technologies and equipment designs, thus achieving competitive
advantages in cost, quality and production capacity. Our products are sold under
private labels to the industry's largest power tool retailers and manufacturers
such as Sears, Roebuck and Co., TruServ Corporation, Black & Decker Corporation
and Makita Corporation. Our products also are sold at retailers such as The Home
Depot, Inc., Lowe's Companies, Inc., Ace Hardware Corporation, Canadian Tire
Corporation Limited, Wal-Mart Stores, Inc. and others. In addition, we recently
signed an agreement with The Stanley Works that grants us an exclusive license
to sell power tool accessories directly to retailers under the
STANLEY-REGISTERED TRADEMARK-brand.
INDUSTRY OVERVIEW
The development and widespread availability of cordless power tools since
the early 1980s has created a growing installed base of these tools among
do-it-yourself consumers, professional craftsmen and industrial users. The
increased use of cordless power tools has led to a growing demand for new and
improved power tool accessories. According to industry sources and our market
research, we believe that the worldwide addressable market for our products is
approximately $13.0 billion per year. In the United States, our addressable
market is approximately $5.7 billion per year, consisting of $3.0 billion for
power tool accessories and a $2.7 billion for hand tools. The drilling and
driving accessories market represents approximately $1.3 billion of the domestic
power tool accessories market. The remainder of the power tool accessories
market consists of saw blades, router bits, surface preparation and related
products.
Historically, the power tool accessories industry has been comprised of a
fragmented group of manufacturers that produce traditional drilling, driving,
cutting and surface preparation accessories. The industry is consolidating as
larger manufacturers seek to broaden their product offerings and expand
production capacity. Significant investments have been made in embedded capital
equipment and production facilities which use traditional, multi-step methods of
production that have remained relatively unchanged for years. The industry
generally has been slow to introduce innovative new products and adopt advanced
manufacturing technologies.
In recent years, the retail distribution channel for power tool accessories
and hand tools has undergone substantial consolidation and change. The emergence
of "big box" home center stores has placed tremendous competitive pressure on
small, independently owned hardware stores throughout the United States. The
large home center stores typically limit their purchases within a particular
product category to a few leading national brands and promote their own store
brands to induce customer loyalty. This change in the retail channel has had a
tremendous impact on purchasing and distribution patterns. The need for a large,
national sales force to call on numerous smaller retailers has greatly
diminished as centralized purchasing and distribution through strategically
located distribution centers has emerged. As a result, sales efforts have become
more specialized, focusing on targeted programs that add value through product
merchandising or logistical expertise.
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<PAGE>
STRATEGY
Our objective is to be the leading manufacturer of innovative products for
the global power tool accessories market. Our growth and operating strategies
include the following specific elements:
GROWTH STRATEGY
EXPAND THE INSTALLED BASE AND APPLICATIONS OF OUR DRILLING AND DRIVING
SYSTEM--The base of consumers using our proprietary quick change connectors is
rapidly expanding. We will seek to further build our user base by expanding
sales of our accessory sets, while concurrently developing new product
applications. We are working with Sears, for example, to incorporate our quick
connector directly into some models of its CRAFTSMAN-REGISTERED TRADEMARK-
cordless power drills. We believe that we can leverage complementary hex-shank
accessory products into our growing installed user base. Accordingly, we intend
to develop and introduce new and innovative accessories within our drilling and
driving system.
BROADEN OUR PRODUCT PORTFOLIO--We are broadening our product portfolio to
include other innovative products, including select hand tools such as ratchet
wrenches and screwdrivers with proprietary features. In connection with our
license of the STANLEY-Registered Trademark- brand, we will also introduce other
power tool accessories. We are also using our proprietary manufacturing
processes to achieve cost leadership in producing traditional round-shank drill
bits. We will continue to seek opportunities to license new or existing
technologies to complement our internal product development efforts.
ENHANCE EXISTING CUSTOMER RELATIONSHIPS--We believe that there are
significant opportunities to increase sales to existing customers:
- We intend to increase the number of products that we supply to our
customers and to expand the retail shelf space dedicated to our products.
For example, from 1997 to 1998 we increased the number of SKUs that we
sell to Sears from approximately 12 to 49 and doubled the shelf space
allocated to our products sold under the CRAFTSMAN-REGISTERED TRADEMARK-
label in most of its stores.
- We intend to increase the number of stores at which our products are sold.
Our products are not yet sold in each of our customers' stores and several
retailers of our products regularly open new stores. As a result, we
believe that there are significant opportunities to expand our presence
with our current customers. For example, our products sold under the
MASTER MECHANIC-Registered Trademark- label currently are found in
approximately 2,300 of the approximately 10,000 TruServ stores.
- We intend to offer our products under different brands to enable our
customers to effectively target various price points and consumer
segments. These include brand names such as CRAFTSMAN-REGISTERED
TRADEMARK-, STANLEY-REGISTERED TRADEMARK-, BLACK & DECKER-REGISTERED
TRADEMARK-, DEWALT-REGISTERED TRADEMARK- and MAKITA-REGISTERED TRADEMARK-.
DEVELOP NEW CUSTOMER RELATIONSHIPS--In order to broaden our customer base,
we are developing and expanding relationships with major retailers. For instance
we have relationships with home center retailers such as The Home Depot,
Menard's and Lowe's, mass merchandisers such as Wal-Mart and buying groups such
as TruServ and Ace Hardware. We believe that offering our products under the
STANLEY-REGISTERED TRADEMARK- brand will further enhance our opportunities with
these customers, while concurrently enabling us to develop new customer
relationships.
EXPAND INTO THE INDUSTRIAL MARKET--We believe that the rapid
interchangeability of our accessories will offer productivity enhancements to
industrial users. Consequently, we intend to introduce our
drilling and driving system to the industrial market, which we believe is
roughly equal in size to the retail market that we presently serve. Moreover, we
believe our advanced drill bit manufacturing facility will allow us to
competitively supply the industrial market with traditional round-shank drill
bits. We are presently evaluating alternative sales and distribution strategies
to access the industrial market.
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EXPAND INTO FOREIGN MARKETS--We believe that we have significant
opportunities to expand into foreign markets. We continue to supply the Canadian
market through the largest Canadian hardware retailer, Canadian Tire, as well as
through Sears and Makita. We are currently evaluating distribution channels in
the European market and we will continue to evaluate opportunities to enter
other foreign markets.
OPERATING STRATEGY
CONTINUALLY IMPROVE OUR MANUFACTURING PROCESSES--We continually monitor and
evaluate production techniques and benchmark our processes against other related
standards to refine and optimize our manufacturing processes. Our focus on
continuous process improvement covers all facets of operations, from inspection
of raw materials to final assembly and packaging of the end product.
CONTINUE TO VERTICALLY INTEGRATE OUR OPERATIONS--We increasingly utilize our
own innovative manufacturing capabilities to reduce our cost of goods sold,
increase our production capacity, provide better customer service, improve the
quality of our products and reduce our reliance on third parties. For example,
in addition to initiating our own round-shank drill bit production, recently we
have substantially reduced the cost of our countersinks and increased our
production and quality control capabilities by producing them in our own
facilities. We are achieving similar results by internally producing other
components.
FOCUS ON CREATIVE MERCHANDISING AND RAPID PROTOTYPING--We distinguish
ourselves by our ability to quickly design and prototype attractive packaging
and retail displays. In addition, we continually evaluate the logistics of
receiving, displaying and purchasing products in retail environments. As a
result, we deliver our products and systems in attractive packages and effective
retail plan-o-grams that, in coordination with each customer's requirements, are
easy to set up and display and are aesthetically appealing to consumers. We
believe this responsiveness and attention to detail provides us with a
competitive advantage in serving our customers and encourages consumer
purchases.
ENHANCE INFORMATION AND CONTROL SYSTEMS TECHNOLOGY--Integrating our design,
development, manufacturing, sales and management operations is critically
important. Our enterprise resource planning software facilitates enterprise-wide
communication and coordination among our employees. Real time communication
among engineers, product managers, quality assurance personnel, and graphic
designers enables us to carefully control design, development, manufacture and
marketing of our products.
DEVELOP, MOTIVATE AND RETAIN HIGHLY PRODUCTIVE PERSONNEL--We are committed
to creating a working environment that values the contributions of all personnel
and rewards personal initiative. We seek to retrain and redeploy, rather than
displace, employees when we implement manufacturing improvements or technology
upgrades. By encouraging employees to attend our internal education programs, we
believe that we improve the capabilities of our employees and leverage our
investment in process technology and information management systems. Our
programs cover a range of topics including computer aided design, spreadsheet
and database management, work-flow efficiency, sales education and automation
training.
PRODUCTS
We produce a variety of power tool accessories and hand tools. We currently
offer a comprehensive drilling and driving system that combines a proprietary
quick change connector with a full range of complementary accessories. We market
our products in sets, which generally include quick change connectors,
reversible drill and driver tools, screw guides and a combination of hex-shank
drill and screw driving bits. Depending on the scope and configuration, these
sets typically sell at retail prices ranging from $19.99 to $99.99. We also
individually package and sell our drilling and driving products.
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<PAGE>
In addition to our drilling and driving systems, we also manufacture and
sell traditional round-shank drill bits and innovative hand tools, including our
TORQUE DRIVER-TM- screw and nut drivers and wrench ratchets. In connection with
our recent licensing of the STANLEY-REGISTERED TRADEMARK- brand, we will also
begin offering other power tool accessories, such as saw blades, router bits,
and related products.
The following diagrams and text provide information about each of our
product families:
QUICK CHANGE DRILLING AND DRIVING SYSTEMS
[ART]
The cornerstone of our power tool accessories portfolio is a patented quick
change drilling and driving system that enables single-handed interchangeability
of a full-range of hex-shank drilling, driving and surface preparation
accessories. In addition to quick interchangeability, our hex-shank accessories
provide enhanced torque transmission as compared to traditional round-shank
products. Users chuck the quick connector into their drill and then can quickly
change between accessories throughout their project without having to
continually chuck and re-chuck a particular accessory. We offer the quick change
connectors in a variety of styles and sizes to fit the needs of both
do-it-yourself consumers and professional craftsmen. The quick change connectors
are used in conjunction with a variety of hex-shank accessories including
high-speed drill bits, masonry drill bits, wood boring spade bits and wire
brushes and other surface preparation applications.
REVERSIBLE DRILL AND DRIVERS
[ART]
The patented reversible drill and driver speeds up the process of drilling
and driving as well as providing both functions in one tool. This product line
consists of a drilling tool on one end and a
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<PAGE>
driving tool on the other. The reversible drill and driver allows the user to
drill and/or countersink a pilot hole, then quickly release and flip the
accessory to drive the screw or other fastener. The product can be used with a
number of drilling and driving tools and is available in a variety of versions
and sizes.
SCREW GUIDES
[ART]
Our patented screw guides are magnetic bit holders with a self-retracting
guide sleeve that provide the user with an easily operated screw driving
accessory for a power drill. The user places the screw head on the magnetized
insert bit and then pulls the self-retracting guide sleeve forward over the
screw. The guide sleeve holds the screw straight and prevents slippage during
driving. The screw guide comes in many variations to serve specific
applications.
HAND TOOLS
<TABLE>
<S> <C>
[ART] [ART]
</TABLE>
The TORQUE DRIVER-TM- is an ergonomically designed screw and nut driver with
a flip-out handle allowing for greater torque in turning screws and driving
nuts. The CARTRIDGE DRIVER-TM- is a screw and nut driving tool containing a
retracting cartridge in the handle for storing a number of drilling and driving
bits. This tool also incorporates a quick connect feature allowing fast
interchangeability of screw and nut driving bits.
DRILL BITS
Using our advanced drill bit manufacturing technology, we recently began
producing traditional round-shank drill bits. We have begun to offer
ground-from-solid drill bits in a variety of sizes and for various surfaces.
MANUFACTURING AND PROCESS TECHNOLOGIES
We use advanced technology to create the highest quality, most
cost-effective processes available to manufacture, assemble and package our
products. We operate based on the concept of "Kaizen," a Japanese word meaning
"never ending improvement." Our processes are based on continuing research into
materials, technology and machines from other companies and industries. Our
focus on innovation
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<PAGE>
and continuous process improvement covers all facets of operations, from
inspection of raw materials to final assembly and packaging of the end product.
The application of advanced technology manufacturing allows us to enhance
product quality, lower production costs, improve customer responsiveness, and
rapidly scale and increase production capacity to support sales growth.
Our in-house manufacturing processes include drill bit grinding, high-speed
machining, injection molding, die-casting, metal forming and stamping. We have
jointly designed and developed a proprietary drill bit manufacturing machine
that automates all aspects of drill bit production, resulting in improved
quality, lower production costs and increased production capacity. We have
entered into an agreement with the manufacturer of this equipment that grants us
an exclusive right to its output and to the machine design for a five-year
period. In order to maintain our exclusive rights, we are required to purchase a
minimum number of machines annually during the term of the agreement. We also
have entered into an agreement with the designer of the equipment pursuant to
which he will provide consulting services relating to our future manufacturing
technologies.
We also operate high speed machining centers to produce a variety of our
component parts, such as screwdriver bits and countersinks. Our injection
molding operations produce a variety of plastic components such as storage cases
and screwdriver handles. We produce hex-shank accessories using our proprietary
die-casting processes and screw driving products using our proprietary metal
forming and stamping equipment. Our equipment incorporates microprocessing
technology that allows us to capture, analyze and manipulate data to more
effectively manage and coordinate our operations.
Our internally manufactured component parts, as well as selected outsourced
components, go from our manufacturing or receiving operations to our assembly
and packaging work centers. Finished goods, such as hex- and round-shank drill
bits, move immediately to the packaging area and become part of a multi-product
set or are packaged individually. Through a continual study and assessment of
these assembly and packaging processes, our in-house engineering and automation
staff designs, constructs, and installs equipment that reduces manual labor
requirements, increases throughput and allows us to electronically monitor and
control processes.
We constantly monitor all facets of the manufacturing process for
inefficiencies and strive to use technology or new processes that save time,
reduce costs, and improve quality. We first seek to identify and quantify any
advantages that we believe we can achieve by developing a new process. We then
seek a solution by investigating machine manufacturing companies throughout the
world that can potentially address our needs. If an appropriate machine is not
available from an outside source, we will collaborate in the design with a
manufacturer to build process-specific equipment or design and build such
equipment internally.
PRODUCT DEVELOPMENT
We focus our efforts on the design and development of product improvements
and new products based on an evaluation of the needs and demands of consumers.
We maintain an active dialogue with users of our products to ascertain the most
desirable enhancements for our current products and systems and to aid in the
development of new products. Our product and process innovation group is
comprised of 47 people, including 11 engineers, 14 industrial designers and
machinists, nine graphics designers and 13 technicians.
We have a disciplined process by which we identify and develop potential new
products and bring them to market.
- CONCEPTUALIZATION AND ENGINEERING OF NEW PRODUCTS OR IMPROVEMENT TO
EXISTING PRODUCTS. Our personnel visit job sites to observe current
construction and manufacturing methods and to identify potential
opportunities to improve existing products or create new products. Once we
identify a need for a new product or an improvement to an existing product
we begin a
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conceptualization process involving feedback from end-users and personnel
within our manufacturing operations. Using computerized engineering
software, we develop three-dimensional computerized drawings and
manipulate these images to optimize functionality and form.
- PROTOTYPED PRODUCTION. Once we are satisfied regarding the functional and
aesthetic objectives of a particular product, our engineering software
sends the three-dimensional computerized model to our rapid prototyping
system. Our system produces a three-dimensional plastic model that we then
test for aesthetics, functionality and general design. Once we are
satisfied with the concept prototype, we commission a fully functional
prototype to be made for performance testing and evaluation as a working
prototype. In many cases, the rapid prototype model serves this function
as well.
- SELECTION OF RAW MATERIAL AND PRODUCTION EQUIPMENT. In order to select the
appropriate raw material, we use the working prototype to test alternative
materials in many different conditions. After we have determined the
appropriate raw material and product specifications, we send engineering
drawings, concept prototypes and working prototypes to selected
manufacturing equipment suppliers so that they are able to submit
proposals on design and fixturing of appropriate equipment. Our equipment
committee evaluates the proposals from these suppliers and selects the
best design to produce our product.
- ASSEMBLY, PACKAGING AND AUTOMATION FIXTURES. We design automated work
cells to efficiently assemble and package our products. Our automation
team evaluates and selects the appropriate technology and equipment for
each process. Our work cells, comprised of several process-specific
work-centers, are designed and arranged for efficient flow of product and
personnel. Our automation team designs safe, ergonomic workstations based
upon the needs of our production team.
CUSTOMERS
We sell our products to customers which currently fall into two general
categories:
- Retailers of power tool accessories; and
- Power tool manufacturers.
Our retail customers offer our products in their own stores under their own
private label brands. We coordinate closely with these customers on promotional
and merchandising strategies and displays, and we supply these customers with
products in final packaged form. We have also begun to offer our products to
retail customers under the STANLEY-REGISTERED TRADEMARK- brand.
Our power tool manufacturer customers offer our products through their own
distribution channels under their own brands. We supply our products to these
customers either in final packaged form or as unpackaged products which the
manufacturers combine and package with related drilling and driving products.
Our customers include the industry's leading manufacturers such as Black &
Decker and Makita as well as major retailers such as Sears, Home Depot, Lowe's,
True Value, Ace Hardware, Canadian Tire, Wal-Mart and others. In 1998, Sears,
Black & Decker/DeWalt and Makita each accounted for 60.2%, 17.2% and 14.5%,
respectively, of our revenues. For 1997 and 1998, we were named a "Partner in
Progress" by Sears, an award earned by approximately one percent of Sears'
vendors. In addition, we received the Sears Hardlines Group Innovation Award for
1997. Recently, Black & Decker recognized us with its Performance Scorecard
Award for Total Cost Management. See "Risk Factors--The loss of a large customer
could result in a substantial decrease in revenues."
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Selected retail customers to which Jore Corporation directly sells products
are set forth below:
<TABLE>
<CAPTION>
APPROXIMATE
NUMBER OF BRAND NAME AND APPROXIMATE NUMBER OF
STORES IN WHICH TRADEMARK JORE CORPORATION SKUS MARKETS
NAME OF STORE PRODUCTS SOLD OF PRODUCTS CARRIED SERVED
- -------------------------------------------- --------------- -------------------- --------------------- ----------
<S> <C> <C> <C> <C>
Sears, including Orchard Supply and Sears
Hardware.................................. 2,300 Craftsman 58 US and
Canada
Canadian Tire............................... 430 Mastercraft 17 Canada
TruServ, including True Value, Servistar and
Coast to Coast............................ 2,300 Master Mechanic 63 US
</TABLE>
Selected power tool manufacturers to which we sell our products, as well as
the stores and brands under which our products are sold, are set forth below:
<TABLE>
<CAPTION>
APPROXIMATE
NUMBER OF
JORE CORPORATION STORES IN WHICH
NAME OF BRAND NAME(S) SKUS SOLD BY JORE CORPORATION MARKETS
MANUFACTURER OF PRODUCT MANUFACTURER PRODUCTS ARE SOLD SERVED
- --------------------------- -------------------- ------------------- --------------------------- ---------------
<S> <C> <C> <C> <C>
Makita USA Makita 115 Home Base, Menards, Eagle US, Canada,
Makita Canada 40 Hardware/Lowe's, Payless International
Makita International 18 Cashway, Ace Hardware,
Contractor Supply
Distributors, Costco,
Independent Retailers,
Black & Decker DeWalt, Black & 41 Home Depot, Lowe's, US
Decker, Quantum Pro Wal-Mart, Ace Hardware
and Scorpion Independent Retailers
</TABLE>
SALES AND MARKETING
We seek to develop long-term, mutually beneficial relationships with our
customers and to communicate with decision-makers at all levels within our
customers' organizations. Our internal sales and marketing staff closely
coordinates our activities and strategies with a sales representative
organization, Manufacturers' Sales Associates, LLC. Manufacturers' Sales
Associates, which receives a commission that is a percentage of our sales to
selected customers, consists of six sales representatives who formerly were
senior sales and marketing executives with major power tool companies. These
representatives are strategically located near major customers in the industry
so they can continually coordinate product and promotional requirements to
optimize market opportunities. We believe that our relationship with
Manufacturers' Sales Associates effectively leverages their industry experience
while complementing our focus on product and process development.
Our sales and marketing team works closely with our customers to create
coordinated promotional and merchandising campaigns. Elements of a typical
promotional campaign may include television commercials, direct mail product
circulars, catalogs, newspaper and magazine advertisements and promotional
events. Campaigns may also include merchandising events, plan-o-grams, and
promotional displays, such as aisle end caps, clip strips and center aisle
merchandisers.
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Most of our sales are derived from purchase orders for products to be
delivered to our customers within 30 days of receipt of the order. As is
customary in the power tools accessories market, we rely on our customers'
forecasts to anticipate future order volumes, and typically do not enter into
long-term supply agreements with our customers. As a result, we typically do not
maintain a significant backlog of purchase orders. See "Risk Factors--Our
dependence on customer forecasts to manage our business may cause us to
misallocate our production, inventory or other resources."
We distinguish ourselves with our highly skilled, responsive in-house
graphics department that works closely with our sales and marketing department
and with Manufacturers' Sales Associates. Our graphics capabilities provide us
with a significant competitive advantage by allowing us to quickly design and
produce packaging mockups and sample promotional materials for new and existing
customers. We also produce our own point-of-sale displays and collaborate with
our customers in designing unique, customer-specific packaging. We believe that
our graphics capabilities enable us to offer our customers a "turn-key" graphics
and packaging solution that makes it easier for them to merchandise and display
our products and greatly enhances our sales and marketing efforts.
COMPETITION
The power tool accessories market and the hand tool market are highly
competitive. Many of our competitors are established companies that have
significantly greater financial, technical, manufacturing, sales and marketing,
and support resources than Jore Corporation. In addition, many of our
competitors own well-known brands, enjoy large end-user bases, and benefit from
long-standing customer relationships. As we expand into new markets, we can
expect to encounter similar competitive environments.
Competitors in power tool accessories include Vermont American Corporation,
Black & Decker, Greenfield Industries, Inc., a wholly-owned subsidiary of
Kennametal Inc., American Tool Companies, Inc., Snap-On Incorporated and others,
as well as a number of independent "job shops" that supply products under
private labels to OEM and retail customers. Competitors in the hand tools market
include American Tool, Cooper Industries, Inc., The Stanley Works and others,
including some foreign companies. Competitive factors in our markets include:
- Establishing favorable brand recognition;
- Maintaining manufacturing efficiency and expertise;
- Developing a breadth of product offerings;
- Implementing appropriate pricing;
- Providing strong marketing support;
- Manufacturing high quality products; and
- Obtaining access to retail outlets and sufficient shelf space.
INTELLECTUAL PROPERTY
Our ability to compete effectively depends in part on our ability to develop
and protect our proprietary technology. We own 14 United States and foreign
design and utility patents covering a variety of our products and processes.
While our patents have been important to our business, we do not believe that
our business is dependent on any single patent or group of patents. We also own
several registered trademarks and sell many products to our customers under
licensing arrangements that allow us to maintain ownership of our trademarks
while granting customers exclusive use of specified marks. For example, we have
granted Sears an exclusive license to use our Speed-Lok trademark in connection
with Sears' sales of quick change systems and other products, provided that
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Sears purchases a minimum quantity of Jore products annually. Our primary
trademarks include JORE-TM-, SPEED-LOK-TM-, SPEED SHANK-Registered Trademark-,
QUAD-DRIVER-Registered Trademark-, BIT-LOK-Registered Trademark-, HIGH TORQUE
POWER DRIVER-TM-, MONTANA TOOL CORPORATION-TM-, TORQUE DRIVER-TM-, ULTRA
CUT-TM-, JORETECH-TM-, WHERE INNOVATION MEETS REALITY-TM- and AUTO JAW-TM-.
Certain of our trademarks are integral to our business and we aggressively
monitor and protect these and other marks.
In April 1998, we entered into an agreement with The Stanley Works that
grants us the exclusive license to sell power tool accessories under the
STANLEY-REGISTERED TRADEMARK- brand. The agreement provides for the payment by
us to Stanley of a percentage of our sales of our STANLEY-REGISTERED TRADEMARK-
branded products, with certain minimum payment obligations, during the term of
the agreement. The term of the Agreement is through December 2004, and may be
renewed by us through December 2009.
Norton Company, a manufacturer of surface preparation and abrasive tool
accessories, owns the registered trademark "SPEEDLOK" for use with abrasive
disks and backup pads. We sell our quick change system to Sears under our
SPEED-LOK-TM- trademark. Norton recently advised us that our SPEED-LOK-TM-
trademark may infringe on Norton's trademark rights. We believe that our use of
our SPEED-LOK-TM- trademark does not infringe on Norton's trademark rights. To
resolve this matter, we are in discussions with Norton to obtain a royalty-free
license to the SPEED-LOK-TM- trademark and enter into a long-term supply
agreement for surface preparation and abrasive tool products.
We enter into confidentiality agreements with our employees and consultants
upon the commencement of an employment or consulting relationship. These
agreements generally require that all confidential information developed or made
known to the individual by us during the course of the individual's relationship
with us be kept confidential and not disclosed to third parties. These
agreements also generally provide that inventions conceived by the individual in
the course of rendering services to us shall be our exclusive property. See
"Risk Factors--We depend on patent, trademark and trade secret protection to
maintain our market position."
INFORMATION MANAGEMENT
Through our information management systems, we seek to electronically
integrate all aspects of our operations, from procurement of raw materials to
sale of our packaged products to end-users. We have recently implemented a
fully-integrated enterprise resource planning software system that allows
centralized management of key functions, including inventory, order processing,
accounts receivable, accounts payable, general ledger, shop floor control,
engineering change management, bar-coded inventory, material requirements
planning, scheduling, electronic data interchange, and bar-coded labor input.
This information system will enable us to ship to customers on a same-day basis,
respond quickly to order changes and provide a high level of customer service.
Our new system integrates more of our internal processes and allows for
cross-platform information sharing among our various departments. See "Risk
Factors--Unsatisfactory performance of our new information technology system
could slow our growth."
PERSONNEL AND HUMAN RESOURCES
As of August 15, 1999, we employed 610 full-time employees and 89 part-time
employees, of whom 17 were in sales and marketing, 104 in finance and
administration, 41 in technology development and application and 537 in
operations. All of our employees are located at our facility near Ronan,
Montana. No employees are covered by collective bargaining agreements, we have
never had a work stoppage and we believe we maintain good relations with our
employees.
FACILITIES
Our operations are housed in 200,000 square feet of facilities located near
Ronan, Montana. Our existing facilities include three buildings from which we
provide manufacturing, assembly, packaging,
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<PAGE>
warehousing and administrative functions. We are currently expanding our
facilities to 325,000 square feet, primarily to accommodate our new drill bit
manufacturing operation. Our facilities are located on a 120 acre site that we
own. We believe this site is sufficient to continue to expand our facilities to
meet our manufacturing and office needs for the foreseeable future.
LEGAL PROCEEDINGS
From time to time we have been, and expect to continue to be, subject to
legal proceedings and claims in the ordinary course of our business, including
claims of alleged infringement of third-party trademarks and other intellectual
property rights. Such claims, even if not meritorious, could require the
expenditure of significant financial and managerial resources.
BLACK & DECKER LITIGATION. On June 9, 1999, Stanley filed a lawsuit against
Black & Decker in the United States District Court for the District of
Connecticut. The lawsuit arises out of claims made by Black & Decker that our
proposed introduction of STANLEY-REGISTERED TRADEMARK--branded power tool
accessories in yellow and black packaging would violate Black & Decker's
trademark rights associated with its DEWALT-REGISTERED TRADEMARK-brand.
Stanley is seeking a declaratory judgment that the use or license by Stanley
or Jore of yellow and black on power tools or their accessories does not
infringe or dilute any of Black & Decker's federal or state trademark rights, or
constitute an unfair trade practice under federal or state law. We have joined
Stanley as a co-plaintiff in this suit. Stanley has advised us that:
- It has used yellow and black on its products since at least 1899;
- It has marketed products under its "Stanley in a notched rectangle"
trademark since at least 1902;
- It has sold power tool accessories since at least 1939;
- It has packaged its power tool accessories utilizing yellow and black
trade dress since at least 1957.
In contrast, we believe that Black & Decker first introduced the DeWalt line of
power tools dressed in yellow and black in 1992. Jore began shipping product
under the Stanley-Registered Trademark- brand on June 14, 1999.
On July 7, 1999 Black & Decker filed an Amended Answer, Affirmative
Defenses, and Counterclaims to Amended Complaint, in which Black & Decker denied
most of the allegations asserted against it and raised counterclaims against
Stanley and Jore alleging, among other things, unfair competition and trademark
and trade dress infringement. In its filing Black & Decker seeks:
- dismissal of Stanley's action;
- an injunction against Stanley and Jore that would prevent Stanley and us
from using the yellow and black color combination for marketing and
selling power tools and power tool accessories;
- damages for our use of the yellow and black color combinations; and
- attorneys' fees and costs.
Under the license agreement, Stanley has agreed to indemnify and hold us
harmless with respect to any alleged copyright or trademark infringement action
arising out of the approved use of Stanley's trademarks, and has the sole
responsibility for undertaking and conducting the defense of any such action.
BLOCK BROTHERS LITIGATION. On August 16, 1999, Pete K. Block and Paul K.
Block instituted separate actions in the Montana Fourth Judicial District Court
of Missoula County, Montana against us, Matthew Jore individually and dba Jore
Enterprises, Michael Jore, individually, and Merle Jore,
36
<PAGE>
individually. In their complaints, the Blocks alleged, among other things, that
they are collectively entitled to a 25% interest in the capital stock of Jore
Enterprises and any successor corporation. Their lawsuits are based in part upon
an agreement, dated October 10, 1989, between the Blocks and Matthew, Michael
and Merle Jore pursuant to which the Blocks contend that Matthew, Michael and
Merle Jore agreed to issue them shares of stock of Jore Enterprises and any
successor corporation and to grant them a collective 25% interest in all patent
rights, profits and real and personal property. The Blocks seek as remedies
dissolution of Jore Corporation and a preliminary injunction preventing Jore
Corporation from proceeding with this offering. In addition, the Blocks have
alleged that they have suffered damages of not less than $10 million and are
seeking compensatory damages, plus interest, punitive damages, attorneys' fees
and costs and injunctive relief preventing any capital reorganization or sale
that would cause them to collectively own less than 25% of the equity of Jore
Enterprises and any successor corporation.
We intend to answer the complaint, vigorously defend against the claims,
assert affirmative defenses and potentially assert counterclaims. While we
believe that we have meritorious defenses and potential counterclaims to the
Blocks' claims, litigation is inherently uncertain, and we cannot assure that we
and/or the Jores will prevail in the suit. To the extent that the Blocks become
entitled to shares of our common stock as a result of the suit, we may be
required to recognize an expense equal to the number of shares issued multiplied
by the fair value of the common stock on the date of issuance. This could have a
material adverse effect on our results of operations.
In order to protect Jore Corporation and investors in this offering from any
adverse outcome in this or any future proceeding involving the Blocks, Matthew,
Michael and Merle Jore have agreed to enter into an indemnification agreement
with Jore Corporation pursuant to which they will indemnify and hold Jore
Corporation harmless against these and any other future claims, including any
damages and costs resulting therefrom, that the Blocks may assert against us. In
addition, the agreement will provide that if the Blocks become entitled to any
shares of our common stock pursuant to a definitive judicial or arbitral
determination or a settlement agreement with us, then the Jores will deliver to
us such shares from their own shareholdings for reissuance by Jore Corporation
to the Blocks. We cannot be certain, however, that the Jores will be able to
perform their indemnification obligations or that such performance will not
adversely affect the market for our stock. Satisfaction of such liabilities
through the issuance of shares could result in the recognition of future
expenses, which could have a material adverse effect on our results of
operations.
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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of Jore Corporation, and their ages and
positions, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Matthew B. Jore(2)................................... 37 President, Chief Executive Officer and Chairman
Michael W. Jore...................................... 40 Executive Vice President and Director
David H. Bjornson.................................... 42 Chief Financial Officer, General Counsel, Secretary
and Director
Daniel A. Gabig...................................... 42 Vice President--Business Development
Kelly D. Grove....................................... 32 Vice President--Controller
Nikki M. Snyder...................................... 39 Vice President--Corporate Communications and Human
Resources
Robert S. Warren..................................... 54 Vice President--Marketing
Jeffery J. Eidsmoe................................... 41 Vice President--Operations
Jeffrey M. Heutmaker................................. 37 Vice President--Strategic Initiatives
Thomas E. Mahoney(1)................................. 57 Director
R. Bruce Romfo....................................... 61 Director
William M. Steele.................................... 67 Director
A. Blaine Huntsman(1)(2)............................. 63 Director
James P. Mathias(1)(2)............................... 49 Director
</TABLE>
- ------------------------------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
MATTHEW B. JORE is the founder of Jore Corporation. He has served as our
President since June 1990, Chief Executive Officer since March 1999 and a
Director since its inception on February 1990. He holds a B.S. degree in
Economics from the University of Montana.
MICHAEL W. JORE has served as Executive Vice President since November 1998
and Director of Jore Corporation since February 1990. From June 1990 to November
1998, he was the Vice President of Jore Corporation. Before joining Jore
Corporation, he worked for Plum Creek Timber, L.L.C. for ten years. Matthew and
Michael Jore are brothers.
DAVID H. BJORNSON has served as General Counsel and Chief Financial Officer
since November 1998 and as a Director since May 1998. From 1993 to 1998, Mr.
Bjornson was a Partner at Boone, Karlberg & Haddon, a Missoula, Montana law
firm, serving also as outside counsel of Jore since 1994. From 1990 to 1993 he
worked at the law firm of Monahan & Biagi, and from 1988 to 1990 he was employed
by the law firm of Bogle & Gates. Mr. Bjornson worked at the law firm of Hillis
Cairncross Clark & Martin from 1985 to 1987. From 1979 to 1981 he worked at the
international accounting firm of Touche Ross & Co. He holds an LL.M. degree in
taxation from New York University, and a J.D. and a B.A. degree in Business
Administration from the University of Montana. Mr. Bjornson also holds a
Certified Public Accountant Certificate.
DANIEL A. GABIG has served as Vice President--Business Development since
March of 1999. From November 1998 to March 1999, he was the General
Manager--Treasurer of Jore Corporation. From February 1995 to November 1998, he
was the Finance Manager of Jore Corporation. From December 1986 to November
1993, he was the Accounting Manager/Senior Financial Analyst for Scios Nova,
Inc., biopharmaceutical company. He has an M.B.A. from the University of
California--Berkeley and a B.S. degree from California Polytechnic State
University.
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<PAGE>
KELLY D. GROVE has served as Vice President--Controller of Jore Corporation
since March 1999. From August 1995 to March 1999, she was the Controller of Jore
Corporation. From March 1994 to August 1995, she was the Executive Coordinator
of Jore Corporation. From November 1991 to March 1994, she was a staff
accountant at the Washington Corporations, a holding company. She has a B.S.
degree from Montana State University.
NIKKI M. SNYDER has served as the Vice President--Corporate Communications
and Human Resources of Jore Corporation since March 1999. From August 1996 to
March 1999, she was the Personnel Manager of Jore Corporation. From August 1994
to August 1996, she was a personnel coordinator of Jore Corporation.
ROBERT S. WARREN has served as Vice President--Marketing of Jore Corporation
since March 1999. From October 1998 to March 1999, he was the General Manager of
Sales and Marketing, and from March 1995 to October 1998, the Sales Manager, of
Jore Corporation. Prior to joining Jore Corporation, he was President and owner
of Pri-Mark, a business consulting company that was formed in May 1994.
JEFFERY J. EIDSMOE has served as Vice President--Operations since May 1999.
From January 1988 to May 1999 he worked for Western Forge, a subsidiary of
Emerson Electric Company, serving as its Director of Product Development for the
past four years. Mr. Eidsmoe was previously employed by Cessna Aircraft Company
as an Industrial Engineer Group Leader and Production Supervisor from March 1983
to December 1988. He has an M.B.A. degree from the University of Colorado and a
B.S. degree from Bemidji State University, Bemidji, Minnesota.
JEFFREY M. HEUTMAKER has served as Vice President--Strategic Initiatives
since June 1999. From June 1996 to June 1999 Mr. Heutmaker was an attorney with
Van Valkenberg Furber Law Group P.L.L.C, a law firm located in Seattle,
Washington, and outside securities counsel to Jore Corporation. From May 1992 to
May 1996, Mr. Heutmaker was the principal of Jeffrey M. Heutmaker, Attorney at
Law, where his practice focused on securities law and mergers and acquisitions
transactions. Prior to founding his own firm, Mr. Heutmaker was an associate
corporate finance attorney with Bogle & Gates. He holds a J.D. degree from Notre
Dame Law School and a B.A. degree in Economics and English Literature from the
University of Puget Sound.
THOMAS E. MAHONEY has served as a Director of Jore Corporation since
February 1999. From 1965 until 1999, he was employed by The Stanley Works in
various positions. From 1997 to 1999, he was the President of The Stanley Works,
Consumer Sales Americas. From 1995 to 1997, he was the President and General
Manager, Customer Support Division and V.P. of Corporate Marketing and
Advertising at Stanley. From 1992 to 1995, he was the President and General
Manager, Hardware and Home Decor Division of Stanley. From 1987 to 1992, he was
the President and General Manager, National Hand Tools Division of Stanley. He
has a B.A. degree from the University of Massachusetts.
R. BRUCE ROMFO has served as a Director of Jore Corporation since May 1998.
He has served as the President of Printing Press, Inc., a packaging and printing
company since 1983, and currently serves as a Director. Mr. Romfo holds a B.A.
degree from Minot State University and a Masters degree in Accounting from the
University of Idaho.
WILLIAM M. STEELE has served as a director of Jore Corporation since May
1998. He is a founder and a managing member of Manufacturers' Sales Associates,
LLC, our sales and marketing representative. Prior to that, Mr. Steele spent 12
years with Makita USA, as Senior Vice President and as General Manager of
Makita's Outdoor Power Equipment Division. Mr. Steele holds a B.A. degree from
the University of Connecticut.
A. BLAINE HUNTSMAN has served as a Director of Jore Corporation since June
1999. He is a director of ZCMI, an intermountain retail chain, and a Trustee of
The Achievement Funds Trust, an equity and bond fund affiliated with First
Security Investment Management, Inc. Mr. Huntsman served as
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<PAGE>
Chairman and Chief Executive Officer of Olympus Capital Corporation, a holding
company for Olympus Bank, from 1988 to 1995 when Olympus merged with Washington
Mutual. Prior to that he served as Dean of the Graduate School of Business and
College of Business, University of Utah, from 1975 to 1980 and is retired as a
Professor of Finance at the David Eccles School of Business at the University of
Utah. Mr. Huntsman has also served as a director for several publicly-held
companies, including Geneva Steel, Dean Witter Reynolds, Inc., Kahler Realty
Corporation, Arcata Corporation and others. He holds a B.S. degree from the
University of Utah and a Ph.D. in Economics from the University of Pennsylvania.
JAMES P. MATHIAS has served as a Director of Jore Corporation since June
1999. He has served as the President and Chief Operating Officer of The JPM
Company, a publicly-held wire harness and cable assembly company, since August
1981. Mr. Mathias has also served on The JPM Company's Board of Directors since
1978. From 1977 to 1981, he held various positions at The JPM Company including
Production Engineer, Production Control and Inventory Manager, and Vice
President of Operations. Prior to that, Mr. Mathias owned and operated a
contracting business from 1972 to 1977.
BOARD COMMITTEES
Jore Corporation maintains two standing committees, an Audit Committee and a
Compensation Committee.
AUDIT COMMITTEE. In June 1999, the Board of Directors formed the Audit
Committee for the purpose of reviewing our internal accounting procedures and
consulting with and reviewing the services provided by our independent public
accountants. Messrs. Mahoney, Mathias and Huntsman currently serve on the Audit
Committee.
COMPENSATION COMMITTEE. In June 1999, the Board of Directors formed the
Compensation Committee. The Compensation Committee reviews and recommends to the
Board the compensation and benefits of all our officers and reviews general
policy relating to compensation and benefits of our employees. The Compensation
Committee administers our 1997 Stock Plan. Messrs. Mathias, Huntsman and Matthew
Jore currently serve on the Compensation Committee.
COMPENSATION OF DIRECTORS
Non-employee directors receive $10,000 and an option to purchase 5,000
shares of common stock per year for services rendered as members of our Board of
Directors. Jore Corporation also reimburses the directors for certain reasonable
out-of-pocket expenses incurred in connection with their attendance at Board and
Committee meetings. For a description of payments to directors unrelated to
their service as directors, see "Certain Transactions."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to June 1999, Jore Corporation's Board of Directors did not maintain a
Compensation Committee of the Board of Directors, and the entire Board
participated in all decisions regarding compensation of our executive officers.
None of our executive officers serves as a member of the board of directors or
compensation committee of any entity that has one or more executive officers
serving as a member of our Board of Directors or Compensation Committee.
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to Matthew Jore, Chief
Executive Officer, and Michael Jore, Executive Vice President, the only other
executive officer of Jore Corporation whose salary and bonus exceeded $100,000
during fiscal year 1998. Matthew and Michael Jore are referred to collectively
as the "Named Executive Officers."
40
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------------------
<S> <C> <C> <C>
ALL OTHER
NAME AND PRINCIPAL POSITION SALARY COMPENSATION
- ------------------------------------------------------------------- -------------- -------------------
Matthew B. Jore.................................................... $ 141,617 $ 18,694
President and Chief Executive Officer
Michael W. Jore.................................................... $ 138,491 $ 21,823
Executive Vice President
</TABLE>
The amounts listed under the column captioned "All Other Compensation" for
Matthew Jore represent $2,805 in automobile allowances, $4,299 in health
insurance premiums, $4,840 in life insurance premiums and $6,750 in matching
401(k) contributions to the Jore Corporation 401(k) Profit Sharing Plan and for
Michael Jore represent $548 in automobile allowances, $6,808 in health insurance
premiums, $7,967 in life insurance premiums and $6,500 in matching 401(k)
contributions to the Jore Corporation 401(k) Profit Sharing Plan.
No stock options were granted to or exercised by, and no awards or payments
under any long term incentive plan were made to, any of our Named Executive
Officers during our last completed fiscal year.
EMPLOYEE BENEFITS PLANS
STOCK PLAN. On September 15, 1997, the Board of Directors and the
shareholders adopted the Jore Corporation 1997 Stock Plan and amended it on June
14, 1999. The purpose of the Stock Plan is to enhance the long term shareholder
value of Jore Corporation by offering opportunities to selected employees,
directors, officers, consultants, agents, advisors, and independent contractors
of Jore Corporation to participate in our growth and success, to encourage them
to remain in our service, and to own our stock. We have authorized 1.3 million
shares of common stock for issuance under the Stock Plan, subject to certain
adjustments. For all grants under the Stock Plan, the date of grant or award,
number of options, option price, vesting period and other terms specific to the
options or awards are to be determined by the plan administrator.
The Stock Plan provides for the grant of both incentive stock options, or
ISOs, that qualify under Section 422 of the Internal Revenue Code, and
nonqualified stock options or NQSOs. ISOs may be granted only to our employees
or employees of a parent or subsidiary. NQSOs and all other awards other than
ISOs may be granted to our employees, directors and other third parties who
render services to us or any parent or subsidiary that are not in connection
with the offer and sale of securities in a capital-raising transaction. The
exercise price of ISOs must be at least equal to the fair market value of the
common stock on the date of grant. The exercise price of NQSOs must be at least
equal to 85% of the fair market value of the common stock on the date of grant.
Options granted under the plan have a maximum term of 10 years.
Options granted under the Stock Plan generally expire three months after the
termination of the optionee's service, except in the case of death or
disability, in which case the options generally may be exercised up to 12 months
following the date of death or termination of service due to disability. Options
will generally terminate immediately upon termination for cause. If Jore
Corporation is dissolved or liquidated or has a "change in control" transaction,
outstanding awards may be assumed or substituted by the successor corporation,
if any. If a successor corporation does not assume or substitute the awards, the
Compensation Committee may accelerate the vesting of the awards prior to the
effectiveness of the transaction.
The Stock Plan also provides for the issuance of stock awards to eligible
participants of the Stock Plan with terms, conditions, and restrictions
established by the plan administrator in its sole discretion.
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<PAGE>
Generally, stock issued pursuant to an award is restricted stock. Subject to
certain restrictions, holders of stock awarded under the Stock Plan have all the
rights of other shareholders.
All grants and awards under the plan may not be transferred other than by
will or by the laws of descent and distribution and generally must be exercised
during the lifetime of the recipient only by the recipient.
401(K) PLAN. Jore Corporation maintains a 401(k) tax-qualified employee
savings and retirement plan covering all employees who satisfy certain
eligibility requirements relating to minimum age and length of service. Pursuant
to the 401(k) Plan, eligible employees may elect to reduce their current
compensation by up to the lesser of 15% of their annual compensation or the
statutorily prescribed annual limit and have the amount of such reduction
contributed to the 401(k) Plan. We also will match employee contributions of up
to five percent of an employee's annual compensation. The 401(k) Plan is
intended to qualify under Section 401 of the Internal Revenue Code of 1986, as
amended, so that contributions to the 401(k) Plan, and income earned on 401(k)
Plan contributions, are not taxable until withdrawn. The 401(k) Plan is
available to our executive officers on terms not more favorable than those
offered to other employees.
EMPLOYMENT AGREEMENT
In June 1999, we entered into an employment agreement with Matthew B. Jore,
our Chief Executive Officer. During the five year term of the employment
agreement, Mr. Jore will be paid an annual salary of $250,000. In addition, the
employment agreement contains a non-competition provision that prohibits Mr.
Jore from participating in the business of manufacturing or distributing tool
accessories for one year following his termination of employment with us.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
In accordance with Montana law our Amended and Restated Articles of
Incorporation include a provision that eliminates the personal liability of our
directors to Jore Corporation for monetary damages arising from breach of
fiduciary duty as directors, except for liability relating to:
- acts or omissions that involve intentional misconduct or a knowing
violation of law;
- unlawful distributions; or
- any transaction from which the director derived an improper personal
benefit.
In addition, our Bylaws provide that:
- We must indemnify our directors and officers to the fullest extent
permitted by Montana law, subject to certain exceptions;
- We may indemnify our other employees and agents to the same extent that we
indemnify our officers and directors, unless otherwise required by law,
our Amended and Restated Articles of Incorporation, our Bylaws or
agreements; and
- We must advance expenses, as incurred, to our directors and officers in
connection with legal proceedings to the fullest extent permitted by
Montana law.
Prior to the completion of this offering, we intend to enter into indemnity
agreements with each of our directors and executive officers to give them
additional contractual assurances regarding the scope of the indemnification
described above and to provide additional procedural protections. In addition,
we intend to obtain directors' and officers' insurance providing indemnification
for our directors, officers and certain employees for certain liabilities. We
believe that these indemnification provisions and agreements are necessary to
attract and retain qualified directors and officers. Insofar as indemnification
for liabilities arising under the Securities Act may be permitted to directors,
officers or
42
<PAGE>
persons controlling Jore Corporation, we have been informed that, in the opinion
of the Securities and Exchange Commission, such indemnification is against
public policy and is therefore unenforceable.
The limitation of liability and indemnification provisions in our Amended
and Restated Articles of Incorporation and Bylaws may discourage shareholders
from bringing a lawsuit against directors for breach of their fiduciary duty.
These provisions also may diminish the likelihood of derivative litigation
against our directors and officers, even though such an action, if successful,
might otherwise benefit us and our shareholders. Furthermore, a shareholder's
investment may be adversely affected to the extent that we pay the costs of
settlement and damage awards against directors and officers pursuant to these
indemnification provisions.
At present, there is no pending litigation or proceeding involving any of
our directors, officers or employees for which indemnification is sought, nor
are we aware of any threatened litigation that may result in claims for
indemnification.
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<PAGE>
CERTAIN TRANSACTIONS
REORGANIZATION TRANSACTIONS
We have effected an internal reorganization and certain other transactions
in which:
- We acquired Montana American Equipment, LLC, a company that had leased
manufacturing equipment to Jore Corporation;
- We exercised an option to purchase approximately 40 acres of land and
improvements at fair market value from Jore Land, LLC, a company
wholly-owned by Matthew Jore; and
- We effected a 216.017-for-one split of our common stock.
In addition, we will terminate our S corporation status upon completion of this
offering and distribute to our shareholders a final amount representing our
previously taxed but undistributed S corporation earnings through the S
corporation termination date.
In connection with this offering and the termination of Jore Corporation's S
corporation tax status, Jore Corporation has entered into a tax allocation and
indemnification agreement with its principal shareholders, including Matthew
Jore and Michael Jore, Merle Jore, father of Michael and Matthew, and certain
trusts administered by Matthew and Michael. The agreement provides that Jore
Corporation and these shareholders will indemnify each other for federal or
state income tax liabilities resulting from certain adjustments to Jore
Corporation's income or that of its shareholders. The agreement also provides
that if there is a determination that we were not an S corporation prior to the
offering, the principal shareholders will reimburse us for the amount that
equals the tax liability resulting from such determination.
Prior to its acquisition by Jore Corporation on January 1, 1999, Montana
American Equipment was owned by twenty members, including four of our directors
and several members of Matthew and Michael Jore's immediate family. The
approximate consideration that we issued to these members in connection with our
acquisition of Montana American Equipment was:
- 316,897 shares of our common stock to Matthew Jore;
- 14,257 shares of our common stock to Michael Jore;
- 11,017 shares of our common stock to Rick Jore, the brother of Matthew and
Michael Jore; and
- 8,857 shares of our common stock to Bruce Romfo, one of our directors, and
17,763 shares issued to B&P Manufacturing, LLC of which Mr. Romfo is a
controlling shareholder.
All of Montana American Equipment's members were issued aggregate consideration
of 452,772 shares of common stock of Jore Corporation, with a value of
approximately $2.6 million. In 1998, we paid $758,236 in lease payments to
Montana American Equipment for use of its machinery.
On February 1, 1999, Jore Land, LLC entered into an option agreement with us
under which we had an option to acquire approximately 40 acres of land and the
constructed improvements thereon at fair market value. We exercised that option
on June 28, 1999 and, in satisfaction of the purchase price, paid approximately
$2.8 million. The purchase price included forgiveness of a receivable in the
amount of $1.3 million relating to advanced construction costs, and assumption
of approximately $1.3 million of existing debt that we previously had
guaranteed. The land and buildings were leased to us under both operating and
financing leases and, during 1998, we paid $84,000 to Jore Land.
RELATED PARTY SERVICE PROVIDERS
In February 1998, we entered into sales agreements with Manufacturers'
Specialty Marketing, Incorporated and Manufacturers' Sales Associates. William
M. Steele, one of our directors, owns 50% of each of these entities. During
1998, Manufacturers' Specialty Marketing was the sole sales and marketing arm
for Jore Corporation, receiving 4% of our net revenues as a commission.
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<PAGE>
Manufacturers' Specialty Marketing divided its commissions with Manufacturers'
Sales Associates during the course of 1998. In January 1999, we revised our
agreements with these entities to terminate our relationship with Manufacturers'
Specialty Marketing and provide that Manufacturers' Sales Associates would be
the sole sales agent for Jore Corporation through December 2003. Manufacturers'
Sales Associates will receive as a sales commission a percentage of Jore's sales
to selected customers. Commissions earned in 1998 were $1.8 million for
Manufacturers' Specialty Marketing and Manufacturers' Sales Associates. In
February 1999, we granted to Mr. Steele an option to purchase 155,532 shares of
our common stock at a per share exercise price of $9.26.
In May 1999, we entered into an agreement with Thomas E. Mahoney, one of our
directors, pursuant to which Mr. Mahoney will provide consulting services
relating to our business development activities. We have agreed to pay Mr.
Mahoney $100,000 in 1999 for such services.
Printing Press Incorporated is a printing and packaging company in which
Bruce Romfo, a director of Jore Corporation, has a 30% ownership interest. Jore
Corporation purchased $2.0 million in printing and packaging material from
Printing Press in 1998 and likely will continue to purchase a substantial volume
of printed and packaging material from this vendor. In September 1998 and July
1999, we granted Mr. Romfo options to purchase an aggregate of 15,000 shares of
our common stock at a weighted average exercise price of $5.39 per share. We
currently lease equipment from Printing Press in consideration for lease
payments of $20,000 per month.
Montana American Manufacturing Corporation provided manufacturing services
to Jore Corporation totalling $826,000 and $1.2 million in 1997 and 1998,
respectively. Prior to its merger into Jore Corporation on October 1, 1998, it
was owned equally by six members of the Jore family. The shareholders of Montana
American Manufacturing, Matthew Jore, Michael Jore, Rick Jore, Roger Jore, Perry
Schneider and Randy Cote, each received 45,364 shares of common stock of Jore
Corporation as consideration for the merger. Matthew, Michael, Rick and Roger
Jore are brothers and Perry Schneider and Randy Cote are their brothers-in-law.
In the opinion of our Board of Directors, the terms of our transactions with
affiliates of Jore Corporation are as favorable to us as we could have obtained
with unaffiliated parties.
MANAGEMENT AND SHAREHOLDER TRANSACTIONS
As of June 30, 1999, each of the following shareholders was indebted to us
in the amount set forth opposite his or her respective name in connection with
shareholder and member advances related to his or her shareholdings in Jore
Corporation and membership interests in Montana American Equipment. Outstanding
indebtedness is evidenced by notes that bear interest annually at the applicable
federal rate:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
SHAREHOLDER OF INDEBTEDNESS
- ---------------------------------------------------------------------------- ----------------
<S> <C>
Matthew Jore................................................................ $ 754,809
Michael Jore................................................................ $ 329,501
Rick Jore................................................................... $ 151,450
Roger Jore.................................................................. $ 108,400
Maxine Schneider............................................................ $ 62,862
</TABLE>
In June 1999, Blaine Huntsman, one of our directors, and an affiliate of Mr.
Huntsman loaned Jore Corporation $500,000 at a rate of 6.5% per annum, with the
loan maturing on the earlier of December 1, 1999 or within five days following
the closing of this offering. In connection with the loan, we also issued Mr.
Huntsman and his affiliate warrants to purchase an aggregate of 20,000 shares of
common stock at an exercise price of $9.10 per share.
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<PAGE>
S CORPORATION DISTRIBUTIONS
For tax years 1997 and 1998 we made the following cash distributions in part
to enable our shareholders to pay their taxes on our net income:
<TABLE>
<CAPTION>
1997 1998
SHAREHOLDER DISTRIBUTION DISTRIBUTION
- ------------------------------------------------------------------- ----------- ------------
<S> <C> <C>
Matthew Jore....................................................... $ 126,625 $ 1,351,895
Michael Jore....................................................... $ 63,565 $ 605,354
Merle Jore......................................................... $ 60,033 139,496
Jore Family Trusts................................................. -- $ 243,129
Roger Jore......................................................... -- $ 227,918
Perry Schneider.................................................... -- $ 227,918
Randy Cote......................................................... -- $ 227,918
Rick Jore.......................................................... -- $ 275,370
</TABLE>
OTHER
In 1998, we employed Merle Jore and his annual salary, including
perquisites, was $80,724. He has in the past served as Executive Vice President,
Chairman of the Board of Directors and a Director. Merle Jore is the father of
Maxine Schneider, Matthew, Michael, Rick and Roger Jore.
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<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Jore Corporation's outstanding common stock as of August 15, 1999
by:
- each of the directors and Named Executive Officers;
- all of our directors and executive officers as a group;
- each other person known by us to own beneficially more than 5% of the
common stock; and
- the selling shareholder.
Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect to
securities. Common stock subject to options or warrants currently exercisable or
exercisable within 60 days of September 30, 1999, are deemed outstanding for
purposes of computing the percentage ownership of the person holding such option
but are not deemed outstanding for purposes of computing the percentage
ownership of any other person.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY SHARES THAT
OWNED OWNED MAY BE ACQUIRED
BEFORE THE OFFERING AFTER THE OFFERING WITHIN 60 DAYS
NAMED EXECUTIVE OFFICERS AND ------------------------- SHARES BEING ------------------------- OF SEPTEMBER 30,
DIRECTORS NUMBER PERCENT OFFERED NUMBER PERCENT 1999
- --------------------------------- ---------- ------------- ------------- ---------- ------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Matthew B. Jore.................. 11,054,303 68.4% -- 10,554,270 54.5% 2,573,004
Michael W. Jore.................. 2,536,773 25.2% -- 2,536,773 18.4% --
David H. Bjornson................ 23,327 * -- 23,327 * 22,263
Thomas E. Mahoney................ 2,999 * -- 2,999 * 2,999
R. Bruce Romfo................... 23,140 * -- 23,140 * 5,375
William M. Steele................ 155,532 1.6% -- 155,532 1.2% 155,532
A. Blaine Huntsman............... 22,999 * -- 22,999 * 22,999
James P. Mathias................. 2,999 * -- 2,999 * 2,999
All current directors and
executive officers as a group
(12 persons)................... 13,884,326 81.8% -- 13,184,260 65.4% 2,846,243
SELLING SHAREHOLDER
Merle Jore....................... 707,099 7.4% 300,000 407,099 3.1% --
45000 Highway 93 South
Ronan, MT 59864
</TABLE>
- ------------------------------
* LESS THAN 1%
47
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of Jore Corporation consists of 100 million
shares of common stock, no par value per share, and 30 million shares of
preferred stock, no par value per share.
COMMON STOCK
As of August 15, 1999, there were 9,522,800 shares of common stock
outstanding held of record by 31 shareholders. Following this offering,
13,222,800 shares of common stock will be issued and outstanding, assuming no
exercise of stock options and warrants subsequent to August 15, 1999. Holders of
common stock are entitled to one vote per share on all matters to be voted upon
by the shareholders. Because holders of common stock do not have cumulative
voting rights, the holders of a majority of the shares of common stock can elect
all of the members of the Board of Directors standing for election. Subject to
preferences of any preferred stock that may be issued in the future, the holders
of common stock are entitled to receive such dividends as may be declared by the
Board of Directors. See "Dividend Policy." If Jore Corporation is liquidated,
dissolved, or wound up, the holders of common stock are entitled to receive pro
rata all of our assets available for distribution to our shareholders after
payment of liquidation preferences of any outstanding shares of preferred stock.
There are no redemption or sinking fund provisions applicable to the common
stock. All outstanding shares of common stock are fully paid and non-assessable.
WARRANTS
As of August 15, 1999, we had warrants outstanding to purchase an aggregate
of 611,214 shares of common stock at a purchase price of between $8.41 and
$10.00 per share.
PREFERRED STOCK
Subject to the provisions of the Articles of Incorporation and limitations
prescribed by law, the Board of Directors has the authority to issue, without
further vote or action by the shareholders, up to 30 million shares of preferred
stock in one or more series. The Board has the power and authority to fix the
rights, preferences, privileges, and restrictions thereof, including dividend
rights, dividend rates, conversion rates, voting rights, terms of redemption,
redemption prices, liquidation preferences, and the number of shares
constituting any series or the designation of such series. Any series of
preferred stock may have rights and privileges superior to those of the common
stock. There will be no shares of preferred stock outstanding upon the
consummation of this offering, and we have no present plans to issue any
preferred stock.
REGISTRATION RIGHTS
After this offering, the holders of approximately 599,333 shares of common
stock issuable upon conversion of warrants issued in connection with our sale of
subordinated debt, or persons to whom such shares are transferred, will have
registration rights with respect to such shares. If we propose to register any
of our securities under the Securities Act, either for our own account or for
the account of other security holders, holders of these registrable shares will
be entitled to include their shares in such registration, at our expense.
However, the underwriters of any such offering have the right to limit the
number of shares included in such registration. In addition, holders of at least
50% of the outstanding registrable shares may require us to prepare and file a
registration statement under the Securities Act, at our expense, covering such
shares, and we are generally required to use our reasonable efforts to effect
such registration. We are not obligated to effect more than two of these
"demand" registrations. Further, holders of registrable shares generally may
require us to file additional registration statements on Form S-3 once we become
eligible to use that form.
48
<PAGE>
STATE CORPORATE LAW AND CERTAIN CHARTER PROVISIONS
We are subject to certain provisions of the Montana Business Corporations
Act that provide for a two-thirds majority vote of our shareholders in
connection with the approval of a plan of merger or share exchange unless the
Board of Directors require otherwise. This provision could have the effect of
delaying or discouraging unsolicited acquisition proposals, including proposals
to acquire our outstanding common stock at a premium to then-prevailing market
prices.
In addition, our Articles of Incorporation permit the Board to authorize the
issuance of preferred stock, and to designate the rights and preferences of such
preferred stock, without obtaining shareholder approval. One of the effects of
undesignated preferred stock may be to enable the Board of Directors to render
more difficult or to discourage a third party's attempt to obtain control of
Jore Corporation by means of a tender offer, proxy contest, merger, or
otherwise. The issuance of shares of the preferred stock also may discourage a
party from making a bid for the common stock because such issuance may adversely
affect the rights of the holders of common stock. For example, preferred stock
that we issue may rank prior to the common stock as to dividend rights,
liquidation preference, or both, may have special voting rights and may be
convertible into shares of common stock. Accordingly, the issuance of shares of
preferred stock may discourage bids for the common stock or may otherwise
adversely affect the market price of the common stock.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for our common stock is ChaseMellon
Shareholder Services, L.L.C.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. Future sales of substantial amounts of our common stock in the public
market could adversely affect market prices prevailing from time to time.
Furthermore, because only a limited number of shares will be available for sale
immediately after this offering because of certain contractual and legal
restrictions on resale described below, sales of substantial amounts of our
common stock in the public market after the restrictions lapse could adversely
affect the prevailing market price and our ability to raise equity capital in
the future.
Upon completion of this offering, based on the number of shares outstanding
on August 15, 1999, we will have 13,222,800 shares of common stock outstanding,
assuming no exercise of options or warrants after August 15, 1999. Of these
shares, the 4,000,000 shares sold in this offering will be freely tradable
without restriction or further registration under the Securities Act, unless
purchased by an affiliate of Jore who may only sell such shares pursuant to the
public information, volume, manner of sale and notice requirements of Rule 144
under the Securities Act. The remaining 9,222,800 shares outstanding upon
completion of this offering will be "restricted securities" as that term is
defined under Rule 144. Restricted securities may be sold in the public market
only if registered or if they qualify for an exemption from registration under
Rules 144, 144(k) or 701 under the Securities Act.
Our officers, directors, and substantially all of our shareholders and
option holders have agreed, during the 180-day lock-up period after the
effective date of the Registration Statement of which this prospectus
constitutes a part, that they will not, without the prior written consent of
D.A. Davidson & Co., directly or indirectly offer, sell, contract to sell or
otherwise dispose of any shares of our common stock or any securities
convertible into or exercisable or exchangeable for our common stock. We agreed
that we will not, without the prior written consent of D.A. Davidson & Co.,
directly or indirectly offer, sell, contract to sell or otherwise dispose of any
shares of our common stock or any securities convertible into or exercisable or
exchangeable for common stock during such 180-day lock-up period except for the
sale of the shares of common stock in this offering, the issuance of shares of
49
<PAGE>
common stock upon conversion, exercise or exchange of securities outstanding on
the date of, and disclosed in, this prospectus and the grant of options, and the
issuance of shares issuable upon exercise of options, pursuant to our stock
plan. Any shares subject to the lock-up agreements may be released at any time,
without notice, by D.A. Davidson & Co. See "Underwriting."
Taking into account the lock-up agreements, the number of shares that will
be available for sale in the public market under the provisions of Rules 144,
144(k) and 701, including certain shares issuable upon exercise of options, will
be as follows:
- 206,424 shares will be eligible for public resale 90 days after the
effective date of the Registration Statement;
- 8,974,903 shares are subject to the lock-up and will be eligible for
public resale beginning 180 days after the effective date of the
Registration Statement, subject in some cases to the public information,
volume, manner of sale and notice requirements of Rule 144 under the
Securities Act.
In general, under Rule 144 as currently in effect, a person, or persons
whose shares are aggregated, who has beneficially owned shares at least one
year, including the holding period of any prior owner other than an affiliate,
is entitled to sell in "broker's transactions" or to market makers, within any
three-month period commencing 90 days after the date of this prospectus, a
number of shares that does not exceed the greater of one percent of the number
of shares of common stock then outstanding, or approximately 132,228 shares
immediately after this offering, or the average weekly trading volume of the
common stock during the four calendar weeks preceding the required filing of a
Form 144 with respect to such sale. Sales under Rule 144 are subject to manner
of sale provisions and notice requirements and to the availability of current
public information about Jore Corporation. Under Rule 144(k), a person who is
not deemed to have been an affiliate of Jore Corporation at any time during the
90 days preceding a sale, and who has beneficially owned the shares proposed to
be sold for at least two years, including the holding period of any prior owner
other than an affiliate, is entitled to sell such shares without having to
comply with the manner of sale, public information, volume limitation or notice
provisions of Rule 144.
Under Rule 701, employees, officers or directors of or consultants to Jore
Corporation who purchased or were awarded shares or options to purchase shares
pursuant to a written compensatory plan or contract are entitled to sell such
shares 90 days after the effective date of this offering, without having to
comply with the holding period requirements of Rule 144 and, in the case of
non-affiliates, without having to comply with the public information, volume
limitation or notice provisions of Rule 144.
We intend to file a registration statement on Form S-8 under the Securities
Act covering approximately 1.3 million shares of our common stock reserved for
issuance under our stock plan and 311,064 shares of common stock reserved for
issuance under fully vested options granted to certain members of Manufacturers'
Sales Associates, including 155,532 granted to William Steele, a director. Such
registration statement is expected to be filed and become effective as soon as
practicable after the effective date of this offering. Accordingly, shares
registered on Form S-8 will be available for sale in the public market
immediately upon effectiveness of such registration statement, subject to
lock-up and Rule 144 volume limitations applicable to affiliates, and except to
the extent that such shares are subject to vesting restrictions. As of August
15, 1999, options to purchase 913,628 shares were issued and outstanding under
our stock plan. See "Management--Employee Benefit Plans."
50
<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives, D.A.
Davidson & Co., Janney Montgomery Scott LLC and First Security Van Kasper (the
"Representatives"), have severally agreed, subject to the terms and conditions
of the Underwriting Agreement, to purchase from Jore Corporation and the selling
shareholder the number of shares of common stock set forth opposite the
Representatives' names below. The underwriters are committed to purchase and pay
for all such shares if any are purchased, subject to certain conditions
precedent.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ------------------------------------------------------------------------------- ---------------------
<S> <C>
D.A. Davidson & Co.............................................................
Janney Montgomery Scott LLC....................................................
First Security Van Kasper......................................................
Total..........................................................................
</TABLE>
The Representatives have advised us and the selling shareholder that the
underwriters propose to offer the shares of common stock to the public at the
initial public offering price set forth on the cover page of this prospectus and
to certain dealers at such price, less a concession of not in excess of
$ per share, of which $ may be reallowed to other dealers. After the
offering, the public offering price, concession and reallowance to dealers may
be reduced by the Representatives. No such reduction shall change the proceeds
that will be received by the selling shareholder and us as set forth on the
cover page of the prospectus. The underwriters do not intend to confirm sales to
any accounts over which they exercise discretionary authority.
We have granted to the underwriters an option, exercisable for 30 days after
the date of this prospectus, to purchase up to 600,000 additional shares of
common stock to cover over-allotments, if any, at the same price per share to be
paid by the underwriters for the other shares of common stock offered hereby. To
the extent that the underwriters exercise this option, each of the underwriters
will have a firm commitment to purchase approximately the same percentage of
such additional shares that the number of shares of common stock to be purchased
by it shown in the table above bears to the 4,000,000 shares of common stock
offered hereby. If purchased, the underwriters will sell such additional shares
on the same terms as those on which the 4,000,000 shares are being sold.
The underwriters will receive an underwriting discount of $ per share, or
an aggregate of $ if the over-allotment option is exercised, on shares
of common stock purchased from the selling shareholder and us in this offering.
In addition, we will pay estimated offering expenses of approximately $1.0
million, including $25,000 payable to Janney Montgomery Scott LLC as a non-
accountable expense allowance.
The underwriting agreement contains covenants of indemnity among the
underwriters, Jore Corporation and the selling shareholder against certain civil
liabilities, including liabilities under the Securities Act and liabilities
arising from breaches of representations and warranties contained in the
Underwriting Agreement.
Our shareholders and option holders, including all officers and directors,
have agreed, for a lock-up period of 180 days after the effective date of the
registration statement of which this prospectus constitutes a part, not to
offer, pledge, sell, offer to sell, contract to sell, sell any option or
contract to purchase, purchase any option to sell, grant any option right or
warrant to purchase, or otherwise
51
<PAGE>
transfer or dispose of, directly or indirectly, any of the shares of common
stock or any securities convertible into, or exercisable or exchangeable for,
common stock, owned as of the date of this prospectus or thereafter acquired
directly by such holders or with respect to which they have or hereafter acquire
the power of disposition, without the prior written consent of D.A. Davidson &
Co. However, D.A. Davidson & Co. may, in its sole discretion and at any time
without notice, release all or any portion of the securities subject to lock-up
agreements. There are no agreements between the Representatives and any of our
shareholders providing consent by the Representatives to the sale of shares
prior to the expiration of the lock-up period. In addition, we have agreed that,
during the lock-up period, we will not issue, sell, contract to sell, or
otherwise dispose of, any shares of common stock, any options or warrants to
purchase any shares of common stock or any securities convertible into,
exercisable for or exchangeable for shares of common stock other than our sale
of shares in this offering, the issuance of common stock upon the exercise or
conversion of outstanding options or warrants, and our issuance of options and
shares issuable upon exercise of options under our stock plan without the prior
written consent of the Representatives.
The Representatives have advised us that pursuant to Regulation M under the
Securities Act, certain persons participating in this offering may engage in
transactions, including stabilizing bids, syndicate covering transactions and
the imposition of penalty bids, that may have the effect of stabilizing or
maintaining the market price of the common stock at a level above that which
might otherwise prevail in the open market. A "stabilizing bid" is a bid for or
the purchase of the common stock on behalf of the underwriters for the purpose
of preventing or retarding a decline in the market price of the common stock. A
"syndicate covering transaction" is the bid for or the purchase of the common
stock on behalf of the underwriters to reduce a short position incurred by the
underwriters in connection with this offering. A "penalty bid" is an arrangement
permitting the Representatives to reclaim the selling concession otherwise
accruing to an underwriter or syndicate member in connection with the offering
if the common stock originally sold by such underwriter or syndicate member is
purchased by the Representatives in a syndicate covering transaction and has
therefore not been effectively placed by such underwriter or syndicate member.
The Representatives have advised us that such transactions may be effected on
the Nasdaq National Market or otherwise and, if commenced, may be discontinued
at any time.
From April through August 1999, seven affiliates of D.A. Davidson & Co.
loaned Jore Corporation an aggregate of $6.0 million under promissory notes due
five calendar days following the completion of this offering. The notes bear
interest at an annual rate of 6.5%. In connection with this financing, we issued
warrants to purchase an aggregate of 231,934 shares of common stock with an
exercise price of $9.10 to these affiliates of D.A. Davidson. These warrants
will be restricted from sale, transfer, pledge, assignment or hypothecation for
a period of one year from the effective date of this offering except to officers
or partners (but not directors) of D.A. Davidson & Co. and to the other
underwriters and their officers and directors. We have paid D.A. Davidson & Co.
$206,000 in fees in connection with its placement of $8.25 million in principal
amount of our subordinated promissory notes and warrants to purchase 330,000
shares of our common stock between April and August 1999.
Prior to this offering, there was no public market for the common stock. The
initial public offering price for the common stock will be determined by
negotiation among us, the selling shareholder and the underwriters. Among other
factors to be considered in determining the initial public offering price are
prevailing market and economic conditions, our revenues and earnings, the state
of our business operations, an assessment of our management and consideration of
the above factors in relation to market valuation of companies in related
businesses and other factors deemed relevant. There can be no assurance,
however, that the prices at which the common stock will sell in the public
market after this offering will be equal to or greater than the initial public
offering price.
52
<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby and other legal matters
associated with the offering, except for matters relating to Montana law, will
be passed upon for Jore Corporation and the selling shareholder by Van
Valkenberg Furber Law Group P.L.L.C., Seattle, Washington. Legal matters with
respect to Montana law will be passed upon for Jore Corporation by Boone,
Karlberg & Haddon P.C., Missoula, Montana. Legal matters in connection with this
offering will be passed upon for the underwriters by Stoel Rives LLP, Seattle,
Washington.
EXPERTS
The financial statements as of December 31, 1997 and 1998 and for each of
the three years in the period ended December 31, 1998 included in this
prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing herein and elsewhere in the registration
statement, and have been so included in reliance upon the reports of such firm
given upon their authority as experts in accounting and auditing.
CHANGE IN ACCOUNTANTS
In January 1999, we retained Deloitte & Touche LLP as our independent
accountants and replaced Galusha, Higgins & Galusha, our former accountants.
Galusha, Higgins & Galusha resigned as our auditor in December, 1998 because the
firm was not qualified to practice before the Commission. The decision to change
independent accountants was ratified by our Board of Directors. During the
periods where Galusha, Higgins & Galusha served as our independent auditors,
there were no disagreements with Galusha, Higgins & Galusha regarding any
matters with respect to accounting principles or practices, financial statement
disclosure or audit scope or procedure, which disagreements, if not resolved to
the satisfaction of the former accountants, would have caused Galusha, Higgins &
Galusha to make reference to the subject matter of the disagreement in
connection with its report. The former accountants' reports for the years
audited by them are not a part of our financial statements included in this
prospectus. Such reports did not contain an adverse opinion or disclaimer of
opinion or qualifications or modifications as to uncertainty, audit scope or
accounting principles. Prior to retaining Deloitte & Touche LLP, we had not
consulted with Deloitte & Touche LLP regarding the application of accounting
principles.
ADDITIONAL INFORMATION
Jore Corporation has filed with the Commission a registration statement on
Form S-1 under the Securities Act with respect to the common stock offered
hereby. This prospectus, which constitutes part of the registration statement,
omits certain information contained in the registration statement, together with
exhibits and schedules, on file with the Commission pursuant to the Securities
Act and the rules and regulations of the Commission. The registration statement,
including the exhibits and schedules, may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, and at the Commission's Regional Offices at 7
World Trade Center, Suite 1300, New York, New York 10048, and 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661, and copies may be obtained at the
prescribed rates from the Public Reference Section of the Commission at its
principal office in Washington, D.C. The Commission also maintains a web site on
the Internet that contains reports, proxy and information statements, and other
information regarding registrants, including Jore Corporation, that file
electronically with the Commission at http://www.sec.gov.
We intend to furnish our shareholders with annual reports containing audited
financial statements and an opinion thereon expressed by independent auditors
and may furnish our shareholders with quarterly reports for the first three
quarters of each fiscal year containing unaudited summary financial information.
53
<PAGE>
JORE CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<S> <C>
Independent Auditors' Report......................................................... F-2
Consolidated Balance Sheets.......................................................... F-3
Consolidated Statements of Operations................................................ F-4
Consolidated Statements of Changes in Shareholders' Equity........................... F-5
Consolidated Statements of Cash Flows................................................ F-6
Notes to Consolidated Financial Statements........................................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Jore Corporation
Ronan, Montana
We have audited the accompanying consolidated balance sheets of Jore
Corporation and subsidiaries (the Company) as of December 31, 1997 and 1998, and
the related consolidated statements of operations, changes in shareholders'
equity, and cash flows for each of the three years in the period ended December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Jore Corporation and
subsidiaries as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
Seattle, Washington
May 12, 1999
(August 19, 1999 as to Note 11)
F-2
<PAGE>
JORE CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
---------------------------- JUNE 30, JUNE 30,
1997 1998 1999 1999
------------- ------------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 113,471 $ 34,736 $ 46,929 $ 46,929
Accounts receivable, net of allowance for doubtful
accounts of $10,987 and $-0-, respectively...... 5,986,070 14,672,275 6,937,474 6,937,474
Notes receivable.................................. 29,136 53,576 25,000 25,000
Shareholder notes receivable...................... 272,895 1,350,788 1,516,598 1,516,598
Notes receivable from affiliates.................. 62,578 83,917 -- --
Other receivables................................. 136,698 38,461 65,643 65,643
Inventory......................................... 4,740,004 8,182,542 13,426,661 13,426,661
Prepaid expenses and other assets................. 34,169 695,076 450,302 450,302
Deferred income tax assets........................ -- -- -- 245,000
------------- ------------- ------------- -------------
Total current assets.......................... 11,375,021 25,111,371 22,468,607 22,713,607
Property, plant and equipment, net.................. 6,080,632 19,815,544 31,726,932 31,726,932
Intangibles and other long-term assets, net......... 303,525 1,035,667 2,539,109 2,539,109
------------- ------------- ------------- -------------
Total............................................... $ 17,759,178 $ 45,962,582 $ 56,734,648 $ 56,979,648
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 3,462,396 $ 7,106,060 $ 6,357,068 $ 6,357,068
Accrued expenses.................................. 1,242,087 2,073,702 5,130,155 5,130,155
Operating line of credit.......................... 4,672,938 13,524,805 10,279,163 10,279,163
Notes payable..................................... -- -- 6,064,077 6,064,077
Other current liabilities......................... 150,000 125,026 560,881 560,881
Shareholder note payable.......................... -- 256,061 235,858 3,844,858
Current portion of long-term debt................. 1,021,508 1,998,192 2,285,535 2,285,535
------------- ------------- ------------- -------------
Total current liabilities..................... 10,548,929 25,083,846 30,912,737 34,521,737
Long-term debt, net of current portion.............. 4,689,437 14,589,346 18,326,210 18,326,210
Deferred income tax liabilities..................... -- -- -- 1,175,000
------------- ------------- ------------- -------------
Total liabilities............................. 15,238,366 39,673,192 49,238,947 54,022,947
Commitments and contingencies (Note 10)
Shareholders' equity:
Preferred stock, no par value
Authorized, 30,000,000 shares; issued and
outstanding, -0- shares....................... -- -- -- --
Common stock, no par value
Authorized, 100,000,000 shares; issued and
outstanding, 9,342,564, 9,508,544 and
9,522,800 shares, respectively................ 736,392 1,694,931 1,951,593 3,230,249
Deferred compensation--stock options.............. -- (4,868) (4,543) (4,543)
Retained earnings................................. 1,784,420 4,599,327 5,548,651 (269,005)
------------- ------------- ------------- -------------
Total shareholders' equity.................... 2,520,812 6,289,390 7,495,701 2,956,701
------------- ------------- ------------- -------------
Total............................................... $ 17,759,178 $ 45,962,582 $ 56,734,648 $ 56,979,648
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE>
JORE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------------ ----------------------------
1996 1997 1998 1998 1999
------------ ------------- ------------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues.................................. $ 9,686,034 $ 23,655,966 $ 44,888,324 $ 14,881,454 $ 18,057,185
Cost of goods sold............................ 8,416,594 17,098,184 31,167,724 9,821,195 12,744,521
------------ ------------- ------------- ------------- -------------
Gross profit................................ 1,269,440 6,557,782 13,720,600 5,060,259 5,312,664
Operating expenses:
Product development......................... 792 150,691 495,235 104,200 225,267
Sales and marketing......................... 31,517 619,520 2,508,818 710,749 758,823
General and administrative.................. 1,300,278 2,342,165 2,983,035 1,143,738 2,317,035
------------ ------------- ------------- ------------- -------------
Total operating expense................. 1,332,587 3,112,376 5,987,088 1,958,687 3,301,125
------------ ------------- ------------- ------------- -------------
Income (loss) from operations................. (63,147) 3,445,406 7,733,512 3,101,572 2,011,539
Other expense:
Interest expense............................ 484,436 792,932 1,358,328 519,595 1,047,505
Other expense............................... 10,774 111,424 138,669 97,620 7,410
------------ ------------- ------------- ------------- -------------
Net other expense....................... 495,210 904,356 1,496,997 617,215 1,054,915
------------ ------------- ------------- ------------- -------------
Net income (loss) before minority interest.... (558,357) 2,541,050 6,236,515 2,484,357 956,624
Minority interest............................. -- -- 3,519 -- --
------------ ------------- ------------- ------------- -------------
Net income (loss)............................. $ (558,357) $ 2,541,050 $ 6,240,034 $ 2,484,357 $ 956,624
------------ ------------- ------------- ------------- -------------
------------ ------------- ------------- ------------- -------------
Net income (loss) per common share:...........
Basic....................................... $ (0.06) $ 0.27 $ 0.66 $ 0.26 $ 0.10
Diluted..................................... $ (0.06) $ 0.27 $ 0.66 $ 0.26 $ 0.10
Shares used in calculation of net income
(loss) per share:...........................
Basic....................................... 9,022,987 9,357,801 9,412,497 9,392,274 9,522,798
Diluted..................................... 9,022,987 9,357,801 9,435,777 9,392,274 9,695,505
Pro forma data (unaudited):
Net income (loss)........................... $ (558,357) $ 2,541,050 $ 6,240,034 $ 2,484,357 $ 956,625
Pro forma provision (benefit) for income
taxes..................................... (199,314) 900,200 2,343,193 932,876 366,129
------------ ------------- ------------- ------------- -------------
Pro forma net income (loss)................. $ (359,043) $ 1,640,850 $ 3,896,841 $ 1,551,481 $ 590,496
------------ ------------- ------------- ------------- -------------
------------ ------------- ------------- ------------- -------------
Pro forma net income per common share:......
Basic..................................... $ 0.40 $ 0.06
------------- -------------
Diluted................................... $ 0.40 $ 0.06
------------- -------------
Shares used in calculation of pro forma net
income per share:.........................
Basic..................................... 9,792,697 9,883,698
------------- -------------
------------- -------------
Diluted................................... 9,815,977 10,056,405
------------- -------------
------------- -------------
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
JORE CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK RETAINED
-------------------------- DEFERRED EARNINGS
SHARES AMOUNT COMPENSATION (DEFICIT) TOTAL
------------ ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1996................ 8,640,680 $ 439,392 $ -- $ 323,630 $ 763,022
Common stock issued................... 701,884 147,000 147,000
Shareholder distributions............. (202,240) (202,240)
Net loss.............................. (558,357) (558,357)
------------ ------------ ------------- ------------- -------------
Balance, December 31, 1996.............. 9,342,564 586,392 -- (436,967) 149,425
Common stock issued................... 47,957 150,000 150,000
Shareholder distributions............. (319,663) (319,663)
Net income............................ 2,541,050 2,541,050
------------ ------------ ------------- ------------- -------------
Balance, December 31, 1997.............. 9,390,521 736,392 -- 1,784,420 2,520,812
Common stock issued................... 63,587 757,000 757,000
Common stock issued for land.......... 54,436 195,048 195,048
Shareholder distributions............. (3,425,127) (3,425,127)
Deferred compensation--stock
options............................. 6,491 (6,491) --
Noncash compensation--stock options... 1,623 1,623
Net income............................ 6,240,034 6,240,034
------------ ------------ ------------- ------------- -------------
Balance, December 31, 1998.............. 9,508,544 1,694,931 (4,868) 4,599,327 6,289,390
Common stock issued for land.......... 14,256 82,302 82,302
Common stock warrants................. 174,360 174,360
Noncash compensation--stock options... 325 325
Shareholder distributions............. (7,300) (7,300)
Net income............................ 956,624 956,624
------------ ------------ ------------- ------------- -------------
Balance, June 30, 1999
(unaudited)........................... 9,522,800 $ 1,951,593 $ (4,543) $ 5,548,651 $ 7,495,701
------------ ------------ ------------- ------------- -------------
------------ ------------ ------------- ------------- -------------
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE>
JORE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
----------------------------------------- JUNE 30,
1996 1997 1998 ----------------------------
----------- ------------- ------------- 1998 1999
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income (loss)............................. $ (558,357) $ 2,541,050 $ 6,240,034 $ 2,484,357 $ 956,625
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating
activities:
Depreciation................................ 423,359 677,171 973,762 329,994 857,876
Amortization................................ (19,834) 34,829 155,485 111,673 23,155
Compensation expense--stock options......... -- -- 1,623 -- 325
Bad debt expense............................ -- 17,008 -- -- --
Provision for inventory obsolescence........ 27,000 383,802 24,552 -- --
Loss on disposal of fixed assets............ 6,597 100,838 1,244 -- --
Cash provided (used) by changes in operating
assets and liabilities:
Accounts receivable....................... (1,005,553) (4,254,543) (8,686,205) 1,633,577 7,734,801
Other receivables......................... 9,728 (138,570) 98,237 106,488 (27,182)
Inventory................................. (1,895,620) (2,150,004) (3,467,090) (3,443,273) (5,244,119)
Prepaid expenses and other current
assets.................................. (34,690) 4,045 (660,907) (118,646) 244,774
Intangibles and other long-term assets.... (116,831) (133,314) (862,686) (2,521,406) (1,526,597)
Accounts payable.......................... 1,715,238 204,181 3,643,664 747,325 (748,991)
Accrued expenses.......................... 311,491 734,062 831,615 102,069 3,056,453
Other current liabilities................. 102,383 47,617 (24,974) (131,947) 74,536
----------- ------------- ------------- ------------- -------------
Net cash used by operating activities... (1,035,089) (1,931,828) (1,731,646) (699,789) 5,401,656
Investing activities:
Purchase of property and equipment............ (1,610,877) (2,693,302) (15,216,599) (3,580,313) (12,686,962)
Proceeds from sale of fixed assets............ 7,343 30,669 701,729 (2,940) --
Advances on notes receivable.................. (208,990) (93,003) (1,429,165) (213,982) (34,697)
Payments on notes receivable.................. 47,615 113,420 305,493 -- --
Payment of patent costs....................... (2,781) (19,279) (24,941) -- --
----------- ------------- ------------- ------------- -------------
Net cash used by investing activities... (1,767,690) (2,661,495) (15,663,483) (3,797,235) (12,721,659)
Financing activities:
Proceeds from long-term debt.................. 4,551,319 1,862,508 17,149,307 8,623,826 5,062,149
Payments on long-term debt.................... (1,882,550) (587,085) (6,016,653) (4,682,763) (1,037,942)
Proceeds from operating line, net............. 194,554 3,578,751 8,851,867 2,225,744 (3,245,642)
Capital contributions......................... 147,000 150,000 757,000 --
Shareholder distributions..................... (202,240) (319,663) (3,425,127) (1,658,032) (7,300)
Proceeds from short-term debt................. 150,000 6,560,930
----------- ------------- ------------- ------------- -------------
Net cash provided by financing
activities............................ 2,808,083 4,684,511 17,316,394 4,658,775 7,332,195
----------- ------------- ------------- ------------- -------------
Net increase (decrease) in cash and cash
equivalents................................... 5,304 91,188 (78,735) 161,751 12,192
Cash and cash equivalents:
Beginning of period........................... 16,979 22,283 113,471 113,471 34,736
----------- ------------- ------------- ------------- -------------
End of period................................. $ 22,283 $ 113,471 $ 34,736 $ 275,222 $ 46,928
----------- ------------- ------------- ------------- -------------
----------- ------------- ------------- ------------- -------------
Supplemental disclosures
Cash paid:
Interest paid................................. $ 485,790 $ 782,245 $ 1,368,383 $ 592,602 $ 1,047,505
Noncash financing and investing activities:
Common stock issued for land.................. $ -- $ -- $ 195,048 $ -- $ 82,302
Property contributed to JB Tool, LLC.......... 3,519
Warrants issued with debt..................... 174,360
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
NOTE 1: DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION AND REORGANIZATION
DESCRIPTION OF BUSINESS: Jore Corporation (the Company or Jore) is a
Montana corporation engaged in the design, manufacture and marketing of
innovative power tool accessories and hand tools for the do-it-yourself and
professional craftsman markets. The Company sells its products under private
labels to the industry's largest power tool retailers and manufacturers.
BASIS OF PRESENTATION AND REORGANIZATION: The Company intends to file a
registration statement for an initial public offering (IPO) on Form S-1 with the
Securities and Exchange Commission. In contemplation of the IPO, Jore and
entities under common control have initiated or will initiate certain events.
These entities included Montana American Manufacturing Corporation (MAMC) and
Montana American Equipment, LLC (MAE).
MAMC, a Montana corporation, was formed March 26, 1996, to be a producer of
high volume component parts to Jore on a per piece price basis, as well as to
operate and maintain certain of the Company's manufacturing equipment. MAMC was
owned equally by six shareholders, which included shareholders of Jore and their
immediate family members. On October 1, 1998, MAMC merged with Jore, and the
former MAMC shareholders received 360,654 shares of Jore common stock. Because
MAMC and Jore were under common control the merger was accounted for in a manner
similar to a pooling-of-interests. Accordingly, the assets and liabilities of
MAMC have been consolidated at book value, and the historical financial
statements for all periods presented have been prepared to give effect to the
merger as if it had occurred on March 26, 1996 (inception of MAMC). Under this
presentation, results are presented as consolidated, with all intercompany
transactions and balances eliminated, and the total number of outstanding shares
presented to reflect the combination.
MAE, a Montana limited liability company, was formed September 9, 1996. MAE
owned certain specialized equipment for the manufacture of component parts for
which it received a usage fee calculated on a per piece price basis. On January
1, 1999, Jore acquired the assets of MAE, net of outstanding indebtedness, in
exchange for 452,774 shares of Jore common stock. Because MAE and Jore were
under common control the merger was accounted for in a manner similar to a
pooling-of-interests. Accordingly, the assets and liabilities of MAE have been
consolidated at book value, and historical financial statements for all periods
presented have been prepared to give effect to the combination, as if it had
occurred on September 9, 1996 (inception of MAE). Under this presentation,
results are presented as consolidated, with all intercompany transactions and
balances eliminated, and the total number of outstanding shares is presented to
reflect the combination.
NOTE 2: PRO FORMA INFORMATION (UNAUDITED)
Upon completion of the IPO, the Company's S corporation status will
terminate and it will become subject to federal and state income taxes.
Additionally, upon completion of the IPO, the Company will distribute the
earned, but undistributed, accumulated S corporation earnings (the "S
Corporation Distribution") through the closing date of the IPO. Undistributed S
corporation earnings through June 30, 1999 were approximately $3,609,000. The
difference between the S Corporation Distribution and historical retained
earnings consists primarily of temporary timing differences between book and tax
income, prior year distributions in excess of accumulated adjustment account,
effect of elimination entries and retained earnings of the subsidiaries.
F-7
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
NOTE 2: PRO FORMA INFORMATION (UNAUDITED) (CONTINUED)
PRO FORMA CONSOLIDATED BALANCE SHEET: The pro forma unaudited consolidated
balance sheet as of June 30, 1999 reflects the termination of the Company's S
corporation status and the distribution of the S Corporation Distribution
through the creation of a shareholder note payable which will be satisfied
subsequent to the IPO. It also reflects the deferred income tax assets and
liabilities that would have been recorded as of that date. A reduction in
shareholders' equity is reflected as a result of the S Corporation Distribution.
PRO FORMA CONSOLIDATED INCOME STATEMENTS DATA: The unaudited pro forma
results of operations information includes a pro forma income tax benefit
(provision) for each of the three years ended December 31, 1996, 1997 and 1998,
assuming effective tax rates of (35.7%), 35.43% and 37.56%, respectively, (see
Note 8), comparable to what would have been reported had the Company operated as
a C Corporation.
The Company has adopted the provisions of SFAS No. 128, EARNINGS PER SHARE,
for purposes of presenting pro forma basic and diluted net income per common
share. The following table reconciles the historical weighted average shares
outstanding to the pro forma weighted average shares outstanding:
<TABLE>
<CAPTION>
BASIC DILUTED
---------- ------------
<S> <C> <C>
Historical weighted average shares outstanding......................................... 9,522,642 9,695,505
Effect of dilutive shares - number of shares required to pay S Corporation
Distribution, estimated to be $3,609,000 at $10.00 per share......................... 360,900 360,900
---------- ------------
Pro forma weighted average shares outstanding.......................................... 9,883,542 10,056,405
---------- ------------
</TABLE>
NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The financial statements include the accounts
of Jore Corporation and its subsidiaries which include MAMC, MAE, and JB Tool,
LLC (JB Tool). Intercompany transactions and balances have been eliminated. The
allocation of JB Tool's net loss to the minority interest has been limited to
the amount of minority interest capital.
USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from estimates.
CASH AND CASH EQUIVALENTS: The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents. The Company has a cash management system under which a cash
overdraft exists for uncleared checks. Uncleared checks of $334,326 and
$1,180,162 are included in accounts payable at December 31, 1997 and 1998,
respectively.
INVENTORIES: Inventories are stated at the lower of cost (first-in,
first-out basis) or market. Inventory costs include material, labor and factory
overhead. The Company provides for obsolete and
F-8
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
unsaleable inventories based on specific identification of inventory against
current demand and recent usage.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated at
cost. Depreciation for financial reporting purposes is computed using the
straight-line method over the following useful lives for purchased assets, and
over the shorter of the following useful lives or the lease term for leased
assets:
<TABLE>
<S> <C>
Buildings........................................................ 40 years
10-15
Land improvements................................................ years
Plant, tooling, and packaging equipment.......................... 5-10 years
Office equipment and furniture................................... 3-7 years
Vehicles......................................................... 5 years
</TABLE>
INTANGIBLES AND OTHER ASSETS: Patents and trademarks are amortized on a
straight-line basis over their estimated useful lives of 17 years. Deferred
financing costs incurred in connection with borrowings are capitalized and
amortized to interest expense over the life of the related obligation.
REVENUE RECOGNITION: Revenues from sales of product are generally
recognized upon shipment.
PRODUCT DEVELOPMENT: Product development expenses consist principally of
personnel costs and material associated with the development of new products and
changes to existing products, which are charged to operations as incurred.
ADVERTISING AND PROMOTION: Costs associated with advertising and promoting
products are expensed as incurred.
STOCK-BASED COMPENSATION: As described in Note 5, the Company has elected
to follow the accounting provisions of Accounting Principles Board (APB) Opinion
No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEE for stock-based compensation and
to furnish the pro forma disclosures required under Statement of Financial
Accounting Standards (SFAS) No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION.
LONG-LIVED ASSETS: Long-lived assets are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable or whenever management has committed to a plan to dispose
of the assets. Such assets are carried at the lower of book value or fair value.
An asset is considered impaired when estimated future undiscounted cash flows
are less than the carrying amount of the asset. In the event the carrying amount
of such asset is not deemed recoverable, the asset is adjusted to its estimated
fair value.
NET INCOME (LOSS) PER COMMON SHARE: Basic net income (loss) per common
share was calculated by dividing net income (loss) by the weighted average
number of common shares outstanding during the period. Diluted net income per
common share was calculated by dividing net income by the weighted average
number of shares outstanding plus all additional common shares that would have
been outstanding if potentially dilutive common share equivalents had been
issued. Both basic and diluted net income per share reflect the change in the
capital structure discussed in Note 1.
F-9
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The following table reconciles the number of shares utilized in the net
income (loss) per share calculations:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, PERIOD
---------------------------------- ENDED
1996 1997 1998 JUNE 30, 1999
---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Number of shares:
Common shares -- basic.................................... 9,022,987 9,357,801 9,412,497 9,522,798
Effect of dilutive securities -- stock options............ -- -- 23,280 172,707
---------- ---------- ---------- -------------
Common shares -- diluted.................................... 9,022,987 9,357,801 9,435,777 9,695,505
---------- ---------- ---------- -------------
---------- ---------- ---------- -------------
</TABLE>
STOCK SPLIT: A 216.017-for-1 split of the Company's common stock was
effected on May 12, 1999. All references in the financial statement to shares,
share prices, per share amounts and stock plan have been adjusted retroactively
for the 216.017-for-1 stock split.
INTERIM FINANCIAL INFORMATION: The interim financial information as of June
30, 1999, and for the six-month periods ended June 30, 1998 and 1999, was
prepared by the Company in a manner consistent with the audited consolidated
financial statements and pursuant to the rules and regulations of the Securities
and Exchange Commission. The unaudited information, in management's opinion,
reflects all adjustments that are of a normal recurring nature and that are
necessary to present fairly the results for the periods presented. The results
of operations for the six-month period ended June 30, 1999 are not necessarily
indicative of the results to be expected for the entire year.
RECENT ACCOUNTING PRONOUNCEMENTS: Effective January 1, 1998, the Company
adopted the provision of SFAS No. 130, REPORTING COMPREHENSIVE INCOME. SFAS No.
130 establishes the standards for reporting comprehensive income and its
components in financial statements. Comprehensive income as defined includes all
changes in equity during a period from nonowner sources. Examples of items to be
included in comprehensive income, which are excluded from net income, include
foreign currency translation adjustments and unrealized gains/losses on
available-for-sale securities. Reclassification of financial statements for
earlier periods for comparative purposes is required upon adoption. Currently,
there are no disclosure differences between reported net income and
comprehensive income.
Effective January 1, 1998, the Company adopted the provisions of SFAS No.
131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. The
statement requires, among other things, that the Company provide financial and
descriptive information about its reportable operating segments. Operating
segments are defined as components of an enterprise about which separate
financial information is available and is regularly evaluated by the
enterprise's chief operating decision-maker in deciding how to allocate
resources and in assessing performance. Currently, the Company operates in only
one reportable segment.
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No.
133 requires companies to recognize all derivative contracts as either assets or
liabilities in the balance sheet and to measure them at fair value. If certain
conditions are met, a derivative may be specifically designated as a hedging
instrument, the objective of which is to match the timing of gain or loss
recognition on the hedging derivative with the
F-10
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
recognition of the changes in the fair value of the hedged asset or liability
that are attributable to the hedged risk, or the earnings effect of the hedged
forecasted transaction. For a derivative not designated as a hedging instrument,
the gain or loss is recognized in income in the period of change. SFAS No. 133
is effective for all fiscal quarters of fiscal years beginning after July 1,
2000. Historically, the Company has not entered into derivative contracts either
to hedge existing risks or for speculative purposes. The Company does not expect
adoption of SFAS No. 133 to have a material effect on the financial statements.
FINANCIAL INSTRUMENTS: Financial instruments consist of cash and cash
equivalents, notes receivable and long-term debt. The carrying value of cash and
cash equivalents and notes receivable approximates fair value because of the
short-term maturity of those instruments. The fair value of long-term debt with
variable interest rates approximates the carrying amount as the borrowings are
at adjustable interest rates which reprice based on fluctuations in market
conditions and the level of operating cash flow of the Company. The fair value
of the Company's long-term debt with fixed interest rates was based on the
estimated equivalent rate on the last business day of the fiscal year. As of
December 31, 1998, the fair value and principal amount of the fixed rate
long-term debt were $3,950,273 and $3,882,419, respectively.
SIGNIFICANT CUSTOMERS: The Company's sales are concentrated among a few
major customers. Sales to customers who individually accounted for 10% of total
sales for each of the years ended December 31, and receivables from customers
who individually accounted for 10% of total receivables at December 31, are as
follows:
<TABLE>
<CAPTION>
JUNE 30,
1996 1997 1998 1999
--------- --------- --------- -----------
<S> <C> <C> <C> <C>
Sales to:
Customer A.......................................... 31.9% 60.2% 40.5%
Customer B.......................................... 10.5% 21.5% 17.2% 36.0%
Customer C.......................................... 63.6% 25.6% 14.5% 10.9%
Customer D.......................................... 17.0%
Customer E.......................................... 16.4%
--------- --------- --------- -----
90.5% 96.0% 91.9% 87.4%
All other customers................................... 9.5% 4.0% 8.1% 12.6%
--------- --------- --------- -----
100.0% 100.0% 100.0% 100.0%
--------- --------- --------- -----
--------- --------- --------- -----
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
1997 1998 1999
--------- --------- -----------
<S> <C> <C> <C>
Receivables from:
Customer A.................................................... 82.5% 74.1% 43.3%
Customer B.................................................... 10.4% 11.2% 32.8%
--------- ---------
92.9% 85.3% 76.1%
All other customers............................................. 7.1% 14.7% 23.9%
--------- --------- -----
100.0% 100.0% 100.0%
--------- --------- -----
--------- --------- -----
</TABLE>
F-11
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Sales are made without collateral, and the Company's bad debts have been
insignificant to date. No allowance for uncollectible receivables was recorded
at December 31, 1998, and $10,987 was recorded at December 31, 1997.
NOTE 4: BALANCE SHEET COMPONENTS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1997 1998 1999
------------- ------------- -------------
<S> <C> <C> <C>
Inventory
Component parts/raw materials............... $ 3,644,399 $ 5,770,617 $ 6,896,861
Work in progress............................ 519,664 1,257,704 3,308,032
Finished goods.............................. 570,599 1,043,179 2,693,360
Supplies inventory.......................... 5,342 111,042 528,408
------------- ------------- -------------
$ 4,740,004 $ 8,182,542 $ 13,426,661
------------- ------------- -------------
------------- ------------- -------------
Property, Plant and Equipment
Buildings and leasehold improvements........ $ 1,422,511 $ 4,438,668 $ 5,475,816
Land and land improvements.................. 189,721 595,329 889,853
Plant, tooling, packaging equipment......... 4,751,812 9,763,618 12,295,004
Office equipment and furniture.............. 568,088 1,340,603 1,837,023
Vehicles.................................... 264,123 376,465 386,949
------------- ------------- -------------
7,196,255 16,514,683 20,884,645
Accumulated depreciation.................... (1,484,475) (2,349,407) (3,202,681)
------------- ------------- -------------
5,711,780 14,165,276 17,681,964
Construction in progress.................... 326,841 -- 2,030,446
Machinery in progress....................... 42,011 5,650,268 12,014,522
------------- ------------- -------------
$ 6,080,632 $ 19,815,544 $ 31,726,932
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
NOTE 5: SHAREHOLDERS' EQUITY
AUTHORIZED SHARES: At incorporation, the Company was authorized to issue
50,000 (prior to stock split discussed below) shares of stock with no par value.
The Articles of Incorporation prior to the amendment discussed below limited the
Company to one class of stock, designated as common stock.
On May 11, 1999, the Articles of Incorporation were amended to increase the
authorized number of shares of the Company's common stock to 100,000,000 shares
of no par value common stock and to authorize 30,000,000 shares of no par value
preferred stock.
F-12
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
NOTE 5: SHAREHOLDERS' EQUITY (CONTINUED)
On May 12, 1999 the Company effected a 216.017-for-1 split of the Company's
common stock. All references in the financial statements to shares, share
prices, per share amounts and stock plans have been adjusted retroactively to
reflect the stock split.
STOCK TRANSACTIONS: On October 1, 1998, the Company exchanged 54,436 shares
of common stock to acquire 40 acres of property with a fair market value of
$195,048. In conjunction with the purchase of property, Jore entered into a
stock put option agreement, under which Jore granted the seller the right and
option to require Jore to purchase all, but not less than all, of the shares for
$240,000 or $4.42 per share. The right is exercisable only on a date which is
after September 30, 2001 and before November 1, 2001.
1997 STOCK PLAN: On September 15, 1997, the Board of Directors approved the
implementation of the 1997 Stock Plan (the Plan). The Plan provides employees an
opportunity to purchase shares of stock pursuant to options which may qualify as
incentive stock options under Section 422 of the Internal Revenue Code of 1986,
as amended (the Code), and employees, outside directors, and consultants of the
Company an opportunity to purchase shares of stock pursuant to options which are
not described in Section 422 of the Code (nonqualified stock options). The Plan
also provides for the direct award or sale of shares to employees, outside
directors, and consultants of the Company. Options granted under the Plan expire
ten years from the date of grant and typically vest over a period of four years
such that 20% vest immediately and 20% after each additional year of continuous
service. Not more than 972,077 shares of stock shall be available for the grant
of options or the issuance of stock under the Plan.
Activity and price information regarding the options are summarized as
follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
--------- -----------------
<S> <C> <C>
Outstanding, January 1, 1996..................................... -- $ --
Granted........................................................ -- --
---------
Outstanding, December 31, 1996................................... -- --
Granted........................................................ -- --
---------
Outstanding, December 31, 1997................................... -- --
Granted........................................................ 422,312 4.42
---------
Outstanding, December 31, 1998................................... 422,312 4.42
---------
---------
Options exercisable, December 31, 1998........................... 84,462 4.42
---------
---------
</TABLE>
F-13
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
NOTE 5: SHAREHOLDERS' EQUITY (CONTINUED)
Information regarding stock option grants during the year ended December 31,
1998 is summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE FAIR VALUE
--------- ----------------- -----------------
<S> <C> <C> <C>
Exercise price exceeds market price................................ 422,312 $ 4.42 $ 0.14
Exercise price equals market price................................. -- -- --
Exercise price is less than market price........................... -- -- --
</TABLE>
The Company has elected to follow the measurement provisions of APB Opinion
No. 25, under which no recognition of expense is required in accounting for
stock options granted to employees for which the exercise price equals or
exceeds the fair market value of the stock at the grant date. All options
granted as of December 31, 1998 have been granted at an option price greater
than fair market value on the date of grant. Accordingly, the Company has
recognized no compensation expense for employees during the years ended December
31, 1996, 1997 and 1998. The Company did record compensation expense of $1,623
for options granted to nonemployees for the year ended December 31, 1998.
To estimate compensation expense that would be recognized under SFAS No.
123, ACCOUNTING FOR STOCK-BASED COMPENSATION, the Company uses the modified
Black-Scholes option pricing model with the following weighted average
assumptions for options granted through December 31, 1998: risk-free interest
rate of 4.2%; expected dividend yield of -0-%; no volatility; and an expected
life of six years.
Had compensation expense for the Plan been determined based on fair value at
the grant dates for awards under the Plan consistent with SFAS No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION, the Company's net income (loss) for the
years ended December 31, 1996, 1997 and 1998 would have been adjusted to the
following pro forma amounts:
<TABLE>
<CAPTION>
1996 1997 1998
----------- ------------ ------------
<S> <C> <C> <C>
Net income (loss) as reported............................................ $ (558,357) $ 2,541,050 $ 6,240,034
Net income (loss), pro forma............................................. (558,357) 2,541,050 6,227,237
Basic net income (loss) per common share, pro forma...................... $ (0.06) $ 0.27 $ 0.66
Diluted net income (loss) per common share, pro forma.................... $ (0.06) $ 0.27 $ 0.65
</TABLE>
Additional information regarding options outstanding as of December 31,
1998, is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED AVERAGE ------------------------------
EXERCISE NUMBER REMAINING CONTRACTUAL WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
PRICE OUTSTANDING LIFE (YRS.) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- ----------- ----------- ----------------------- ----------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
$ 4.42 422,312 9.75 $ 4.42 84,462 $ 4.42
</TABLE>
NOTE 6: LINES OF CREDIT
REVOLVING LINES OF CREDIT: The Company has an accounts receivable revolving
line of credit with Coast Business Credit (CBC) with a maximum borrowing limit
of $25,000,000 including the amounts
F-14
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
NOTE 6: LINES OF CREDIT (CONTINUED)
advanced on the inventory, equipment and term loan lines. Advances on the line
are limited to 85% of eligible accounts receivable. The majority of trade
accounts receivable is, therefore, assigned as product is shipped. Interest on
the revolving credit line advances is at the prime rate plus 1%, but no less
than 9% (currently 9%). The term of the agreement is through January 2003, and
the agreement contains personal guarantees by certain Company shareholders.
Outstanding advances on the line at December 31, 1997 and 1998 were $4,672,438
and $10,024,805, respectively. This line is secured by receivables, inventory,
equipment, patents and general intangibles.
During February 1998, the Company entered into an agreement with CBC for an
inventory revolving line of credit with a maximum borrowing limit of $4,500,000,
which includes a letter of credit sub-line of $500,000. Advances on the line are
limited to 65% of eligible inventory. Interest on the revolving credit line
advances is at the prime rate plus 1%, but no less than 9% (currently 9%). The
term of the agreement is through January 2003, and the agreement contains
personal guarantees by certain Company shareholders. Outstanding advances on the
line at December 31, 1998 were $3,500,000. This line is secured by inventory,
receivables, equipment, patents and general intangibles.
SHORT-TERM NOTE: During August 1998, the Company entered into an agreement
with a software company to purchase software and support on an installment
basis. The total amount of the agreement was for $250,053 to be repaid in 12
monthly installments of $20,838, with no stated interest rate. The outstanding
balance at December 31, 1998 was $125,026.
F-15
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
NOTE 7: LONG-TERM OBLIGATIONS
The Company has entered into numerous long-term borrowings primarily to
finance the purchase of manufacturing equipment. Unless otherwise noted, the
following long-term obligations require monthly principal and interest payments,
and are secured by underlying equipment.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1998
------------ -------------
<S> <C> <C>
NOTES PAYABLE
Due January 2003, interest at the highest yield for U.S. Treasury notes (8.31% at
December 31, 1998). Secured by equipment, receivables, inventory and general
intangibles....................................................................... $ -- $ 5,691,717
Due January 2003, interest at prime plus 1% (8.75% at December 31, 1998). Secured by
equipment, receivables, inventory and general intangibles......................... -- 741,843
Due March 2011, interest at 10%..................................................... 3,546,796 --
Due March 2005, interest at 8.85%................................................... 469,787 771,912
Due August 2001, interest at 10%.................................................... -- 1,008,372
Due October 2004, interest at 8.97%................................................. -- 726,981
Due October 2004, interest at 8.97%................................................. -- 969,307
Due December 2004, interest at 8.97%................................................ -- 2,050,265
Due December 2004, interest at 8.97%................................................ -- 582,606
Due January 2006, interest at 8.20%................................................. -- 496,450
Due August 2005, interest at 9.5%................................................... -- 844,971
Due June 2004, interest at 8.50%.................................................... -- 615,840
Due June 2004, interest at 8.85%.................................................... -- 682,502
Due October 2005, interest at 8.50%................................................. -- 823,842
Due April 2002, interest at 10%..................................................... 583,369 --
Due March 1999, interest at 10%..................................................... 438,012 --
Due January 2003, interest at prime plus 2% (9.75% at 12/31/98)..................... 125,469 106,983
Various notes payable due November 1999 through November 2005, interest rates from
7.99% to 11.89%................................................................... 386,298 210,864
------------ -------------
Total notes payable............................................................... 5,549,731 16,324,455
CAPITAL LEASE OBLIGATIONS
Due November 2003, interest at 10.52%............................................... -- 123,420
Various capital lease obligations due July 2001 through November 2003, interest
rates from 6.9% ot 29.7%.......................................................... 161,214 139,663
------------ -------------
Total lease obligations............................................................. 161,214 263,083
------------ -------------
Total long-term obligations....................................................... 5,710,945 16,587,538
Less current portion.............................................................. 1,021,508 1,998,192
------------ -------------
$4,689,437 $ 14,589,346
------------ -------------
------------ -------------
</TABLE>
F-16
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
NOTE 7: LONG-TERM OBLIGATIONS (CONTINUED)
As of December 31, 1998, future maturities of long-term obligations are as
follows:
<TABLE>
<CAPTION>
OBLIGATIONS
UNDER CAPITAL
NOTES PAYABLE LEASES
------------- ----------------
<S> <C> <C>
1999........................................................ $ 1,947,012 $ 89,978
2000........................................................ 2,056,213 90,082
2001........................................................ 3,146,277 87,512
2002........................................................ 2,285,068 61,650
2003........................................................ 2,388,252 40,200
Thereafter.................................................. 4,501,633 --
------------- ----------------
16,324,455 369,422
Less amounts representing interest.......................... -- (106,339)
------------- ----------------
$ 16,324,455 $ 263,083
------------- ----------------
------------- ----------------
</TABLE>
NOTE 8: PRO FORMA INCOME TAXES (UNAUDITED)
The Company has elected to be an S corporation under the Code, and
therefore, its taxable income is reported on the shareholders' individual income
tax returns. The Company's consolidated subsidiaries are also S corporations or
limited liability companies. As a result, no federal or state income taxes are
imposed on the Company or its subsidiaries.
As discussed in Note 2 and in connection with the IPO (see Note 1), the
Company's S corporation status will terminate and it will become subject to
federal and state income taxes applicable to C corporations (corporations
subject to income taxes under Subchapter C of the Code). The accompanying
consolidated statements of income reflect a pro forma provision (benefit) for
all periods for federal and state taxes (as if the consolidated group had been
subject to tax as a C corporation) at effective tax rates of (35.70%), 35.43%,
and 37.56% for 1996, 1997, and 1998, respectively.
The difference between the effective rate and the combined federal and state
statutory rate of 38.46% is as follows:
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Statutory tax rate......................................... (38.46)% 38.46% 38.46%
Indian employment credit................................... (1.93)% (1.00)% (1.18)%
Research & experimentation credit.......................... 0.00% (2.25)% 0.00%
Meals & entertainment...................................... 0.32% 0.21% 0.20%
Other...................................................... 4.37% .01% .08%
--------- --------- ---------
Effective rate............................................. (35.70)% 35.43% 37.56%
--------- --------- ---------
--------- --------- ---------
</TABLE>
Because the Company plant is situated on a Native American Indian
reservation, the Company is entitled to certain tax benefits. Fixed assets are
being depreciated under accelerated tax depreciation lives for property situated
on Native American Indian reservations. In addition, the Company is receiving
the Indian employment tax credit for qualifying wages paid to tribal members and
spouses of tribal members.
F-17
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
NOTE 8: PRO FORMA INCOME TAXES (UNAUDITED) (CONTINUED)
Upon termination of the S corporation status, and based upon management's
determination that it is more likely than not that deferred tax assets will be
realized, the Company will record increases in net deferred tax assets and
liabilities and an accompanying one-time tax expense to reflect the differences
between the financial statement and income tax bases of the assets and
liabilities at C corporation rates.
If the S corporation status had been terminated on June 30, 1999, deferred
tax liabilities for each temporary difference would have been increased to the
following amounts:
Deferred tax liabilities:
<TABLE>
<S> <C>
Basis differential in property, plant and equipment............. $(1,175,000)
----------
Total deferred tax liabilities.................................. $(1,175,000)
----------
----------
</TABLE>
Deferred tax assets:
<TABLE>
<S> <C>
Inventory obsolescence reserve.................................... $ 158,000
Accrued vacation and wages........................................ 74,000
Deferred compensation............................................. 11,000
Allowance for bad debt............................................ 2,000
---------
Total deferred tax assets......................................... $ 245,000
---------
---------
</TABLE>
NOTE 9: RELATED PARTY TRANSACTIONS
Jore Land, LLC (Jore Land), is owned by the Company's majority shareholder
and owns certain real property leased by the Company under an agreement that
expires on September 30, 2003, with an option to renew for an additional five
year term. The lease is being accounted for as a financing lease. Amounts paid
under this lease during the years ended December 31, 1996, 1997 and 1998 were
$4,000, $32,000, and $84,000, respectively. Jore Corporation holds an option to
acquire this property at fair market value. The option expires on February 1,
2009. During the construction period, certain construction bills were paid by
the Company on behalf of Jore Land for which the Company will be reimbursed.
Total advances made to Jore Land during the years ended December 31, 1996, 1997,
and 1998 were $-0-, $94,586, and $170,799, respectively.
At December 31, 1997 and 1998, Jore Land owed the Company the net amounts of
$17,578 and $34,102, respectively.
Periodically, the Company's employees perform work for Jore Land in
administrative and technical areas, such as engineering and accounting. Charges
for these types of services by the Company for the years ended December 31,
1996, 1997 and 1998 were $-0-, $4,843, and $10,151, respectively.
Shareholder notes receivable are all demand notes with interest at the
applicable federal rate as published by the U.S. Treasury Department.
F-18
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
NOTE 9: RELATED PARTY TRANSACTIONS (CONTINUED)
Beginning January 1, 1998, the Company's sales affiliate, Manufacturers
Specialty Marketing, Inc. (MSM), received a commission on Company sales which
amounted to $1,785,913 during the year ended December 31, 1998. Of this amount,
$225,279 was payable at year end. Beginning January 1, 1999, certain Company
sales will be made through Manufacturers' Sales Associates, LLC (MSA). It is
currently contemplated that MSA will receive a commission on certain Company
sales. The agreement terminates upon notice by either party at least 60 days in
advance of the intended termination date. MSM and MSA are partially-owned by two
non-employee directors of Jore.
At December 31, 1997, the Company held a short-term, non interest-bearing
note receivable from MSA of $45,000 representing advances made to MSA for
funding start-up costs.
Printing Press, Incorporated (PPI), a Company partially owned by a
non-employee director and shareholder of the Company, provides packaging
services to the Company. Total purchases from PPI during the years ended
December 31, 1996, 1997 and 1998 were $526,131, $1,360,286, and $2,003,062,
respectively. Related accounts payable balances at December 31, 1997 and 1998
were $75,340 and $495,686, respectively.
NOTE 10: CONTINGENCIES AND COMMITMENTS
OPERATING LEASES: The Company has noncancellable operating leases for
various property and equipment. These leases expire at various times over the
next five years. A material portion of the leases are for manufacturing
equipment. The agreements pertaining to the manufacturing equipment are five
year leases with two one-year renewal options.
Rent expense for each of the years ended December 31, 1996, 1997, and 1998,
totaled $22,276, $69,036, and $301,181, respectively. Future minimum lease
payments required under operating leases are as follows:
<TABLE>
<CAPTION>
Years ending December 31,
- ------------------------------------------------------------------
<S> <C>
1999............................................................ $ 612,578
2000............................................................ $ 609,890
2001............................................................ $ 609,890
2002............................................................ $ 609,890
2003............................................................ $ 463,494
Thereafter...................................................... $ 136,668
</TABLE>
ASSIGNMENT/LICENSE AGREEMENTS: In 1997, the Company entered into an
agreement with a third party for the assignment of the entire right, title and
interest in the invention of an improvement in a high torque handle. The Company
pays a fee equivalent to 3% of the sum of manufacturing costs and the Company's
margin related to this handle. This agreement continues until the expiration of
any valid patent obtained by the Company for this invention or, if no patent is
issued covering the invention, the term shall continue for a period of ten years
from the date of the agreement. Expense for the years ended December 31, 1997
and 1998 was $9,617 and $11,030, respectively.
F-19
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
NOTE 10: CONTINGENCIES AND COMMITMENTS (CONTINUED)
In January 1998, the Company entered into an agreement with a third party
for its interest in one invention. The Company pays the party a fee based on the
manufacturing cost and the Company's margin related to this invention. Expense
for the year ended December 31, 1998 was $74,563.
PRODUCT WARRANTY ISSUES: In the past, the Company has experienced minimal
returns of its manufactured products. Therefore, the financial statements do not
include a product warranty reserve at December 31, 1997 or 1998.
LITIGATION: The Company is, from time to time, a party to various legal
actions and administrative proceedings and subject to various claims arising in
the ordinary course of business. The Company and its legal counsel believe the
disposition of these matters will not have a material adverse effect on the
financial position of the Company.
DEBT GUARANTEE: The Company is currently a guarantor of certain debt of
Jore Land, a related party, in the amount of approximately $1,295,000 at
December 31, 1998.
NOTE 11: SUBSEQUENT EVENTS
On April 28, 1999, the Company signed an agreement with The Stanley Works
that grants the exclusive license to their nationally known brand name for all
power tool accessories for a contracted royalty rate. The Company is the
licensee and will pay a royalty to the licensor, Stanley, based on sales.
In May 1999, the Company entered into a strategic alliance agreement with a
manufacturer of proprietary equipment. The manufacturer has agreed to produce
and sell the Company this equipment for five years on an exclusive basis
provided it purchases approximately $5,250,000 in equipment each year. In
addition to the minimum purchases, the Company must pay an additional $1,000,000
of which $400,000 is payable during the first year and $200,000 in each
subsequent year. In exchange for the these payments, the Company will receive
exclusive access to the equipment and its proprietary design for the five year
period. This equipment is being financed through capital leases under an
existing master lease agreement. Equipment under construction and related
borrowings are included in the Company's consolidated balance sheet during the
construction period.
On February 1, 1999, the Company acquired an option to purchase
approximately 40 acres of land and the attached construction improvements at
fair market value from Jore Land, LLC, a related party. On June 28, 1999, the
Company exercised the option to purchase existing leased land, facilities, and
facilities under construction for approximately $2.8 million. Existing land and
facilities are utilized in the Company's current operations.
SUBSEQUENT DEBT: The Company entered into the following debt agreements
subsequent to year end:
On January 29, 1999, the Company closed a credit line for the purchase of
equipment with KeyCorp Leasing, A Division of Key Corporate Capital Inc. in
the amount of $15,000,000. Interest is based on the seven-year Treasury
Index plus 4.76%.
On April 7, 1999, the Company closed a loan for $2,000,000 from D.A.
Davidson & Co., who are the managing underwriters of the Company's IPO. The rate
is 6.5% plus warrants to purchase 71,943 shares of common stock at an exercise
price of $9.10 per share. The maturity date of the debt is the
F-20
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
NOTE 11: SUBSEQUENT EVENTS (CONTINUED)
earlier of January 1, 2000, or five calendar days following the closing of an
IPO. The warrants expire three years from the date of grant. No amount will be
allocated to the warrants as they were granted at an exercise price
substantially greater than the estimated fair market value of the Company's
common stock.
From June 4 to June 11, 1999, the Company closed short-term loans with
various unrelated parties for a total of $4,045,000. Rates range from 6.5% to
7.0% plus warrants to purchase 201,800 shares of the Company's common stock at
$9.10 per share. $3,745,000 is payable on the earlier of December 1, 1999 or
five days after the closing of an IPO and $50,000 is payable on the earlier of
April 30, 2002 or five days after the closing of an IPO. The remaining $250,000
is payable on December 1, 1999. The warrants expire three years from the date of
grant, and have an estimated fair value of $174,600. The proceeds of the debt
will be allocated between the debt and the warrants based on the relative fair
value of the two securities on the date of issuance. The portion allocated to
the warrants will be accreted to interest expense over the term of the debt
agreement.
On June 7, 1999, the Company closed a short-term uncollateralized note with
First Security Bank for $500,000. The note is due either at the closing of a
long term facility with First Security Bank or October 1999, whichever is
earlier.
From July 14 to Aug. 9, 1999, the Company closed short-term loans with
various unrelated parties for a total of $7,390,000. Rates range from 6.5% to 7%
plus warrants to purchase 325,600 shares of the Company's common stock at $9.10
to $10.00 per share. $6,890,000 is payable on the earlier of January 1, 2000 or
five days after the closing of an IPO and $500,000 is payable on the earlier of
July 13, 2000 or five days after the closing of an IPO. The warrants expire
three years from the date of grant, and have an estimated fair value of
$272,198. The proceeds of the debt will be allocated between the debt and the
warrants based on the relative fair value of the two securities on the date of
issuance. The portion allocated to the warrants will be accreted to interest
expense over the term of the debt agreement.
On August 19, 1999, the Company closed a new financing facility with First
Security Bank. The total facility has a maximum borrowing limit of $25 million
dollars. The term of the agreement is through August 2001. Interest on the line
is prime plus 1%, or, at the Company's option, it may elect LIBOR plus 3% for
limited principal portions. Advances on the line are limited to 85% of eligible
accounts receivable and 65% of eligible inventory. Approximately $8 million of
the line will be used for short term real estate financing.
SUBSEQUENT EQUITY TRANSACTIONS:
On January 1, 1999 the Company issued 14,256 shares of stock in exchange for
land.
In February 1999 the Company granted options to purchase 311,064 shares of
common stock to certain directors. The options are fully vested.
In February 1999, the Company granted warrants to purchase 11,881 shares of
the Company's common stock in exchange for services to be provided in connection
with the Company's IPO.
F-21
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
NOTE 11: SUBSEQUENT EVENTS (CONTINUED)
LITIGATION:
On August 16, 1999, Pete K. Block and Paul K. Block instituted separate
actions in Montana District Court against the Company, Matthew Jore individually
and dba Jore Enterprises, Michael Jore and Merle Jore. In their complaints, the
Blocks allege among other things, that they are collectively entitled to a 25%
interest in the capital stock of Jore Enterprises and any successor corporation.
Their lawsuits are based in part upon an agreement, dated October 10, 1989,
between the Blocks and Matthew, Michael and Merle Jore pursuant to which the
Blocks contend that Matthew, Michael and Merle Jore agreed to issue them shares
of stock of Jore Enterprises and any successor corporation and grant them a
collective 25% interest in all patent rights, profits and real and personal
property. The Blocks seek as remedies dissolution of the Company and a
preliminary injunction preventing the Company from proceeding with its initial
public offering. In addition, the Blocks have alleged that they have suffered
damages of not less than $10 million and are seeking compensatory damages, plus
interest, punitive damages, attorneys' fees and costs, and injunctive relief
preventing any capital reorganization or sale that would cause them each not to
be 12.5% owners of the equity of Jore Enterprises and any successor corporation.
The Company intends to answer the complaint. The Company will vigorously
defend against the claims, assert affirmative defenses and potentially assert
counterclaims. While the Company believes that it has meritorious defenses and
potential counterclaims to the Blocks' claims, litigation is inherently
uncertain, and there can be no assurance that the Company will prevail in the
suit. To the extent the Company is required to issue shares of common stock as a
result of the suit, the Company would recognize an expense equal to the number
of shares issued multiplied by the fair value of the common stock on the date of
issuance. This could have a material adverse effect on the Company's results of
operations, and any such issuance would be dilutive to existing stockholders. No
estimate of the possible range of loss can be made at this time.
F-22
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4,000,000 SHARES
[LOGO]
COMMON STOCK
---------------------
PROSPECTUS
---------------------
D.A. DAVIDSON & CO.
JANNEY MONTGOMERY SCOTT LLC
FIRST SECURITY VAN KASPER
, 1999
- --------------------------------------------------------------------------------
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
THAT BUY, SELL OR TRADE THESE SHARES OF COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT
FROM THAT CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS MAY ONLY BE USED WHERE
IT IS LEGAL TO SELL THESE SECURITIES. THE INFORMATION CONTAINED IN THIS
PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE
TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY SALE OF THE COMMON STOCK.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated fees and expenses of this
offering (excluding underwriting discounts and commissions):
<TABLE>
<CAPTION>
AMOUNT(1)
------------
<S> <C>
SEC Registration Fee............................................................ $ 12,510
NASD Filing Fee................................................................. $ 5,000
Nasdaq National Market Listing Fee.............................................. $ 88,500
Non-Accountable Expense Allowance............................................... $ 25,000
Legal Fees and Expenses......................................................... $ 225,000
Accounting Fees and Expenses.................................................... $ 350,000
Blue Sky Qualification Fees and Expenses........................................ $ 5,000
Transfer Agent and Registrar Fees............................................... $ 15,000
Printing Expenses............................................................... $ 100,000
Insurance Policy Premiums....................................................... $ 100,000
Miscellaneous Expenses.......................................................... $ 73,990
------------
Total....................................................................... $ 1,000,000
------------
------------
</TABLE>
- ------------------------
(1) All amounts have been estimated except the NASD filing and SEC Registration
Fee. We will be obligated to pay all of the above expenses.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 35-1-451 through 35-1-457 of the Montana Code Annotated authorize a
court to award, or a corporation's board of directors to grant, indemnification
to directors and officers on terms sufficiently broad to permit indemnification
under certain circumstances for liabilities arising under the Securities Act of
1933, as amended, Article IX of the registrant's Amended and Restated Bylaws
provides for indemnification of the registrant's directors, officers, employees
and agents to an extent not inconsistent with Montana law. Directors of the
registrant also may be indemnified pursuant to a liability insurance policy
maintained by the registrant for such purpose.
Section 35-1-452 of the Montana Code Annotated authorizes a corporation to
limit a director's liability to the corporation or its shareholders for monetary
damages for acts or omissions as a director, except in connection with a
proceeding by or in the right of the corporation in which the director is
adjudged liable to the corporation or in connection with any transaction from
which the director personally receives a benefit in money, property or services
to which the director is not legally entitled. Article VI of the registrant's
Amended and Restated Articles of Incorporation contains provisions implementing,
to the fullest extent permitted by Montana law, such limitations on a director's
liability to the registrant and its shareholders.
The Underwriting Agreement (Exhibit 1.1 hereto) provides for indemnification
by the Underwriters of the registrant and its executive officers and directors,
and by the registrant of the Underwriters, for certain liabilities, including
liabilities arising under the Securities Act, in connection with matters
specifically provided by the Underwriters for inclusion in this Registration
Statement.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
We have made the following sales of securities for the consideration
indicated during the past three years, none of which sales were registered under
the Securities Act. The recipients of securities in
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<PAGE>
each such transaction represented their intentions to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the share
certificates and warrants issued in such transactions. The information below
gives effect to a 216.017-for-1 stock split effected in May 1999.
From September 30, 1998 to July 27, 1999, we granted stock options to
purchase 913,628 shares of common stock at exercise prices ranging from $4.42 to
$9.26 per share to employees, directors and consultants pursuant to our 1997
Stock Plan. We believe that the issuance of the options were exempt from the
registration by virtue of Rule 701.
On October 1, 1998, we issued to the six shareholders of Montana American
Manufacturing Corporation ("MAMC") an aggregate of 360,654 shares of common
stock valued at $3.58 per share in exchange for all of the outstanding capital
stock of MAMC. We believe the issuance of the shares was exempt from
registration under Section 4(2) of the Securities Act and Regulation D
promulgated thereunder, as transactions by an issuer not involving a public
offering.
On October 1, 1998, we issued to one person in exchange for land an
aggregate of 54,436 shares of common stock valued at $3.58 per share. We believe
the issuance of the shares was exempt from registration under Section 4(2) of
the Securities Act and Regulation D promulgated thereunder, as transactions by
an issuer not involving a public offering.
On January 1, 1999, we issued to the twenty members of Montana American
Equipment, LLC ("MAE") an aggregate of 452,774 shares of common stock valued at
$5.77 per share in exchange for all of the outstanding membership interests of
MAE. We believe the issuance of the shares was exempt from registration under
Section 4(2) of the Securities Act and Regulation D promulgated thereunder, as
transactions by an issuer not involving a public offering.
On February 5, 1999, we issued a warrant to purchase 11,881 shares of common
stock at a per share exercise price of $8.41 to one party. We believe that the
issuance of the warrant was exempt from the registration by virtue of Section
4(2) of the Securities Act as a transaction not involving a public offering.
In February 1999, we issued two options to purchase 155,532 shares each of
common stock at a per share exercise price of $9.26 to one director and one
former director. We believe that the issuance of the options were exempt from
the registration by virtue of Section 4(2) of the Securities Act as a
transaction not involving a public offering.
Between April and August 1999, we issued to 31 accredited investors
approximately $14.4 million aggregate principal amount of subordinate debt
bearing interest at rates ranging from 6.5% to 7.0% per annum. Of this debt,
$12.9 million in principal amount will mature on the earlier of December 1, 1999
or within five days following the closing of this offering, and the balance will
mature beginning in April 2000. In connection with the issuance of the debt, we
also issued warrants to purchase, on a pro-rata basis, an aggregate of 599,333
shares of common stock at an exercise price from $9.10 to $10.00 per share. We
believe the issuance of the debt and the warrants was exempt from registration
under Section 4(2) of the Securities Act and under Rule 506 of Regulation D
promulgated thereunder, as transactions by an issuer not involving a public
offering.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
1.1** Form of Underwriting Agreement.
3.1** Amended and Restated Articles of Incorporation.
3.2** Bylaws.
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
4.1** Description of capital stock contained in the Amended and Restated Articles of Incorporation (See
Exhibit 3.1).
4.2** Description of rights of security holders contained in the Bylaws (See Exhibit 3.2).
4.3** Form of common stock certificate.
5.1* Opinion of Van Valkenberg Furber Law Group, P.L.L.C.
9.1** Voting Trust Agreement, dated June 30, 1997, between various Jore Corporation shareholders and
Matthew Jore, Trustee.
10.1** Amended and Restated Jore Corporation 1997 Stock Plan.
10.2** Common Stock Purchase Option, dated February 10, 1999, between Jore Corporation and William M.
Steele, Trustee of the Steele Family Trust.
10.3** Common Stock Purchase Option, dated February 10, 1999, between Jore Corporation and Gary S. Houck.
10.4+** Exclusive Supply Agreement, dated October 1, 1998, between Jore Corporation and Sears, Roebuck and
Co.
10.5** Lease Agreement, dated September 1, 1996, between Jore Corporation and Jore Land, L.L.C.
10.6** Lease Agreement, dated January 1, 1997, between Jore Corporation and Jore Land, L.L.C.
10.7** Lease Agreement, dated September 1, 1997, between Jore Corporation and Jore Land, L.L.C.
10.8** Lease Agreement, dated October 1, 1998, between Jore Corporation and Jore Land, L.L.C.
10.9** Master Equipment Lease Agreement, dated July 6, 1998, between Key Corp Leasing and Jore Corporation.
10.10** Interim funding Loan and Security Agreement, dated March 3, 1999, between Key Corp Leasing and Jore
Corporation.
10.11** Option Agreement, dated February 1, 1999, between Jore Corporation, Matthew Jore and Jore Land L.L.C.
10.12** Patent Assignment, dated January 1, 1999, between Jore Corporation and Matthew Jore.
10.13** Patent Assignment, dated January 1, 1999, between Jore Corporation and Matthew Jore.
10.14** Patent Assignment, dated January 1, 1999, between Jore Corporation and Matthew Jore.
10.15** Form of Lock-up Agreement executed by certain of Jore Corporation's shareholders.
10.16** Patent Assignment, dated April 2, 1999, between Jore Corporation and Matthew Jore.
10.17+** License Agreement, dated April 28, 1999, by and among Stanley Logistics, Inc., The Stanley Works and
Jore Corporation.
10.18** Loan and Security Agreement, dated May 15, 1996 and as amended May 12, 1999, between Jore Corporation
and Coast Business Credit.
10.19** Patent Assignment, dated January 1, 1999 between Jore Corporation and Matthew Jore.
10.20** Limited Craftsman-Registered Trademark- Trademark License Agreement, dated May 3, 1999, between
Sears, Roebuck and Co. and Jore Corporation.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
10.21+** Sales and Marketing Agreement, dated January 1, 1999, between Jore Corporation and Manufacturers'
Sales Associates, LLC.
10.22** Employment Agreement, dated June 8, 1999, between Matthew B. Jore and Jore Corporation.
10.23** Purchase Agreement, dated April 7, 1999, between DADCO and Jore Corporation.
10.24** Guaranty, dated April 7, 1999, given by Matthew B. Jore to DADCO.
10.25** Purchase Agreement, dated June 4, 1999, between Blaine Huntsman and Jore Corporation.
10.26** Guaranty dated June 4, 1999, given by Matthew B. Jore to Blaine Huntsman.
10.27** Registration Rights Agreement, dated June 4, 1999, between Jore Corporation and Blaine Hunstman.
10.28** Independent Contractor Agreement, dated June 30, 1999, between Thomas E. Mahoney and Jore
Corporation.
10.29+** Strategic Alliance Agreement, dated May 7, 1999, between Jore Corporation and International Tool
Machines of Florida, Inc.
10.30+** Business Consultant and Management Agreement, dated May 7, 1999, between Jore Corporation and Karl
Giebmanns.
10.31* Credit Agreement, dated August 19, 1999, between First Security Bank, N.A. and Jore Corporation.
16.1** Letter, dated July 7, 1999, from Galusha, Higgins & Galusha re change in certifying accountant.
21.1** List of Jore Corporation's Subsidiaries.
23.1* Consent of Van Valkenberg Furber Law Group P.L.L.C. (Included in Exhibit 5.1).
23.2 Consent of Boone, Karlberg & Haddon P.C.
23.3 Consent of Deloitte & Touche LLP.
24.1** Power of Attorney.
24.2** Power of Attorney.
27.1** Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
** Previously filed
+ Portions of this exhibit has been omitted pursuant to an application for
Confidential Treatment filed with the Securities and Exchange Commission
pursuant to Rule 406 of the Securities Act of 1933, as amended.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:
(i) include any prospectus required by section 10(a)(3) of the
Securities Act;
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(ii) reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or together, represent
a fundamental change in the information in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would
not exceed that which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective registration statement; and
(iii) include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement of the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof; and
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
Offering.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective; and
(2) For purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
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<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Ronan, State
of Montana, on August 27, 1999.
<TABLE>
<S> <C> <C>
JORE CORPORATION
By: *
-----------------------------------------
Matthew B. Jore
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<S> <C> <C>
Chairman, President and
* Chief Executive Officer
- ------------------------------ (Principal Executive August 27, 1999
Matthew B. Jore Officer)
Chief Financial Officer
/s/ DAVID H. BJORNSON and Director (Principal
- ------------------------------ Financial and Accounting August 27, 1999
David H. Bjornson Officer)
- ------------------------------ Executive Vice President August 27, 1999
Michael W. Jore and Director
- ------------------------------ Director August 27, 1999
Thomas E. Mahoney
- ------------------------------ Director August 27, 1999
Bruce Romfo
- ------------------------------ Director August 27, 1999
William M. Steele
- ------------------------------ Director August 27, 1999
James P. Mathias
- ------------------------------ Director August 27, 1999
Blaine Huntsman
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ DAVID H. BJORNSON
------------------------- August 27, 1999
David H. Bjornson
ATTORNEY-IN-FACT
</TABLE>
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[LETTERHEAD]
August 27, 1999
Jore Corporation
45000 Highway 93 South
Ronan, MT 59864
ATTN: David H. Bjornson, Chief Financial Officer
Dear Mr. Bjornson:
We consent to the use of our name in the Registration Statement
No. 333-78357 of Jore Corporation on Form S-1 and to the references to us
in "Legal Matters" in the Prospectus.
If you need anything further from us, please contact us.
Sincerely,
BOONE, KARLBERG & HADDON
/s/ Thomas H. Boone
------------------------------
Thomas H. Boone
THB/scd
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors and Stockholders of
Jore Corporation
Ronan, Montana
We consent to the use in this Amendment No. 3 to Registration Statement No.
333-78357 of Jore Corporation on Form S-1 of our report dated May 12, 1999
(August 19, 1999 as to Note 11) appearing in the Prospectus, which is a part
of such Registration Statement, and to the references to us under the
headings "Selected Consolidated Financial Data" and "Experts" in such
Prospectus.
/s/ Deloitte & Touche LLP
Seattle, Washington
August 27, 1999
