<PAGE> 1
Filed pursuant to Rule 424(b)(1)
Registration No. 33-62559
PROSPECTUS
1,600,000 SHARES
LOGO
COMMON STOCK
JACO ELECTRONICS, INC.
Of the 1,600,000 shares of Common Stock offered hereby, 1,325,000 shares
are being sold by Jaco Electronics, Inc. (together with its subsidiaries, "Jaco"
or the "Company") and 275,000 shares are being sold by certain shareholders of
the Company (the "Selling Shareholders"). See "Principal and Selling
Shareholders." The Company will not receive any proceeds from the sale of shares
by the Selling Shareholders.
The Company's Common Stock is traded on The Nasdaq National Market under
the symbol "JACO." The last sale price for the Common Stock on October 19, 1995,
was $14.25 per share (which gives effect to a 4-for-3 stock split which was
effective on September 22, 1995). See "Price Range of Common Stock."
------------------------
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE DISCUSSION UNDER
"RISK FACTORS" BEGINNING ON PAGE 6.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
UNDERWRITING PROCEEDS TO THE
PRICE TO DISCOUNTS AND PROCEEDS TO THE SELLING
THE PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS(2)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share.................... $12.75 $0.8925 $11.8575 $11.8575
- -----------------------------------------------------------------------------------------------------
Total(3)..................... $20,400,000 $1,428,000 $15,711,188 $3,260,812
- -----------------------------------------------------------------------------------------------------
</TABLE>
(1) Excludes the value of warrants (the "Representatives' Warrants") to purchase
up to 70,000 shares of Common Stock. The Company and the Selling
Shareholders have agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Act"). See "Underwriting."
(2) Before deducting expenses estimated at $396,188 payable by the Company and
$1,920 payable by the Selling Shareholders. See "Underwriting."
(3) The Company has granted an option to the Underwriters, exercisable within
forty-five (45) days from the date of this Prospectus, to purchase up to
240,000 additional shares of Common Stock on the same terms and conditions
as set forth above, solely to cover over-allotments, if any. If the
Underwriters' over-allotment option is exercised in full, the total Price to
the Public, Underwriting Discounts and Commissions and Proceeds to the
Company will be $23,460,000, $1,642,200, and $18,556,988, respectively. See
"Underwriting."
------------------------
The shares of Common Stock are offered by the several Underwriters when, as
and if delivered to and accepted by the Underwriters, subject to the right to
reject any order in whole or in part and certain other conditions. It is
expected that delivery of such shares will be made through the offices of
Cruttenden Roth Incorporated, Irvine, California or the facilities of the
Depository Trust Company on or about October 25, 1995.
------------------------
CRUTTENDEN ROTH CLEARY GULL REILAND & MCDEVITT INC.
Incorporated
The date of this Prospectus is October 20, 1995
<PAGE> 2
(Logo with four pictures of Electronic Components)
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, statements
and other information can be inspected and copies obtained at the public
reference facilities maintained by the Commission at its offices at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's Regional
Offices at Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and Seven World Trade Center, New York, New York 10048.
Also, copies of such material can be obtained at prescribed rates from the
Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549.
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THE OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE EXCHANGE
ACT. SEE "UNDERWRITING."
2
<PAGE> 3
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements (including notes thereto) appearing
elsewhere in this Prospectus. Unless otherwise indicated, the information
contained in this Prospectus assumes no exercise of the Underwriters'
over-allotment option, Representatives' Warrants or options granted or reserved
under the Company's stock option plans and gives effect to a 10% stock dividend
paid on March 10, 1995 and a 4-for-3 stock split which was effective on
September 22, 1995. Investors should carefully consider the information set
forth under the heading, "Risk Factors."
THE COMPANY
Jaco markets and distributes passive and active electronic components to
original equipment manufacturers ("OEMs") throughout the United States and
Canada from two distribution centers located on the East and West Coasts and 12
sales offices located throughout the United States. The Company distributes
products such as semiconductors, capacitors, resistors, electro-mechanical
devices, computers and computer subsystems, which are used in the manufacture
and assembly of electronic products. The Company also provides a variety of
value-added services including configuring complete computer systems to
customers' specifications, kitting the component requirements of certain
customers, assembling fractional-horsepower electric motors to customers'
specifications and furnishing contract manufacturing services. Value added
services are intended to attract new customers, maintain and increase sales to
existing customers and, where feasible, generate additional revenues and improve
margins from sales of components. In addition, these services are designed to
respond to an industry trend of outsourcing, in which purchasing, manufacturing
and distribution functions are allocated by customers to the most efficient
provider. The Company entered the contract manufacturing business in March 1994,
when it acquired all of the outstanding capital stock of Nexus Custom
Electronics, Inc. ("Nexus"), a Vermont-based turnkey contract manufacturer of
printed circuit boards ("PCBs"). Management believes the acquisition of Nexus
has enabled, and will continue to enable, the Company to expand and broaden its
range of value-added service capabilities. In the year ended June 30, 1995,
Nexus products accounted for approximately 9% of the Company's total sales.
The Company's core customer base consists primarily of small and
medium-sized OEMs that produce electronic equipment used in a wide variety of
industries, including manufacturers of telecommunications, computer,
computer-related, medical and aerospace equipment. In addition, over the past
three years, the Company has added several Fortune 500 manufacturers. In fiscal
1995, the Company distributed electronic components to thousands of customers,
none of which individually represented more than 3% of net sales.
According to the National Electronics Distributors Association, an industry
trade association, in 1994 the electronics distribution industry recorded
approximately $17 billion in sales. Of these sales, approximately $10.9 billion
consisted of sales of semiconductors and computer products, which accounted for
approximately 48% of the Company's net distribution sales for the year ended
June 30, 1995. Approximately $5.4 billion of industry sales consisted of sales
of interconnect (connectors, sockets), electromechanical (relays, switches) and
passive (resistors, capacitors) components, which products, exclusive of
interconnects, accounted for approximately 52% of the Company's net distribution
sales in the year ended June 30, 1995.
Through acquisitions and internal growth, the Company's sales and earnings
increased from approximately $77.4 million and $312,000, respectively, in the
year ended June 30, 1992 to $138.7 million and $1.9 million, respectively, in
the year ended June 30, 1995. According to the April 17, 1995 edition of
Electronic Buyers' News, an industry publication, the Company ranked 8th among
distributors of passive electronic components in the United States and 19th
overall among electronic component distributors in the United States.
3
<PAGE> 4
Jaco is a service-oriented company built on strong customer and supplier
relationships. Management believes that the Company's logo, "Today Isn't Soon
Enough," is widely recognized in the electronics distribution industry and
articulates the Company's approach and commitment to its customers. The
Company's objective is to improve its position as a national distributor of
electronic components through increased sales and improved operating
efficiencies achieved by: (i) pursuing strategic acquisitions; (ii) capitalizing
on the trend towards outsourcing by increasing sales of value-added services,
particularly contract manufacturing; (iii) expanding geographic coverage in
targeted areas of the United States and Canada where the Company does not yet
have a significant presence; (iv) expanding and diversifying its product lines
by obtaining new distributorships with additional suppliers; and (v) expanding
its customer base to include more large, high-volume customers while maintaining
its traditional focus on its small and medium-sized customers. Fundamental to
the success of the Company's strategy is its continuing emphasis on quality,
controlling costs and improving customer service.
The Company was organized in the State of New York in 1961. Its principal
executive offices are located at 145 Oser Avenue, Hauppauge, New York 11788, and
its telephone number is (516) 273-5500.
Recent Developments. The Company recently announced that its net sales,
net earnings and earnings per share were $40.1 million, $808,000 and $.32 per
share, respectively, for the three months ended September 30, 1995. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Recent Developments."
THE OFFERING
Common Stock offered:
By the Company.................... 1,325,000 shares
By the Selling Shareholders....... 275,000 shares
Common Stock to be outstanding after
the offering........................ 3,789,384 shares*
Use of proceeds..................... Net proceeds will be used to reduce the
Company's outstanding bank
indebtedness. See "Use of Proceeds."
Investment considerations........... Prospective investors should consider
carefully the factors set forth under
"Risk Factors."
Nasdaq National Market Symbol....... JACO
- ---------------
* Subject to adjustment to avoid fractional shares as a result of the Company's
4-for-3 stock split.
4
<PAGE> 5
SUMMARY FINANCIAL DATA
The following table sets forth summary financial data for the Company for
the fiscal years ended June 30, 1993 through 1995. Such information and data
should be read in conjunction with the "Selected Consolidated Financial Data"
and the Consolidated Financial Statements and related Notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------
1993 1994 1995
--------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
AND SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales................................................. $ 96,675 $ 105,213 $ 138,683
Gross profit.............................................. 21,045 22,175 28,781
Selling, general and administrative expenses.............. 17,786 19,155 23,551
Net earnings.............................................. 1,384 1,430 1,916
Net earnings per common share............................. $ 0.55 $ 0.56 $ 0.78
Supplemental net earnings per common share(1)............. -- -- $ .72
Weighted average number of common and common equivalent
shares outstanding...................................... 2,522,980 2,551,173 2,461,091
OTHER DATA:
Inventory turnover ratio.................................. 4.4x 4.6x 4.6x
Average number of days in accounts receivable............. 51 52 50
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, 1995
--------------------------
ACTUAL AS ADJUSTED(2)
------- --------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital..................................................... $30,741 $ 30,741
Total assets........................................................ 56,323 56,323
Short-term debt..................................................... 453 453
Long-term debt and capitalized lease obligations.................... 23,666 8,351
Shareholders' equity................................................ 13,227 28,542
</TABLE>
- -------------------------------
(1) Supplemental net earnings per common share is computed based on the weighted
average number of common and common equivalent shares outstanding during the
period, as if the shares issuable pursuant to this offering were outstanding
at the beginning of the period after giving retroactive effect to the
reduction of interest expense, net of income tax effect, applicable to the
reduction of the Company's bank indebtedness.
(2) Adjusted to reflect the sale of 1,325,000 shares of Common Stock by the
Company and the receipt and application of the net proceeds from this
offering estimated at $15,315,000 to the reduction of the Company's bank
indebtedness. See "Use of Proceeds."
5
<PAGE> 6
RISK FACTORS
Prospective investors should carefully consider the following factors, as
well as all other matters set forth elsewhere in this Prospectus, before making
an investment in the Common Stock offered hereby.
DEPENDENCE ON SUPPLIERS. The Company relies on a limited number of
suppliers for products which generate a significant portion of its sales.
Substantially all of the Company's inventory has and will be purchased from
suppliers with which the Company has entered into non-exclusive distributor
agreements. Such agreements are typically cancelable on short notice. These
agreements are generally designed to protect the Company against product
obsolescence and price reductions. However, there can be no assurance that these
agreements will not be canceled. In the year ended June 30, 1995, the Company's
three largest suppliers accounted for approximately 37% of the Company's sales.
No other supplier accounted for more than 5% of the Company's sales. While the
Company does not believe that the loss of any one supplier would have a material
adverse impact upon the Company since most products sold by the Company are
available from multiple sources, the Company's future success will depend in
large part on maintaining relationships with existing suppliers and developing
relationships with new ones. The loss of, or significant disruptions in,
relationships with major suppliers could have a material adverse effect on the
Company's business, since there can be no assurance that the Company will be
able to replace lost suppliers.
As is common in the electronics distribution industry, from time to time
the Company has experienced terminations of relationships with suppliers which
affected its results of operations in post-termination fiscal periods. For
example, in June 1995, the Company's largest supplier, AVX/Kyocera ("AVX"),
canceled its distributor agreement with the Company. Based upon sales for the
year ended June 30, 1995, AVX accounted for approximately 15% of the Company's
total sales. The Company believes that it will be able to replace a major
portion of those sales with sales of other product lines from other suppliers
and in August 1995 the Company entered into distribution agreements for similar
products with two new suppliers, Sprague, Inc. and Johanson Dielectric Inc.
However, there can be no assurance that the Company will, in fact, be able to
replace the AVX sales. Moreover, the Company's financial results in future
periods could be adversely affected to the extent it is unable to replace sales
of the AVX product line with sales of products from other suppliers and, even if
it succeeds in replacing the AVX product line, to the extent the Company's
customers are unwilling to purchase such other products.
At various times there have been shortages of components in the electronics
industry and certain components, including certain semiconductor devices and
capacitors, have been subject to limited allocation by some of the Company's
suppliers. Although such shortages and allocations have not had a material
adverse effect on the Company's results of operations or finances, there can be
no assurance that any future shortages or allocations would not have such an
effect on the Company.
COMPETITION. The electronic components and related services, distribution
and contract manufacturing industries are highly competitive. In the
distribution of electronic components and related services, the Company
generally competes with local, regional and national distributors and electronic
component manufacturers, including some of its own suppliers. In the area of
contract manufacturing, the Company competes against numerous domestic and
offshore manufacturers, as well as the in-house manufacturing capabilities of
its existing and potential customers. Many of such competitors have greater name
recognition and financial and other resources than the Company. Moreover, the
electronics distribution industry is going through a period of rapid
consolidation that is intensifying competition. There can be no assurance that
the Company will continue to compete successfully with existing or new
competitors and failure to do so would have a material adverse effect on the
Company's operating results. See "Business -- Competition."
DEPENDENCE ON KEY PERSONNEL. The Company is highly dependent upon the
services of its executive officers, including Joel H. Girsky, its Chairman,
President and Treasurer, and Charles B. Girsky, its Executive Vice President and
Director. Although the Company continued to operate smoothly during the
temporary absence due to illness of Joel H. Girsky for two months during
6
<PAGE> 7
1995, the permanent loss for any reason of either Joel or Charles Girsky, or one
or more of the Company's other key executives, could have a material adverse
effect upon the business of the Company. While the Company believes that it
would be able to locate suitable replacements for its executives if their
services were lost, there can be no assurance that it would, in fact, be able to
do so. The Company's future success will also depend, in part, upon its
continuing ability to attract and retain highly qualified personnel.
UNCERTAINTY OF FUTURE ACQUISITIONS. The Company's growth strategy depends,
in part, on its ability to identify and acquire compatible electronics
distributors and/or contract manufacturers and to integrate the acquired
operations. A portion of the Company's sales growth during fiscal 1995 resulted
from the Nexus acquisition. See Note I of Notes to Consolidated Financial
Statements. There can be no assurance that the Company will be able to locate
additional appropriate acquisition candidates, that, if identified, any of such
candidates will be acquired or that the operations of acquired candidates will
be effectively integrated or prove profitable. The completion of future
acquisitions requires the expenditure of sizable amounts of capital and
management effort. Moreover, unexpected problems encountered in connection with
the Company's acquisitions could have a material adverse effect on the Company.
The Company could be forced to alter its strategy in the future if suitable
acquisition candidates are not available or are too costly. See
"Business -- Business Strategy."
FOREIGN MANUFACTURING AND TRADE REGULATION. A significant number of the
components sold by the Company are manufactured by foreign manufacturers. As a
result, the Company, and its ability to sell certain products at competitive
prices, could be adversely affected by increases in tariffs or duties, changes
in trade treaties, strikes or delays in air or sea transportation and possible
future United States legislation with respect to pricing and/or import quotas on
products imported from foreign countries. The Company's ability to be
competitive with respect to sales of imported components could also be affected
by other governmental actions and policy changes relating to, among other
things, anti-dumping and other international antitrust legislation and adverse
currency fluctuations which could have the effect of making components
manufactured abroad more expensive. Because the Company purchases products from
United States subsidiaries or affiliates of foreign manufacturers, the Company's
purchases are paid for in U.S. dollars, which usually reduces or eliminates the
potential adverse effects of currency fluctuations. While the Company believes
that the factors involving foreign components supply have not adversely impacted
its business in the past, there can be no assurance that such factors will not
materially adversely affect its business in the future.
INDUSTRY CYCLICALITY AND POTENTIAL QUARTERLY FLUCTUATIONS. The electronics
distribution industry has historically been affected by general economic
downturns, which have often had an adverse economic effect upon manufacturers,
end-users of electronic components and electronic component distributors such as
the Company. In addition, the life-cycle of existing electronic products and
timing of new product development and introduction can affect demand for
electronic components. The Company's results of operations for any particular
period may be adversely affected by numerous factors, such as the loss of key
suppliers or customers, price competition, problems incurred in managing
inventories or receivables, the timing or cancellation of orders from major
customers, the timing or cancellation of purchase orders with suppliers and the
timing of expenditures in anticipation of increased sales and customer product
delivery requirements. Price competition in the industries in which the Company
competes is intense and could result in gross margin declines, which could have
an adverse impact on the Company's profitability. In various periods in the
past, the Company's operating results have been affected by all of these
factors.
CONTINUED CONTROL BY PRESENT SHAREHOLDERS AND MANAGEMENT. Upon completion
of the offering, Messrs. Joel H. Girsky and Charles B. Girsky will own an
aggregate of 699,914 shares of Common Stock, representing approximately 18.5% of
the outstanding shares. In the event of the exercise of all of their outstanding
stock options, after completion of the offering the Girskys would own
approximately 20.2% of the outstanding capital stock of the Company. As a result
of such stock ownership and their positions as executive officers and as two of
the four directors of the Company, they may be in a
7
<PAGE> 8
position to elect a majority of the Board of Directors and to control the
day-to-day affairs of the Company.
NEED FOR ADDITIONAL AUTHORIZED AND UNISSUED SHARES; ISSUANCE OF PREFERRED
STOCK AND NEWLY AUTHORIZED SHARES. The Company's Certificate of Incorporation
(the "Certificate") authorizes the issuance of 5,000,000 shares of Common Stock
and 100,000 shares of Preferred Stock. After giving effect to the issuance of
the 1,325,000 shares of Common Stock offered by the Company hereunder, 240,000
shares underlying the over-allotment option, 70,000 shares underlying the
Representatives' Warrants and of all shares covered by options granted under the
Company's stock option plans, only approximately 450,000 authorized shares of
Common Stock would remain unissued. As a result of the limited number of
authorized and unissued shares of Common Stock available for future issuance,
the Company intends at its 1995 annual meeting of shareholders, currently
anticipated to be held in December 1995 (the "1995 Annual Meeting"), to seek
approval from its shareholders to increase the number of shares of capital stock
authorized to be issued to 10,000,000. If the Company's shareholders approve the
increase in the number of authorized shares, shares may be issued to raise
equity capital, in connection with acquisitions, or for anti-takeover or other
purposes without further shareholder approval unless required by applicable law,
which could result in dilution to current shareholders. The Company's management
has no present intention of issuing additional shares other than as a result of
the exercise of stock options or the Representatives' Warrants. If the Company's
shareholders do not approve an increase in the number of authorized shares, the
continued growth of the Company could be materially limited by its inability to
raise additional equity capital when needed or to issue shares of capital stock
in connection with future acquisitions or for other corporate purposes.
The Company's Board of Directors has the power, in its discretion and
without shareholder approval, to issue any or all authorized and unissued shares
of capital stock authorized by the Certificate which are not reserved for
issuance, as well as certain other securities exchangeable for, or rights to
purchase, such shares, including the 100,000 shares of Preferred Stock currently
authorized by the Certificate and any new shares of Common Stock authorized by
shareholders at the 1995 Annual Meeting. Any Preferred Stock can be issued with
such rights, preferences and limitations as may be determined by the Board. Any
such issuances of Common or Preferred Stock may result in a reduction in the
book value and/or market price of the outstanding shares and may reduce the
proportionate ownership and voting power of each then existing shareholder.
Further, any new issuances of securities could be used for anti-takeover
purposes or to effect or avoid a change of control of the Company.
POSSIBLE VOLATILITY OF STOCK PRICE. The market price of the Common Stock
could be subject to significant fluctuations in response to such factors as,
among others, variations in the anticipated or actual results of operations of
the Company or of other distributors in the electronics industry and changes in
conditions affecting the economy generally, the financial markets or the
electronics distribution industry. Furthermore, relatively light trading volume
of the Common Stock which occurred during periods in the recent past may
exacerbate such volatility.
8
<PAGE> 9
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,325,000 shares
of Common Stock offered by it hereby are estimated to be approximately
$15,315,000 (approximately $18,160,550, if the Underwriters' over-allotment
option is exercised in full), based upon a public offering price of $12.75
per share of Common Stock. The Company will not receive any proceeds from the
sale of shares by the Selling Shareholders.
The Company intends to use such net proceeds to reduce the outstanding
balance of its bank indebtedness (approximately $25,300,000 as of August 31,
1995) under its credit facility (the "Credit Facility") with The Bank of New
York Commercial Corporation and NatWest Bank, N.A. The maximum amount available
under the Credit Facility is $30,000,000. Borrowings under the Credit Facility
have been used by the Company for working capital and to acquire the outstanding
capital stock of Nexus. As of August 31, 1995, approximately $4,700,000 remained
available to the Company under the Credit Facility. Of the amount borrowed under
the Credit Facility, $8,000,000 is structured as a term loan; $1,500,000 (the
outstanding balance of which was $1,196,000 at August 31, 1995) is structured as
a term loan repayable in equal monthly installments of $17,857; and the balance
is structured as a revolving line of credit. All amounts under the Credit
Facility are due in September 1998 unless the Credit Facility is extended.
Repayments of the term loans correspondingly increase amounts available under
the revolving line of credit. The Credit Facility bears interest at the higher
of the prime rate or the federal funds rate plus 1/2% or, at the Company's
option, at a rate equal to LIBOR plus 2.5%. The rate charged at August 31, 1995
was 8.75%.
As a result of the application of the net proceeds of this offering to
reduce the Company's indebtedness under the Credit Facility, the amount
available to be borrowed thereunder will be increased and may be drawn down in
the future to provide the Company with funds for working capital or potential
acquisitions of other component distributors which might be acquired for
geographic, consolidation or franchise expansion reasons, or of other contract
manufacturers of PCBs. The Company has no current plans, arrangements, or
understandings, written or oral, with respect to any such acquisition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources".
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common Stock.
The Company intends to retain earnings, if any, for use in its business and to
support growth and does not anticipate paying cash dividends in the foreseeable
future. In addition, the agreement governing the Company's Credit Facility
contains provisions that prohibit the Company from paying cash dividends on its
Common Stock.
9
<PAGE> 10
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on The Nasdaq National Market under
the symbol "JACO". The stock prices listed below represent the high and low
closing sale prices of the Common Stock, as reported by The Nasdaq National
Market, for each fiscal quarter beginning with the first fiscal quarter of 1994.
Stock prices prior to February 14, 1995 have been adjusted to give effect to the
10% stock dividend paid on March 10, 1995 and stock prices for all periods
through October 3, 1995 have been adjusted to give effect to a 4-for-3 stock
split which was effective on September 22, 1995.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL YEAR 1994:
First quarter ended September 30, 1993........................... $ 7.84 $ 4.94
Second quarter ended December 31, 1993........................... $ 8.01 $ 5.28
Third quarter ended March 31, 1994............................... $ 6.48 $ 4.43
Fourth quarter ended June 30, 1994............................... $ 5.97 $ 4.26
FISCAL YEAR 1995:
First quarter ended September 30, 1994........................... $ 5.28 $ 3.75
Second quarter ended December 31, 1994........................... $ 5.45 $ 3.92
Third quarter ended March 31, 1995............................... $ 5.54 $ 4.26
Fourth quarter ended June 30, 1995............................... $ 7.31 $ 5.06
FISCAL YEAR 1996:
First quarter ended September 30, 1995........................... $13.88 $ 6.28
Second quarter ending December 31, 1995
(through October 19, 1995).................................... $16.00 $10.50
</TABLE>
On October 19, 1995, the last reported sale price of the Company's Common
Stock on The Nasdaq National Market was $14.25 per share (which gives effect to
the 4-for-3 stock split which was effective on September 22, 1995). As of
October 9, 1995, there were approximately 150 holders of record of the Company's
Common Stock, who management believes held for more than 950 beneficial owners.
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<PAGE> 11
CAPITALIZATION
The following table sets forth the short term debt and capitalization of
the Company as of June 30, 1995 and as adjusted to reflect receipt of estimated
net proceeds from the sale of 1,325,000 shares of Common Stock of approximately
$15,315,000 and the application thereof to reduce bank indebtedness.
<TABLE>
<CAPTION>
AT JUNE 30, 1995
--------------------------
ACTUAL AS ADJUSTED(1)
------- --------------
(IN THOUSANDS EXCEPT SHARE
INFORMATION)
<S> <C> <C>
Short-term debt:
Current maturities of long-term debt payable and capitalized lease
obligations(2)................................................. $ 453 $ 453
======= =======
Long-term debt and capitalized lease obligations(2)................. $23,666 $ 8,351
------- -------
Shareholders' equity:
Preferred Stock:
$10 par value, 100,000 shares authorized, none issued and
outstanding or to be issued and outstanding, as adjusted....... -- --
Common Stock:
$.10 par value, authorized shares;
2,464,384 shares issued and outstanding;
3,789,384 shares issued and outstanding, as adjusted........... 246 379
Additional paid-in capital.......................................... 5,014 20,196
Retained earnings................................................... 7,967 7,967
------- -------
Total shareholders' equity..................................... 13,227 28,542
------- -------
Total capitalization...................................... $36,893 $36,893
======= =======
</TABLE>
- -------------------------------
(1) As adjusted to reflect receipt of estimated net proceeds from the sale of
1,325,000 shares of Common Stock of approximately $15,315,000 and the
application thereof to reduce bank indebtedness. See "Use of Proceeds."
(2) See Note E of Notes to Consolidated Financial Statements.
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<PAGE> 12
SELECTED CONSOLIDATED FINANCIAL DATA
The data set forth below is qualified by reference to and should be read in
conjunction with the Consolidated Financial Statements and Notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus. The following selected
consolidated financial data have been derived from the audited Consolidated
Financial Statements of the Company. The Consolidated Financial Statements as of
June 30, 1994 and 1995 and for each of the three years in the period ended June
30, 1995 have been audited by Grant Thornton LLP, independent certified public
accountants, and are included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------------------
1991 1992 1993 1994 1995
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATING DATA
Net sales......................... $ 78,856 $ 77,358 $ 96,675 $ 105,213 $ 138,683
Cost of goods sold................ 61,244 59,951 75,630 83,038 109,902
---------- ---------- ---------- ---------- ----------
Gross profit...................... 17,612 17,407 21,045 22,175 28,781
Selling, general and
administrative expenses......... 17,436 15,753 17,786 19,155 23,552
---------- ---------- ---------- ---------- ----------
Operating profit.................. 176 1,654 3,259 3,020 5,229
Interest expense.................. 1,551 1,172 1,078 1,117 2,010
---------- ---------- ---------- ---------- ----------
Earnings (loss) before income
taxes and cumulative effect of a
change in accounting for income
taxes........................... (1,375) 482 2,181 1,903 3,219
Income tax expense (benefit)...... (357) 170 797 714 1,303
---------- ---------- ---------- ---------- ----------
Earnings (loss) before cumulative
effect of a change in accounting
for income taxes................ (1,018) 312 1,384 1,189 1,916
Cumulative effect of a change in
accounting for income taxes..... -- -- -- 241 --
---------- ---------- ---------- ---------- ----------
Net earnings (loss)............... $ (1,018) $ 312 $ 1,384 $ 1,430 $ 1,916
========== ========== ========== ========== ==========
PER SHARE DATA
Earnings (loss) per common share
before cumulative effect of a
change in accounting............ $ (0.40) $ 0.12 $ 0.55 $ 0.47 $ 0.78
Cumulative effect of accounting
change.......................... -- -- -- 0.09 --
---------- ---------- ---------- ---------- ----------
Net earnings (loss) per common
share........................... $ (0.40) $ 0.12 $ 0.55 $ 0.56 $ 0.78
========== ========== ========== ========== ==========
Weighted average common and common
equivalent shares outstanding... 2,523,400 2,506,001 2,522,980 2,551,173 2,461,091
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
-----------------------------------------------------------------
1991 1992 1993 1994 1995
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital................... $ 13,187 $ 13,614 $ 14,910 $ 15,160 $ 30,741
Total assets...................... 34,076 35,547 36,056 45,685 56,323
Long-term obligations............. 8,375 8,225 8,058 9,694 23,666
Shareholders' equity.............. 8,208 8,520 9,905 11,202 13,227
</TABLE>
12
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Jaco is a distributor of electronic components and provider of contract
manufacturing and value-added services. Products distributed by Jaco include
semiconductors, capacitors, resistors and electro-mechanical devices and motors
used in the assembly and manufacturing of electronic equipment.
The Company's customers are primarily small and medium sized manufacturers.
The trend for these customers has been to shift certain manufacturing functions
to third parties (outsourcing). The Company intends to seek to capitalize on
this trend toward outsourcing by increasing sales of products enhanced by
value-added services. Value-added services currently provided by Jaco consist of
configuring complete computer systems to customer specifications both in tower
and desktop configurations, kitting (e.g. supplying sets of specified quantities
of products to a customer that are prepackaged for ease of feeding the
customer's production lines), assembling fractional-horsepower electric motors
and turnkey contract manufacturing through Nexus.
In March 1994, the Company entered the contract manufacturing business
through the acquisition of all the outstanding shares of capital stock of Nexus,
paying approximately $1,800,000 which was financed in part from a $1,500,000
term loan obtained under the Company's Credit Facility. See Notes E and I of
Notes to Consolidated Financial Statements. During the year ended June 30, 1995,
the Company devoted significant efforts to improving the performance of Nexus
including: capital expenditures in excess of $500,000 to improve Nexus'
capabilities for surface mount technology in the assembly of PCBs; consolidation
of Nexus' operational facilities from three buildings into one building;
utilization of Jaco's sales force in the Northeast to generate new customers for
Nexus; and reduction in the cost of components purchased by Nexus by
consolidating such purchases with other components purchased by Jaco.
The Company's sales from value-added services represented $18.1 million, or
13% of net sales in the year ended June 30, 1995, $8.9 million or 8% of net
sales in the year ended June 30, 1994, and $5.4 million or 6% of net sales in
the year ended June 30, 1993. Of these sales, sales from contract manufacturing
through Nexus, which was acquired in March 1994, were $2.7 million or 2.6% of
net sales in the year ended June 30, 1994 and $12.1 million or 8.7% of net sales
in the year ended June 30, 1995.
13
<PAGE> 14
RESULTS OF OPERATIONS
The following table sets forth certain items in the Company's statements of
earnings as a percentage of net sales for the periods shown:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------
1993 1994 1995
----- ----- -----
<S> <C> <C> <C>
Net sales................................................. 100.0% 100.0% 100.0%
Cost of goods sold........................................ 78.2 78.9 79.2
----- ----- -----
Gross profit.............................................. 21.8 21.1 20.8
Selling, general and administrative expenses.............. 18.4 18.2 17.0
----- ----- -----
Operating profit.......................................... 3.4 2.9 3.8
Interest expense.......................................... 1.2 1.1 1.5
----- ----- -----
Earnings before income taxes and cumulative
effect of a change in accounting........................ 2.2 1.8 2.3
Income tax expense........................................ .8 .7 .9
----- ----- -----
Earnings before cumulative effect of a change
in accounting........................................... 1.4 1.1 1.4
Cumulative effect of a change in accounting
for income taxes........................................ -- .3 --
----- ----- -----
Net earnings.............................................. 1.4% 1.4% 1.4%
===== ===== =====
</TABLE>
COMPARISON OF YEAR ENDED JUNE 30, 1995 ("FISCAL 1995") WITH YEAR ENDED JUNE 30,
1994 ("FISCAL 1994")
Net sales were $138.7 million for fiscal 1995, an increase of $33.5 million
or 32% as compared to $105.2 million for fiscal 1994. The increase in sales is
the result of several factors, including strong overall demand for components in
the electronics industry generally, and the establishment of new offices and
expansion of sales forces in existing offices to grow the distribution business.
In addition, revenue from contract manufacturing by Nexus increased to
approximately $12.1 million in fiscal 1995, from $2.7 million in fiscal 1994.
Nexus was acquired in March 1994. Accordingly, the results of its operations for
only three and a half months of fiscal 1994 were included in fiscal 1994 results
of operations.
Gross profit margins, as a percentage of net sales, decreased slightly from
21.1% in fiscal 1994 to 20.8% in fiscal 1995. This was primarily due to intense
price competition relating to disk drives. The Company realized an improvement
in gross profit margins in its distribution business during the second half of
fiscal 1995 as a result of strong demand for products other than disk drives,
which have lower gross profit margins. The Company believes that the
continuation of such demand, combined with emphasis on components which are more
profitable than disk drives, should enable gross profit margins to improve.
Selling, general and administrative expenses were $23.6 million in fiscal
1995, an increase of $4.4 million, or 22.9%, from $19.2 million in fiscal 1994.
The addition of two new sales offices, coupled with the hiring of additional
sales personnel both for the new offices and existing sales offices and the
inclusion of a full year of Nexus' operating results, produced the increase.
Selling, general and administrative expenses, as a percentage of 1995 net sales,
declined to 17.0% from 18.2% in fiscal 1994. Strict attention to cost
containment resulted in the reduction. The Company believes that if net sales
continue to increase then selling, general and administrative expenses will
decrease as a percentage of net sales.
Interest expense increased to $2.0 million in fiscal 1995 from $1.1 million
in fiscal 1994. This increase was primarily attributable to rising interest
rates, borrowings to support sales growth and additional borrowings used in
connection with the acquisition of Nexus. Interest expense is expected to
decrease in fiscal 1996 as a result of the reduction of indebtedness under the
Company's Credit Facility by application of the net proceeds of this offering.
14
<PAGE> 15
Nexus recently moved operations from two formerly leased facilities in
Vermont and one in Massachusetts and consolidated such operations at its
Brandon, Vermont headquarters.
Net earnings for fiscal 1995 were $1.9 million, an increase of
approximately $500,000, or 34.0%, as compared to $1.4 million for fiscal 1994,
after taking into account the cumulative effect of a change in accounting for
income taxes of $241,000 in the fiscal year ended June 30, 1994. Earnings before
the change in accounting for income taxes increased $727,000 (61%) in fiscal
1995 as compared to fiscal 1994. Growth in the Company's distribution business
was primarily responsible for the growth in earnings. Nexus currently is
realizing modest profits after its first full year as a subsidiary.
COMPARISON OF YEAR ENDED JUNE 30, 1994 WITH YEAR ENDED JUNE 30, 1993 ("FISCAL
1993")
Net sales were $105.2 million for fiscal 1994, an increase of $8.5 million
or 8.8% as compared to $96.7 million for fiscal 1993. Management attributes the
increase to continued penetration in existing markets, the opening of sales
offices in Minnesota and Oregon, and the acquisition of Nexus. Net sales of
Nexus were $2.7 million for the period following its acquisition (March
11 -- June 30, 1994) or 2.6% of consolidated fiscal 1994 net sales. Nexus, as a
contract manufacturer, competes in a rapidly growing segment of the electronics
market.
Fiscal 1994 gross profit margins, as a percentage of net sales, decreased
compared to fiscal 1993. This was primarily attributable to active components
having represented an increasing percentage of the Company's product mix in
fiscal 1994. These products are historically sold at lower margins than passive
components.
Selling, general and administrative expenses were $19.2 million in fiscal
1994, an increase of $1.4 million, or 8.0% compared to $17.8 million in fiscal
1993. Increases in selling, general and administrative expenses resulted from an
expanded sales and support workforce, the establishment of additional sales
offices and the incremental selling, general and administrative expenses
incurred as a result of the acquisition of Nexus.
Interest expense increased 3.7% to $1.1 million in fiscal 1994 compared to
fiscal 1993 due to rising interest rates and additional borrowings to support
sales growth and used in connection with the acquisition of Nexus.
While net income was approximately $1.4 million both in fiscal 1994 and
fiscal 1993, fiscal 1994 included a $241,000 benefit resulting from the
Company's adoption of Financial Accounting Standard No. 109, "Accounting for
Income Taxes". The benefit derived from sales growth was more than offset by
decreases in gross profit margins and increased selling, general and
administrative expenses.
15
<PAGE> 16
SELECTED QUARTERLY FINANCIAL DATA
The following table sets forth certain statements of earnings information
for the periods indicated. This information has been derived from unaudited
financial statements which in the opinion of management, includes all
adjustments (consisting only of normal recurring accrual adjustments) necessary
for a fair presentation of such information. These operating results are not
necessarily indicative of results for any future period and may fluctuate
significantly from quarter to quarter in the future.
<TABLE>
<CAPTION>
QUARTER QUARTER QUARTER QUARTER
ENDED ENDED ENDED ENDED
SEPTEMBER 30 DECEMBER 31 MARCH 31 JUNE 30
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
FISCAL 1995
Net sales........................... $ 31,087,594 $33,747,154 $35,825,167 $38,023,416
Gross profit........................ 6,394,122 6,919,043 7,496,699 7,970,828
Net earnings........................ 262,494 447,765 554,284 651,399
Earnings per common share........... .11 .18 .23 .26
FISCAL 1994
Net sales........................... $ 25,027,679 $24,035,522 $27,528,315 $28,621,561
Gross profit........................ 5,424,908 5,178,809 5,634,382 5,936,724
Net earnings........................ 654,033* 242,982 382,528 150,124
Earnings per common share........... .25* .10 .15 .06
FISCAL 1993
Net sales........................... $ 23,260,952 $23,452,161 $24,419,669 $25,542,623
Gross profit........................ 5,229,523 5,135,003 5,183,823 5,496,480
Net earnings........................ 287,094 296,693 338,595 462,013
Earnings per common share........... .11 .12 .13 .18
</TABLE>
- -------------------------------
* Includes $241,000 or a $.09 per share benefit derived from cumulative effect
of a change in accounting for income taxes.
RECENT DEVELOPMENTS
For the three months ended September 30, 1995, net sales were $40.1
million, an increase of $9.0 million or 29% as compared to $31.1 million for the
first quarter of fiscal 1995. The increase in sales is the result of continued
strength in the electronic components markets and the expansion of sales forces
in existing and more recently established offices.
Net earnings for the three months ended September 30, 1995 were $808,000,
or $.32 per share, a 208% increase over the net earnings of $262,000, or $.11
per share, reported in the first quarter of fiscal 1995. The incremental growth
in sales was primarily responsible for the increase in earnings.
LIQUIDITY AND CAPITAL RESOURCES
The Company maintains a total credit facility of $30,000,000, $8,000,000 of
which is structured as a term loan, $1,500,000 (the outstanding balance of which
at August 31, 1995 was approximately $1,196,000) of which is structured as a
term loan, payable in equal monthly installments of $17,857 and the balance of
which is structured as a revolving line of credit. During fiscal 1995, the
borrowing rate was reduced from prime +1% to a rate equal to the higher of prime
rate or the federal funds rate + 1/2% or, at the Company's option, LIBOR plus
2.5% for fixed periods of time. The Company must comply with various financial
covenants, with all of which the Company believes itself to be in compliance. As
of August 31, 1995, the Company had outstanding borrowings of $25.3 million,
with additional borrowing capacity of $4.7 million available under the revolving
line of credit.
Working capital increased to $30.7 million as of June 30, 1995, as compared
to $15.2 million as of June 30, 1994, an increase of $15.5 million or 102%. The
increase was primarily attributable to the Company's restructuring of its Credit
Facility which, among other things, extended its maturity date to
16
<PAGE> 17
September 1998; the Company's profitable results during fiscal 1995; and higher
inventory necessary to support the Company's increased level of sales and
resulting increased accounts receivable.
During fiscal 1995, the Company's net cash used in operating activities
increased to $4.0 million, from $127,000 in fiscal 1994 as a result of increases
in accounts receivable and inventory, which were partially offset by increases
in accounts payable, all of which is a reflection of higher sales. In fiscal
1995 the Company increased its borrowings under its Credit Facility by $4.6
million principally to provide cash for operating activities. In March 1995,
Nexus borrowed $500,000 to purchase machinery and equipment in order to expand
Nexus' surface mount assembly capacity. Management anticipates investing
approximately $500,000 in fiscal 1996 for additional machinery and equipment as
part of an ongoing program to upgrade Nexus' operations. The Company's cash
expenditures may vary significantly from its current expectations, based on a
number of factors, including but not limited to, future acquisitions, if any.
For both fiscal 1994 and 1995, inventory turnover was 4.6x. The average age
of the Company's accounts receivable at June 30, 1995 was 50 days, as compared
to 52 days at June 30, 1994. The Company did not experience any significant
trade collection difficulties during fiscal 1995.
The Company's lenders under its Credit Facility have advised the Company of
their willingness to increase the maximum amount thereof to $33 million. The
Company expects that cash flow from operations and funds available under its
Credit Facility, as same may be so amended, will be sufficient to fund the
Company's capital needs for at least the next 12 months.
INFLATION
Inflation has not had a significant impact on the Company's operations
during the last three fiscal years.
17
<PAGE> 18
BUSINESS
GENERAL
Jaco markets and distributes passive and active electronic components to
OEMs throughout the United States and Canada from two distribution centers
located on the East and West Coasts and 12 sales offices located throughout the
United States. The Company distributes products such as semiconductors,
capacitors, resistors, electro-mechanical devices, computers and computer
subsystems, which are used in the manufacture and assembly of electronic
products. The Company also provides a variety of value-added services including
configuring complete computer systems to customers' specifications, kitting the
component requirements of certain customers, assembling fractional-horsepower
electric motors to customers' specifications and furnishing contract
manufacturing services. Value-added services are intended to attract new
customers, maintain and increase sales to existing customers and, where
feasible, generate additional revenues and improve margins from sales of
components. In addition, these services are designed to respond to an industry
trend of outsourcing, in which purchasing, manufacturing and distribution
functions are allocated by customers to the most efficient provider. The Company
entered the contract manufacturing business in March 1994, when it acquired all
of the outstanding capital stock of Nexus, a Vermont-based turnkey contract
manufacturer of PCBs. Management believes the acquisition of Nexus has enabled,
and will continue to enable, the Company to expand and broaden its range of
value-added service capabilities. In the year ended June 30, 1995, Nexus
products accounted for approximately 9% of the Company's total sales.
The Company's core customer base consists primarily of small and
medium-sized OEMs that produce electronic equipment used in a wide variety of
industries, including manufacturers of telecommunications, computer,
computer-related, medical and aerospace equipment. In addition, over the past
three years, the Company has added larger, higher volume customers, including
accounts with several Fortune 500 manufacturers. In fiscal 1995, the Company
distributed electronic components to thousands of customers, none of which
individually represented more than 3% of net sales.
Jaco is a service-oriented company, built on strong customer and supplier
relationships. The Company's inventory management and information systems assist
its customers in controlling material costs, in reducing cycle times and in
keeping pace with rapidly occurring technological developments. The Company
utilizes a computerized inventory control system to assist in the marketing of
its products and coordinate purchases from suppliers with sales to customers.
The Company's computer system provides detailed on-line information regarding
the availability of the Company's entire stock of inventory located at its
stocking facilities as well as on-line access to the inventories of some of the
Company's major suppliers. Through the Company's integrated real-time
information system, customers' orders can readily be tracked through the entire
process of entering the order, reserving products to fill the order, ordering
components from suppliers, if necessary, and shipping products to customers on
scheduled dates. The Company is thus able to provide the type of distributor
service required by its OEM customers that have adopted the "just-in-time"
method of inventory procurement. The "just-in-time" method is utilized in an
effort to operate more efficiently and profitably by relying on scheduled
deliveries of such components at the time they are needed in the production
process and thereby reducing inventories of components.
The Company provides additional customer support through technically
competent product managers and field engineers, value-added services and
electronic data interchange. Management believes that the Company's logo, "Today
Isn't Soon Enough," is widely recognized in the electronics distribution
industry and articulates the Company's approach and commitment to servicing its
customers.
18
<PAGE> 19
INDUSTRY OVERVIEW
Over the past 30 years, the electronics industry has grown significantly as
a result of increased demand for products incorporating sophisticated electronic
components, such as telecommunications, computer and medical equipment. This
industry growth has been matched by an increase in the number of products,
component manufacturers and OEMs.
The electronics distribution industry has become an increasingly important
sales channel for the electronics industry because distributors can market
component manufacturers' products to a broader range of OEMs than such
manufacturers could economically serve with their direct sales forces.
Historically, manufacturers of electronic components have sold directly to large
OEMs and relied upon distributors to serve smaller customers. Today,
distributors have become more of an extension of component manufacturers'
product delivery channels by providing value-added services and technical
support to customers, by stocking sufficient inventory to ensure timely delivery
of components and by managing customer credit. Distributors also work with OEMs
to ensure that manufacturers' components are integrated into the design of new
products.
According to the National Electronics Distributors Association, an industry
trade assocation, in 1994 the electronics distribution industry recorded
approximately $17 billion in sales. Of these sales, approximately $10.9 billion
consisted of sales of semiconductors and computer products, which accounted for
approximately 48% of the Company's net distribution sales for the year ended
June 30, 1995. Approximately $5.4 billion of industry sales consisted of sales
of interconnect (connectors, sockets), electromechanical (relays, switches) and
passive (resistors, capacitors) components, which products accounted for
approximately 52% of the Company's net distribution sales in the year ended June
30, 1995.
A number of trends are affecting the electronic components distribution
industry today. One of the most significant trends is that of consolidation. A
series of mergers and acquisitions over the last ten years has created a number
of very large distribution companies that have increasingly focused on larger
customers and expansion of international operations. As a result, regional and
smaller national distributors have gained market share among small and
medium-sized OEMs.
In addition, manufacturers of electronic components have contributed to
this trend by limiting the number of distributors through which they market
their products in an effort to improve operating efficiencies. Distributors
which can demonstrate strong local market positions and client relationships are
better positioned to obtain or retain distributorship arrangements with top
manufacturers. As a result, many distributors in the industry have made
substantial efforts to expand their market shares by emphasizing customer
services, such as value-added, just-in-time inventory management, automatic
replenishment and on-site inventory services.
Another key trend affecting the industry is the outsourcing of component
assembly by OEMs. Outsourcing allows OEMs to enhance profitability by
concentrating resources on product design, marketing and other core aspects of
their businesses. By serving many manufacturers of similar products,
distributors can often produce subassemblies more efficiently than many small
and medium-sized OEMs.
BUSINESS STRATEGY
The Company's objective is to improve its position as a rapidly growing
distributor of passive and active electronic components in the United States.
The Company's strategy for achieving this objective is to enhance operating
results by increasing sales and improving operating efficiencies. The Company's
strategy includes the following key elements:
- Pursue Strategic Acquisitions. Among the factors driving consolidation
of distributors are the desire of manufacturers to sell through fewer
distributors, the need for distributors to improve operating results and
the desire of OEMs to satisfy component requirements with fewer
suppliers. The Company plans to actively seek complementary acquisitions
which are expected
19
<PAGE> 20
to increase sales, profits and earnings and strengthen the Company's
presence in targeted markets. Management believes that there will be
future opportunities for attractive and synergistic acquisitions.
- Capitalize on the Trend Toward Outsourcing By Increasing Sales of
Value-Added Services. As the trend toward outsourcing by OEMs of all
sizes continues, the Company anticipates that it will have opportunities
to provide additional value-added services to its customer base. The
Company's large purchasing volumes and inventories and efficient
operations enable it to offer small and medium-sized OEMs the opportunity
to purchase electronic components and custom assemblies on a just-in-time
basis at lower costs than they would otherwise incur. This enables the
Company's customers to reduce end-product costs and required investments
in working capital, as well as improve product quality.
Additionally, value-added services enhance the Company's relationships
with its customers, who come to rely upon the Company's expertise and
efficiency in assembling key parts of their end-products. The Company
first offered contract manufacturing services in March 1994, when it
acquired Nexus. Contract manufacturing revenues amounted to 9% of net
sales in the fiscal year ended June 30, 1995.
- Expand United States Geographic Coverage. The Company has expanded its
United States geographic coverage by opening new sales offices in various
major metropolitan markets. For example, the Company established three
new sales offices located in Minnesota, Oregon and Colorado in November
1993, January 1994 and September 1995, respectively, and currently has
plans to open a total of three additional sales offices in the Rocky
Mountain States, the Midwest and the Southeast. By expanding in such
regions, the Company hopes to gain additional market share in targeted
areas in the United States and Canada where the Company does not yet have
a significant presence.
- Expand and Diversify Product Lines by Obtaining New Distributorships With
Additional Suppliers. The Company continuously seeks to obtain new
distributorships to expand its product lines. In fiscal 1995, the Company
became a distributor for Dale, a subsidiary of Vishay Intertechnology,
Inc. Dale produces a premier line of resistors. In August 1995, the
Company became a distributor for the entire capacitor line of Sprague,
Inc., another Vishay subsidiary, and for Johanson Dielectric, Inc.
Management regularly contacts other manufacturers of electronic
components with a view to expanding the Company's product lines.
- Maintain Focus on Small and Medium-sized Customers While Expanding the
Customer Base to Include Larger Companies. Cost structures and pressure
from manufacturers have pushed many large national distributors to
emphasize obtaining large orders of products from larger customers. By
contrast, since small OEMs generally do not have the purchasing power to
buy directly from manufacturers and frequently cannot be served on a
cost-effective basis by large national distributors due to the detailed
technical and product assistance they require for relatively small
orders, management believes that they are more likely to rely on smaller
distributors such as the Company. While historically the Company has
primarily catered to the special needs of smaller OEMs, management
believes that significant growth can also be achieved through expanding
the Company's customer base by selectively targeting larger national and
multinational companies. Management believes the successful
implementation of this strategy will diversify the Company's range of
potential customers and increase sales by generating larger-volume
orders. Over the past three years, the Company has added several Fortune
500 manufacturers in the telecommunications, aerospace, medical, computer
and computer-related industries to its roster of customers.
Fundamental to the success of the Company's strategy is its constant focus
on improving quality, lowering costs and improving customer service. The Company
pursues opportunities to reduce operating expenses in every aspect of its
business. The Company emphasizes working capital management and links product
manager compensation to improved inventory efficiency. Management
20
<PAGE> 21
regularly reviews the performance of the Company's information systems and
employs cost-saving technological advances wherever feasible.
Both quality and efficiency are recognized by the Company to be important
to its continued success. Jaco's dedication to achieving quality and efficiency
in its distribution and contract manufacturing operations is evidenced by the
certification of the Company's principal distribution facility in Hauppauge, New
York and its contract manufacturing facility in Brandon, Vermont to be in
compliance with the ISO 9002 Quality System Standard by the International
Organization for Standardization. ISO 9000 is a program developed initially by
the International Organization for Standardization in Geneva, Switzerland, to
provide quality control registration standards that can be relied upon to
provide assurance to third parties.
PRODUCTS
The Company currently distributes over 60,000 stock items. Management
believes that it is necessary for the Company to carry a wide variety of items
in order to fully service its customers requirements and, in addition, many
suppliers require the Company to carry their full product line.
The components distributed by the Company are used in the assembly and
manufacture of electronic equipment such as computers, data transmission and
telecommunications equipment and transportation equipment, including electronic
signals and aircraft, and a broad variety of other electronic products. The
Company's products fall into two broad categories: "passive" components and
"active" components.
Passive components consist primarily of capacitors, electromechanical
devices, fractional-horsepower motors and resistors. Passive products accounted
for approximately 57%, 52% and 52% of the Company's net distributor sales in
fiscal 1993, fiscal 1994 and fiscal 1995, respectively. The Company believes
that the number of passive components of the types distributed by the Company
that are used in personal computers has been increasing as the speed and
capacity of semiconductors has increased.
Active components include semiconductors and computer subsystems.
Semiconductors consist of such items as integrated circuits and discrete
components, transistors, diodes, dynamic RAMs, static RAMs, video RAMs and
MOSFETs. Computer subsystems are an integral part of personal computers and
computer workstations and incorporate such items as disk drives, tape drives,
floppy disks and controllers. These products represented approximately 43%, 48%
and 48% of the Company's net distributor sales in fiscal 1993, fiscal 1994 and
fiscal 1995, respectively.
VALUE-ADDED SERVICES
The Company provides a number of value-added services which are intended to
attract new customers, to maintain and increase sales to existing customers and,
where feasible, to generate additional revenues and improve margins from sales
of components. Value-added services include:
- Configuring Computer Systems. Subsystem integration is a service offered
by the Company where it offers turnkey solutions to customers' computer
requirements by integrating such components as disks, tapes and floppy
disk drives with other components, including power suppliers, enclosures,
interface electronics cables and converters and active components to
configure complete computer systems to customer specifications, both in
tower and desktop configurations.
- Kitting. Kitting of customer component product requirements is provided
to fill a segment or a complete order of products to a select customer
base. Kitting consists of assembling to a customer's specifications two
or more of the Company's 60,000 stock items into pre-packaged kits ready
for use in the customer's assembly line.
21
<PAGE> 22
- Motor Assembly. The Company assembles fractional-horsepower electric
motors in conformity with customer specifications. The Company's
Hauppauge, New York distribution center is one of only two authorized by
the Globe Motors division of Labinal Components and Systems, Inc. as a
Globe Motors assembly center.
- Contract Manufacturing. The Company also furnishes turnkey contract
manufacturing of PCBs for OEMs using both conventional pin-through-hole
and more advanced surface mount technologies. Contract manufacturing
operations involve assembling PCBs to customer specifications utilizing
components from suppliers with whom the Company has distribution
agreements and other suppliers. As a turnkey contract manufacturer of
PCBs, the Company procures the required raw materials and components,
manages the assembly and test operations, and supplies the PCBs in
accordance with the customer's delivery schedule and quality requirements
for the finished product.
The Company conducts its contract manufacturing operations through Nexus,
a Brandon, Vermont-based contract manufacturer which the Company acquired
in March 1994.
SALES AND MARKETING
Management believes the Company has developed valuable long-term customer
relationships and an in-depth understanding of its customers' needs and
purchasing patterns. Jaco serves a broad range of customers in the computer,
computer-related, telecommunications, data transmission, defense, aerospace,
medical equipment and other industries. None of the Company's customers
individually represented more than 3% of net sales in the years ended June 30,
1994 and June 30, 1995.
The Company's sales personnel are trained to identify their customers'
requirements and to actively market the Company's entire product line to satisfy
those needs. For example, the Company's sales staff and field engineers
regularly meet with customers' engineers and designers to discuss prospective
needs and potential design or procurement problems and enable the sales
personnel to recommend use of products which meet the customers' performance
criteria, are cost-effective and target specifically identified problems.
Sales are made throughout the United States and Canada from the sales
departments maintained at the Company's two distribution facilities located on
the East and West Coasts of the United States in New York and California and
from 12 additional sales offices located in Colorado, Florida, Maryland,
Massachusetts, Minnesota, North Carolina, Oregon, Texas and Washington. The
Company currently has plans to open a total of three additional sales offices in
the Rocky Mountain States, the Midwest and the Southeast. Sales are made
primarily through personal visits by the Company's employees and by a staff of
trained telephone sales personnel who answer inquiries and receive and process
orders from customers. In addition, the Company utilizes the services of
independent sales representatives whose territories include parts of the United
States, Canada, and several foreign countries. These sales representatives
operate under agreements which are terminable by either party upon 30 days'
notice. Independent sales representatives are authorized to solicit sales of all
of the Company's product lines and are prohibited from representing competing
product lines.
In fiscal 1995, 92% of the Company's sales were produced by Company sales
personnel and 8% by independent sales representatives, one of whom produced
approximately $4.7 million in revenue. No other representative produced more
than $2 million in revenue. The Company believes that the termination of any
independent sales representative would not have a material adverse effect upon
its business.
22
<PAGE> 23
BACKLOG
The Company's backlog consists of purchase orders received from customers
for products scheduled for delivery within the next twelve months. The Company's
backlog was $31.3 million at June 30, 1994, compared to $44.9 million at June
30, 1995. Orders constituting the Company's backlog are subject to delivery
rescheduling, price negotiations and cancellations by the buyer, sometimes
without penalty or notice. Backlog is not necessarily indicative of future sales
for any particular period and the Company expects that in the normal course of
business less than all backlogged orders will be filled.
OPERATIONS
Component Distribution. Inventory management is critical to a
distributor's business. The Company constantly focuses on a high number of
resales or "turns" of existing inventory to reduce exposure to product
obsolescence and changing customer demand.
The Company's central computer system facilitates the control of purchasing
and inventory, accounts payable, shipping and receiving, and invoicing and
collection information of Jaco's distribution business. Each of the Company's
sales departments and offices is electronically linked to the Company's central
computer system which provides fully integrated on-line real-time data with
respect to the Company's inventory levels. The Company's inventory management
system was developed internally by Jaco and is considered proprietary. Inventory
turns are tracked by vendor, and the Company's inventory management system
provides immediate information to assist in making purchasing decisions and
decisions as to which inventory to exchange with suppliers under stock rotation
programs. The Company's inventory management system also uses bar-code
technology along with scanning devices, which are supplied by Jaco to certain
customers, and is networked to the facilities of select customers. In some
cases, customers use computers that interface directly with the Company's
computers to identify available inventory and rapidly process orders. This
system enables the Company to more effectively manage its inventory and to
respond more quickly to customer requirements for timely and reliable delivery
of components. The Company's turnover ratio was approximately 4.6x for the year
ended June 30, 1995.
Approximately 75% of the Company's component distribution inventory is
maintained at its East Coast distribution center in Hauppauge, New York. Most of
the remaining inventory is maintained at the Company's West Coast facility in
Westlake Village, California, approximately 35 miles north of Los Angeles. The
Company also monitors supplier stock rotation programs, inventory price
protection, rejected material and other factors related to inventory quality and
quantity.
Contract Manufacturing. The Company conducts its contract manufacturing
operations through Nexus at an approximately 32,600 square foot facility located
in Brandon, Vermont. Nexus provides turnkey contract manufacturing of PCBs for
OEMs. "Turnkey" is an industry term that describes a contract manufacturer that
buys customer-specified components from suppliers, assembles the components onto
finished PCBs and performs post-assembly testing. OEMs then incorporate the PCBs
into finished products. In assembling PCBs, Nexus is capable of employing both
pin-through-hole ("PTH") and surface mount technologies ("SMT"). PTH is a method
of assembling PCBs in which component leads are inserted and soldered into
plated holes in the board. SMT is a method of assembling PCBs in which
components are fixed directly to the surface of the board, rather than being
inserted into holes. The SMT process allows for more miniaturization, cost
savings and shorter lead paths between components (which results in greater
signal speed). In fiscal 1995, the Company borrowed $500,000 to purchase
machinery and equipment in order to expand Nexus' SMT assembly capability and
plans in fiscal 1996 to invest approximately $500,000 in additional machinery
and equipment as part of the Company's ongoing program to upgrade Nexus'
operations.
Nexus maintains strict quality control procedures for its products,
including use of total quality management ("TQM") systems. All incoming raw
materials and components are checked by the Nexus quality control personnel.
During the production stage, quality control personnel check all work in
23
<PAGE> 24
process at several points in the production process. Finally, after the assembly
stage, Nexus conducts random testing of finished products. When requested by OEM
customers, Nexus provides a limited warranty for products it manufactures.
Nexus' manufacturing facility has earned ISO 9002 certification. The ISO is
a Geneva-based organization dedicated to the development of worldwide standards
for quality management guidelines and quality assurance. ISO 9002 is the ISO
level appropriate for manufacturers like Nexus. Nexus' receipt of ISO 9002
certification demonstrates that Nexus' manufacturing operations meet the
established world standards.
Management believes sophisticated customers increasingly are requiring
their manufacturers to be ISO 9002-certified and that OEMs that are not so
qualified are increasingly looking to manufacturers like Nexus that have done
so, rather than undertaking the expensive and time-consuming process of
qualifying their own operations.
SUPPLIERS
Manufacturers of passive and active electronic components are increasingly
relying on the marketing, customer service and other resources of a limited
number of distributors who market their product lines to customers not normally
served by the manufacturer, and to supplement the manufacturer's direct sales
efforts in other accounts. Manufacturers seek distributors who have strong
relationships with desirable customers, are financially strong, have the
infrastructure to handle large volumes of products and can assist customers in
the design and use of the manufacturers' products. Currently, the Company has
non-exclusive distribution agreements with many manufacturers, including Globe
Motors (a division of Labinal Components and Systems, Inc.), International
Resistive Company, Inc., Kemet Electronics Corporation, Micropolis Corporation,
Mitel Inc., Rohm Company, Limited, Samsung Semiconductor, Inc., Vishay
Intertechnology, Inc., and Zetex, Inc. Management continuously seeks to identify
potential new suppliers and obtain additional distributorships for new lines of
products. Management believes that such expansion and diversification will
increase the Company's sales and market share. See "Business -- Business
Strategy".
In fiscal 1995, of the Company's top ten suppliers, three, AVX, Kemet and
Samsung, accounted for 15%, 13%, and 9% respectively, of net sales and the
remaining seven each accounted for between 2% and 5% of net sales. No other
supplier accounted for more than 2% of net sales. As is common in the
electronics distribution industry, from time to time the Company has experienced
terminations of relationships with suppliers which affected its results of
operations in post-termination fiscal periods. For example, in June 1995, the
Company's largest supplier, AVX, canceled its distributor agreement with the
Company. While the Company believes that it will be able to replace a major
portion of those sales with sales of other product lines from other suppliers
and in August 1995 the Company entered into distribution agreements with
Sprague, Inc. and Johanson Dielectric, Inc., there can be no assurance that it
will, in fact, be able to replace the AVX sales. See "Risk
Factors -- Relationships with Suppliers."
The Company generally purchases products from manufacturers pursuant to
nonexclusive distributor agreements. Selection as an authorized distributor is a
valuable marketing tool for the Company because customers receive warranty
protection and support from manufacturers when they purchase products from the
Company. As an authorized distributor, the Company is able to offer customers
marketing and engineering support from the product manufacturers, which enhances
the Company's ability to attract new customers and close sales.
Most of the Company's distributor agreements are cancelable by either
party, typically upon 30 to 90 days' notice. These agreements typically provide
for price protection, stock rotation privileges and the right to return certain
inventory if the agreement is canceled. Price protection is typically in the
form of a credit to the distributor for any inventory in the distributor's
possession for which the manufacturer reduces its prices. Stock rotation
privileges typically allow the Company to exchange inventory in an amount up to
5% of a prior period's purchases. Upon termination of a distributor
24
<PAGE> 25
agreement, the right of return typically requires the manufacturer to repurchase
the Company's inventory at the Company's adjusted purchase price. The Company
believes that the above-described provisions of its distributorship agreements
generally have served to reduce the Company's exposure to loss from unsold
inventory. As such price protection and stock rotation privileges are limited in
scope, there can be no assurance that the Company will not experience
significant losses from unsold inventory in the future.
COMPETITION
The electronics distribution industry is highly competitive, primarily with
respect to price and product availability. The Company believes that the breadth
of customer base, services and product lines, its level of technical expertise
and the quality of its services generally are also particularly important. The
Company competes with large national distributors such as Arrow Electronics,
Inc. and Avnet, Inc., as well as regional and specialty distributors, many of
whom distribute the same or competitive products. Many of the Company's
competitors have significantly greater name recognition and greater financial
and other resources than those of the Company.
The Company encounters some competition from products manufactured abroad
and distributed domestically. Such foreign-manufactured products are often sold
at prices below the Company's prices for comparable products. The Company
competes by providing its customers with reliable, rapid delivery of products
that meet strict quality control standards and by providing value-added services
not available from foreign distributors.
The PCB contract manufacturing industry is highly fragmented. Many large
contract manufacturers operate high-volume facilities and primarily focus on
high-volume markets, such as the personal computer and disk drive industries.
This segment of the contract manufacturing industry is characterized by
relatively high levels of volatility, competition and pricing and margin
pressure. In contrast, other contract manufacturers focus on low-to-medium
volume and service-intensive products, where the value-added component
represents a relatively high percentage of the overall value of the finished
product.
The Company believes that contract manufacturers which are affiliated or
integrated with electronics distributors have competitive advantages over
comparably-sized, stand-alone contract manufacturers. Distributors can reduce
the risk of inventory obsolescence through stock rotation privileges and
inventory price protection and can also take advantage of material acquisition
skills, just-in-time delivery expertise and broad supplier relationships.
EMPLOYEES
At August 31, 1995, the Company had a total of 404 employees, of which 129
were employed by Nexus. Of total employees, 11 were engaged in administration,
55 were managerial and supervisory employees, 128 were in sales and 210
performed warehouse, manufacturing and clerical functions. Of these employees,
Nexus employed one in administration, 14 in management and supervisory
positions, six in sales and 108 in warehouse, manufacturing and clerical
functions. There are no collective bargaining contracts covering any of the
Company's employees. The Company believes its relationship with its employees is
satisfactory.
PROPERTIES
All of the Company's facilities are leased except for the Brandon, VT
property which is owned by Nexus. Jaco currently leases 14 facilities located in
the States of California, Colorado, Florida, Maryland, Massachusetts, Minnesota,
New York, North Carolina, Oregon, Texas and Washington, two of which are
multipurpose facilities used principally as administrative, sales, and
purchasing offices, as well as warehouses, and the remainder of which are used
exclusively by Jaco as sales offices. Jaco's satellite sales offices range in
size from approximately 1,000 square feet to approximately 7,200 square feet.
Base rents for such properties range from approximately $1,000 per month to
approximately
25
<PAGE> 26
$3,400 per month. Depending on the terms of each particular lease, in addition
to base rent, Jaco may also be responsible for portions of real estate taxes,
utilities and operating costs, or increases in such costs over certain base
levels. The lease terms range from month-to-month to as long as three years. All
facilities are linked by computer terminals to Jaco's Hauppauge, New York
headquarters. The following paragraphs set forth certain information respecting
Jaco's two principal leased facilities:
(i) Jaco leases from Bemar Realty Company, a partnership consisting of
Messrs. Joel H. Girsky and Charles B. Girsky, approximately 72,000 square
feet of office and warehouse space at 145 Oser Avenue, Hauppauge, New York.
See "Management -- Certain Transactions." The lease provides for a current
monthly base rent of approximately $56,250 and has a term which expires in
December 1995. Jaco is currently negotiating a renewal of that lease. Such
renewal is anticipated to be at a rental rate similar to that currently
being charged for comparable properties in the area and, as a result, the
Company expects that the new rental rate will be slightly lower than the
current rate. Approximately 26,000 square feet of space is sublet by Jaco
to an unaffiliated third party. In addition to its headquarters, Jaco
maintains purchasing and sales offices and warehouse facilities at its
Hauppauge location.
(ii) Jaco leases from an unaffiliated party approximately 10,000
square feet of office and warehouse space in Westlake Village, California,
approximately 35 miles north of Los Angeles, for a base rent of
approximately $7,800 per month. The lease expires on March 31, 1996. Jaco
maintains both a purchasing and sales office at this location, as well as
warehouse facilities.
Nexus currently owns and occupies a 32,000 square foot facility located in
Brandon, Vermont, that is used for manufacturing, storage and office space. The
building was acquired by the Company on March 11, 1994 as part of the
acquisition of all of the outstanding shares of capital stock of Nexus.
The Company believes that its present facilities will be adequate to meet
its needs for the foreseeable future.
LEGAL PROCEEDINGS
There are no material legal proceedings pending, or, to the knowledge of
management, threatened against the Company.
26
<PAGE> 27
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The directors and executive officers of the Company, their ages, and their
positions and terms of office with the Company are set forth below.
<TABLE>
<CAPTION>
NAME AGE TITLE
- ------------------------------ --- ----------------------------------------------
<S> <C> <C>
Joel H. Girsky................ 56 Chairman of the Board, President, Treasurer,
and Director.
Charles B. Girsky............. 61 Executive Vice President and Director.
Jeffrey D. Gash............... 42 Vice President of Finance and Principal
Financial Officer.
Stephen A. Cohen(1)........... 58 Director.
Edward M. Frankel(1).......... 57 Director.
</TABLE>
- -------------------------------
(1) Messrs. Cohen and Frankel serve as the members of the Audit Committee,
Option Committee and Compensation Committee.
Joel H. Girsky has been a Director and executive officer of the Company
since it was founded in 1961. Since January 1983, he has been the President and
Chairman of the Board of Directors of the Company. He also is a Director of
Nastech Pharmaceutical Company, Inc. of Hauppauge, New York, and Frequency
Electronics, Inc. of Uniondale, New York.
Charles B. Girsky became an executive officer of the Company on August 2,
1985 and has been its Executive Vice President since January 1983. Since April,
1984, he has been President of Distel, Inc., a wholly-owned subsidiary of the
Company. He was a founder, Director, and the President of the Company from 1961
through January 1983, and was elected a Director of the Company again in 1986.
Jeffrey D. Gash has been employed by the Company for over 14 years. He
became Vice President of Finance in January 1989, and was Controller of the
Company for more than five years prior thereto. He has also served in similar
capacities with the Company's subsidiaries.
Stephen A. Cohen has been a Director of the Company since 1970. Since
August 1989, he has practiced law as a member of the law firm of Morrison Cohen
Singer & Weinstein, LLP, general counsel to the Company. For more than five
years prior thereto, he was engaged in the practice of law as a member of the
firm of Friedlander, Gaines, Cohen & Rosenberg, former general counsel to the
Company.
Edward M. Frankel became a Director of the Company in May 1984. For more
than five years, he has been President of both Garden State Nutritionals, Inc.
and Windmill Marketing Services, Inc., each a regional distributor of vitamins
and health and beauty products.
Directors are elected at each annual meeting of shareholders. Officers
serve at the discretion of the Board, subject to existing employment agreements.
Except for Joel and Charles Girsky who are brothers, no family relationship
exists between any directors or executive officers of the Company.
The Board of Directors has standing Audit, Option, and Compensation
Committees. The Audit Committee reviews the work and reports of the Company's
independent accountants. The Option Committee, administers the Company's 1993
NonQualified Stock Option Plan. The Compensation Committee makes recommendations
to the Board of Directors concerning compensation arrangements for directors,
executive officers, and senior management of the Company.
OTHER KEY EMPLOYEES
The Company also considers the following individuals to be key to its
operations:
Denis Haggerty, Vice President of Marketing -- Passives. Mr. Haggerty, who
is 62 years old, oversees marketing of passive components and has been employed
by the Company for approximately 30 years.
27
<PAGE> 28
Morton J. Denson, Vice President of Marketing -- Actives. Mr. Denson, who
is 61 years old, oversees marketing of active components and has been employed
by the Company for over 8 years.
Herbert Entenberg, Vice President of Management and Information Systems and
Secretary. Mr. Entenberg has been employed by the Company for over 15 years. Mr.
Entenberg, who is 61 years old, oversees management information systems and
operations and is responsible for developing and implementing the Company's
inventory control system.
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth, for each of the Company's last three fiscal
years, the compensation paid or accrued to the President of the Company and paid
to the executive officers and key employees of the Company other than the
President whose aggregate annual salary and bonus for the Company's last fiscal
year exceeded $100,000 (the "Named Executives"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------------
ANNUAL COMPENSATION AWARDS
--------------------------------------- --------------------- PAYOUTS ALL
YEAR OTHER RESTRICTED ----------- OTHER
NAME AND ENDED ANNUAL STOCK OPTIONS/ LTIP COMPENSATION
PRINCIPAL POSITION JUNE 30 SALARY($) BONUS($) COMPENSATION ($) AWARDS ($) SARS (#) PAYOUTS ($) ($)(2)
- ----------------------- ------- --------- -------- ---------------- ---------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Joel H. Girsky......... 1993 $225,000 $ 87,000 -- -- -- -- $ 55,087
Chairman of the 1994 $250,000 $ 76,000 -- -- 81,400 -- $ 62,519
Board, 1995 $300,000 $193,000 -- -- -- -- $ 72,100
President, and
Treasurer(1)
Charles B. Girsky...... 1993 $168,269 $ 40,037 -- -- -- -- $ 3,762
Executive Vice 1994 $181,000 $ 17,997 -- -- -- -- $ 3,783
President 1995 $206,720 $ 42,073 -- -- -- -- $ 3,947
Jeffrey D. Gash........ 1993 $ 86,160 $ 9,000 -- -- -- -- $ 1,513
Vice President, 1994 $ 96,000 $ 10,000 -- -- 4,033 -- $ 1,663
Finance 1995 $ 96,347 $ 10,000 -- -- -- -- $ 1,806
Denis Haggerty......... 1993 $ 76,096 $ 33,368 -- -- -- -- $ 10,814
Vice President, 1994 $ 90,000 $ 31,377 -- -- 3,667 -- $ 11,165
Marketing 1995 $ 90,348 $ 36,964 -- -- -- -- $ 11,029
Morton J. Denson....... 1993 $114,306 $ 16,173 -- -- -- -- $ 8,762
Vice President, 1994 $114,998 $ 19,887 -- -- -- -- $ 8,891
Marketing 1995 $115,440 $ 37,955 -- -- -- -- $ 8,957
Herbert Entenberg...... 1993 $102,560 $ -- -- -- -- -- $ 3,369
Vice President, 1994 $102,560 $ 4,363 -- -- 3,667 -- $ 3,436
Management and 1995 $102,816 $ 16,155 -- -- -- -- $ 3,538
Information Systems
</TABLE>
- -------------------------------
(1) Mr. Joel Girsky entered into a four-year employment agreement with the
Company, effective as of July 1, 1993, to serve as the Company's Chairman,
President and Treasurer. Pursuant to the agreement, Mr. Girsky received a
base salary of $250,000 for the fiscal year ended June 30, 1994 and $300,000
for the fiscal year ended June 30, 1995 and is to receive $325,000 for each
of the fiscal years ended June 30, 1996 and June 30, 1997. In addition, he
is entitled to receive a cash bonus equal to four percent (4%) of the
Company's earnings before income taxes for each year in which such earnings
are in excess of $1,000,000, and six percent (6%) of the Company's earnings
before income taxes for each year in which such earnings are in excess of
$2,500,000. Mr. Girsky or his estate, as the case may be, is entitled to
receive a payment of $500,000 if he dies or becomes permanently disabled
during the term of the employment agreement. This death and disability
benefit is funded by a "key-man" life insurance policy maintained by the
Company. In the event of Mr. Girsky's cessation of employment with the
Company, upon his request, the Company is obligated to transfer such policy
to Mr. Girsky. Thereafter, the Company would have no further liability for
the payment of such benefit or the premiums on such policy. In addition,
pursuant to the terms of the employment agreement, Mr. Girsky is to receive
deferred compensation which accrues at the rate of $50,000 per year and
becomes payable in a lump sum at the later of (i) Mr. Girsky's attainment of
age 60, or (ii) his cessation of employment, with or without cause, by the
Company at any time after July 1, 1993. In the event of a change in control
resulting in termination of Mr. Girsky's employment, Mr. Girsky will receive
between $450,000 and $600,000 depending on the date of termination.
(2) Includes auto expenses, 401(k) matching contributions by the Company,
premiums paid on group term life insurance, taxable portion of split dollar
life insurance policies and deferred compensation accrued in connection with
Mr. Joel Girsky's employment agreement with the Company, as described in
footnote (1) above. Auto expenses for fiscal 1995 for the Named Executives
were as follows: Mr. Joel Girsky -- $12,031, Mr. Charles Girsky -- $2,110,
Mr. Gash -- $724 and Mr. Entenberg -- $2,354. 401(K) matching contributions
for fiscal 1995 for the Named Executives were as follows: Mr. Joel
Girsky -- $1,009, Mr. Charles Girsky -- $1,162, Mr. Gash -- $1,000, Mr.
Haggerty -- $1,078, Mr. Denson -- $1,055 and Mr. Entenberg -- $1,031.
Premiums paid on group term life insurance for fiscal 1995 for the Named
Executives were as follows: Mr. Joel Girsky -- $1,008, Mr. Charles
Girsky -- $675, Mr. Gash -- $82, Mr. Haggerty -- $351, Mr. Denson -- $702
and Mr. Entenberg -- $153. The taxable portion of split dollar life
insurance policies for Mr. Joel Girsky was $8,052 for fiscal 1995. $50,000
of deferred compensation was accrued in fiscal 1995 in connection with Mr.
Joel Girsky's employment agreement with the Company, as described in
footnote (1) above.
28
<PAGE> 29
STOCK OPTIONS
There were no grants of stock options made to any of the Named Executives
in fiscal 1995.
The following table sets forth information concerning the exercise of stock
options during fiscal 1995 by each of the Named Executives and the number and
value of unexercised options held by them at the fiscal year-end.
AGGREGATE OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
SHARES FY-END (#) FY-END ($)(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
--------------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Joel H. Girsky........ 0 0 81,400 0 123,728 0
Charles B. Girsky..... 36,667 92,188 0 0 0 0
Jeffrey D. Gash....... 0 0 4,033 0 6,130 0
Denis Haggerty........ 0 0 3,667 0 5,877 0
Morton J. Denson...... 4,400 10,875 0 0 0 0
Herbert Entenberg..... 0 0 3,667 0 5,877 0
</TABLE>
- -------------------------------
(1) Based on the fair market value per share of the Common Stock at year end,
minus the exercise or base price on "in-the-money" options. The closing sale
price for the Company's Common Stock as of June 30, 1995 on The Nasdaq
National Market was $6.38.
COMPENSATION OF DIRECTORS
Pursuant to the Company's 1993 Stock Option Plan for Outside Directors (the
"Outside Directors' Plan"), the Company's outside directors (directors who are
not employees of the Company) were each granted options on December 31, 1993 to
purchase 14,667 shares of Common Stock. In addition, the Outside Directors Plan
provides that each outside director shall also be granted on each December 31
subsequent to December 31, 1993 stock options to purchase 2,933 shares of Common
Stock. All options granted under the Outside Directors' Plan are immediately
exercisable, and the exercise price per share of each option is equal to the
fair market value of the shares of Common Stock on the date of grant.
CERTAIN TRANSACTIONS
During the year ended 1995, the Company incurred approximately $654,000 of
rental expenses in connection with its main headquarters and centralized
inventory distribution facility, located in Hauppauge, New York, which was paid
to Bemar Realty Company ("Bemar"), the owner of such premises. Bemar is a
partnership consisting of Messrs. Joel Girsky and Charles Girsky, both of whom
are officers, directors and principal shareholders of the Company. The lease on
the property, which is net of all expenses, including taxes, utilities,
insurance, maintenance and repairs, expires on December 31, 1995. The Company is
in the process of negotiating a renewal of such lease at a rental rate
comparable to the rates currently being charged to rent similar properties in
the area. It is anticipated that the new rental rate will be slightly lower than
the current rate. For information concerning the Company's contingent guarantee
of a mortgage on this property, see Note F of Notes to Consolidated Financial
Statements.
During fiscal 1995, Joel H. Girsky, the Chairman, President and Treasurer
of the Company, was indebted to the Company under demand loans bearing interest
at a rate of 9 3/4% per annum, the
29
<PAGE> 30
greatest amount of which indebtedness was $641,425 during such fiscal year. At
June 30, 1995, the amount of such indebtedness was $309,808. Such indebtedness
will be repaid in full on or before the closing of this offering.
In September 1995, the Company's Board of Directors adopted a policy
prohibiting the Company from making any loan or advance of money or property to,
or guaranteeing the obligation of, any non-employee director of the Company and
limiting the Company's ability to make such loans, advances or guarantees to
employee directors and executive officers of the Company or its subsidiaries
unless a majority of independent disinterested outside directors determine that
such loan, advance or guarantee may reasonably be expected to benefit the
Company.
Stephen A. Cohen, a Director of the Company, is a member of Morrison Cohen
Singer & Weinstein, LLP, general counsel to the Company. Mr. Cohen currently
owns 4,789 shares of Common Stock and options to purchase an additional 17,600
shares of Common Stock. See "Legal Matters".
30
<PAGE> 31
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth the number and percentage of shares of
Common Stock beneficially owned as of October 9, 1995, and as adjusted to give
effect to the sale of 1,325,000 shares by the Company and 275,000 shares by the
Selling Shareholders in the offering, by (i) each director of the Company, (ii)
all persons who, to the knowledge of the Company, are the beneficial owners of
more than 5% of the outstanding shares of Common Stock, (iii) each of the Named
Executives named in the Summary Compensation Table; (iv) all of the Company's
Named Executives and directors as a group; and (v) each Selling Shareholder.
Each person named in the table has sole investment power and sole voting power
with respect to the shares of Common Stock set forth opposite such person's
name, except as otherwise indicated.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO SHARES BEING OWNED AFTER
OFFERING(1) OFFERED OFFERING
--------------------- ------------ -------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT NUMBER NUMBER PERCENT
- -------------------------------------------- --------- ------- ------------ ------- -------
<S> <C> <C> <C> <C> <C>
Joel H. Girsky.............................. 666,540(2) 26.2% 137,500 529,040 13.7%
Chairman of the Board, President,
Treasurer and Director
Charles B. Girsky........................... 389,774 15.8% 137,500 252,274 6.7%
Executive Vice President and Director
Stephen A. Cohen............................ 22,389(3) * 0 22,389(3) *
Director
Edward M. Frankel........................... 17,600(3) * 0 17,600(3) *
Director
Jeffrey D. Gash............................. 4,565(4) * 0 4,565(4) *
Vice President, Finance
Dennis Haggerty............................. 3,667(5) * 0 3,667(5) *
Vice President, Marketing
Morton J. Denson............................ 4,400 * 0 4,400 *
Vice President, Marketing
Herbert Entenberg........................... 3,667(5) * 0 3,667(5) *
Vice President, Management and Information
Systems and Secretary
All Directors and Named Executives as a
Group (8 persons)......................... 1,112,602(6) 42.9% 275,000 837,602(6) 21.4%
</TABLE>
- -------------------------------
* Less than 1%.
(1) Based upon (i) 2,464,384 shares of Common Stock issued and outstanding,
plus, if appropriate, (ii) the number of shares of Common Stock which may be
acquired by the named person or by all persons included in the group
pursuant to the exercise of options.
(2) Includes 81,400 shares of Common Stock acquirable pursuant to the exercise
of options granted under the Company's 1993 Non-Qualified Stock Option Plan.
(3) Includes 17,600 shares of Common Stock acquirable pursuant to the exercise
of options granted under the Company's 1993 Stock Option Plan for Outside
Directors.
(4) Includes 4,033 shares of Common Stock acquirable pursuant to the exercise of
options granted under the Company's 1993 Non-Qualified Stock Option Plan.
(5) Includes 3,667 shares of Common Stock acquirable pursuant to the exercise of
options granted under the Company's 1993 Non-Qualified Stock Option Plan.
(6) Includes 127,967 shares of Common Stock acquirable pursuant to the exercise
of options.
31
<PAGE> 32
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
The Company has 5,000,000 authorized shares of Common Stock, $0.10 par
value, of which 2,464,384 shares were issued and outstanding as of August 31,
1995. Holders of the Common Stock are entitled to one vote per share on all
matters requiring shareholder action. The Company's Restated Certificate of
Incorporation does not permit cumulative voting for the election of directors.
Holders of Common Stock have no preemptive or other subscription rights and
there are no redemption, sinking fund or conversion privileges applicable
thereto. The holders of the Common Stock are entitled to receive dividends as
and when declared by the Board of Directors out of funds legally available
therefor. See "Dividend Policy". Upon liquidation, dissolution or winding up of
the Company, holders of Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities. All outstanding shares of the Common
Stock are, and all shares to be issued and sold by the Company in this offering
will be, fully paid and non-assessable.
PREFERRED STOCK
The Company has 100,000 authorized shares of Preferred Stock, $10.00 par
value ("Preferred Stock"), none of which was issued and outstanding as of August
31, 1995. The Company's Restated Certificate of Incorporation permits the terms,
rights and preferences of any Preferred Stock issued in the future, including
dividend rates, voting rights, redemption prices, maturity dates, liquidation
preference and similar matters, to be determined by the Company's Board of
Directors at the time such issuance is approved. The Preferred Stock may be
issued with voting, dividend or liquidation rights superior to the Common Stock,
and could be used to frustrate a takeover attempt by a third party or to
entrench management. Management does not presently know whether any shares of
Preferred Stock will actually be issued or, if issued, what the terms, rights
and preferences thereof will be. Under the New York Business Corporation Law
(the "BCL"); however, the holders of such Preferred Stock will not have any
preemptive rights with respect to any future issuance of shares of the Common
Stock or Preferred Stock, unless the Company's Restated Certificate of
Incorporation is amended to provide for such rights. See "Risk Factors -- Need
for Additional Authorized and Unissued Shares, Issuance of Preferred Stock and
Newly Authorized Shares."
CERTAIN CERTIFICATE OF INCORPORATION AND STATUTORY PROVISIONS REGARDING
LIMITATIONS OF LIABILITY OF DIRECTORS.
The Company's Restated Certificate of Incorporation includes a provision
eliminating director liability to the fullest extent permissible under New York
law, as such law currently exists or as it may be amended in the future. New
York corporations are permitted to adopt provisions in their certificates of
incorporation eliminating the monetary liability of directors for certain
breaches of duty. Such provisions are subject to exceptions, as described below.
Under New York law, a New York corporation may include a provision in its
certificate of incorporation which eliminates or limits the personal liability
of a director to the corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director. However, such a provision may not
eliminate or limit director's liability for (i) breaches of the duty of loyalty
to the corporation or its stockholders, (ii) acts or omissions in bad faith or
involving intentional misconduct or knowing violations of law, (iii) a violation
of Section 719 of the BCL (including the payment of unlawful dividends or
unlawful stock purchases or redemptions), or (iv) transactions in which a
director receives an improper personal benefit.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's securities is American
Stock Transfer & Trust Company.
32
<PAGE> 33
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, there will be 3,789,384 shares of Common
Stock outstanding. Of these shares, 667,107 shares, together with any shares
acquired by affiliates in this offering, will be subject to Rule 144 under the
Securities Act. As a result, 3,122,277 shares, less any shares acquired by
affiliates in this offering, will be freely transferable without restriction.
In general, under Rule 144 a person (or persons whose shares are
aggregated) who has beneficially owned restricted shares for at least two years,
including persons who may be deemed to be affiliates of the Company, would be
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of 1% of the total number of then-outstanding shares of
Common Stock or the average weekly trading volume in the Common Stock as
reported by NASDAQ during the four calendar weeks preceding such sale. Sales
pursuant to Rule 144 also are subject to certain other requirements relating to
the manner of sale, notice and availability of current public information about
the Company. Affiliates may publicly sell shares not constituting restricted
securities under Rule 144 in accordance with the foregoing volume limitations
and other restrictions but without regard to the two-year holding period. Under
Rule 144(k), a person who is not deemed to have been an affiliate of the Company
at any time during the 90 days immediately preceding a sale by such person, and
who has beneficially owned restricted shares for at least three years, would be
entitled to sell such shares under Rule 144 without regard to any of the
limitations described above.
The Company, its directors, executive officers and certain shareholders
have agreed not to offer, sell, contract to sell or otherwise dispose of any
shares of Common Stock, for a period of 180 days after the date of the
Prospectus, without the prior written consent of Cruttenden Roth Incorporated.
After this period, 667,107 shares of Common Stock held by this group will be
eligible for sale subject to resale limitations of Rule 144 promulgated under
the Securities Act and 36,667 shares will be eligible for sale under a
Registration Statement filed under the Securities Act.
No prediction can be made as to the effect, if any, that future sales of
shares or the availability of shares for future sale will have on the prevailing
market price of the Common Stock. Sales of substantial amounts of Common Stock
of the Company in the public market or the perception that such sales might
occur, could adversely affect the prevailing market price of the Common Stock.
33
<PAGE> 34
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Company and the Selling Shareholders have agreed to sell to the
Underwriters named below, for whom Cruttenden Roth Incorporated and Cleary Gull
Reiland & McDevitt Inc. are acting as representatives (the "Representatives"),
and the Underwriters have severally agreed to purchase, the numbers of shares of
Common Stock set forth opposite their respective names in the table below at the
public offering price less the underwriting discount set forth on the cover page
of this Prospectus. The Underwriting Agreement provides that the obligations of
the Underwriters are subject to certain conditions and that the Underwriters are
committed to purchase all of such shares if any are purchased:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
-------------------------------------------------------------------------- ----------
<S> <C>
Cruttenden Roth Incorporated.............................................. 470,000
Cleary Gull Reiland & McDevitt Inc. ...................................... 470,000
Advest, Inc. ............................................................. 40,000
Allen & Company Incorporated.............................................. 40,000
Arnhold and S. Bleichroeder, Inc. ........................................ 40,000
Gerard Klauer Mattison & Co., LLC......................................... 40,000
Jefferies & Company, Inc. ................................................ 40,000
Josephthal Lyon & Ross Incorporated....................................... 40,000
McDonald & Company Securities, Inc. ...................................... 40,000
Needham & Company, Inc. .................................................. 40,000
The Ohio Company.......................................................... 40,000
The Robinson-Humphrey Company, Inc. ...................................... 40,000
Soundview Financial Group, Inc. .......................................... 40,000
Sutro & Co. Incorporated.................................................. 40,000
Black & Company, Inc. .................................................... 20,000
Commonwealth Associates................................................... 20,000
Dominick & Dominick Incorporated.......................................... 20,000
Hanifen, Imhoff Inc. ..................................................... 20,000
Pacific Crest Securities.................................................. 20,000
Pennsylvania Merchant Group Ltd. ......................................... 20,000
Sands Brothers & Co., Ltd. ............................................... 20,000
Van Kasper & Company...................................................... 20,000
Yamaichi International (America), Inc. ................................... 20,000
-----------
Total........................................................... 1,600,000
===========
</TABLE>
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares to the public at the public offering price set forth
on the cover page of this Prospectus, and to certain securities dealers at such
price less a concession of not more than $0.50 per share, and that the
Underwriters and such dealers may reallow to other dealers, including the
Underwriters, a discount not in excess of $0.10 per share. After the public
offering, the public offering price and concessions and discounts may be changed
by the Representatives.
The Company has granted an option to the Underwriters, exercisable for a
period of 45 days after the date of this Prospectus, to purchase up to an
additional 240,000 shares of Common Stock at the public offering price set forth
on the cover page of this Prospectus less the underwriting discounts and
commissions. The Underwriters may exercise this option only to cover
over-allotments, if any. To the extent such option is exercised, each
Underwriter will become obligated, subject to certain conditions, to purchase a
percentage of such additional shares approximately equal to the percentage of
shares it was obligated to purchase from the Company pursuant to the
Underwriting Agreement.
The Underwriting Agreement provides that the Company and the Selling
Shareholders will indemnify the Underwriters against certain liabilities under
the Securities Act.
34
<PAGE> 35
The Company has also agreed to issue to the Representatives for $70.00
warrants (the "Representatives' Warrants") to purchase up to 70,000 shares of
Common Stock at an exercise price per share equal to 180% of the public offering
price per share. The Representatives' Warrants are exercisable for a period of
three years beginning one year from the date of this Prospectus, and are not
transferable for a period of one year except to officers of the Representatives
or any successors to the Representatives. In addition, the Company has granted
certain rights to the holders of the Representatives' Warrants to register the
Common Stock underlying the Representatives' Warrants under the Securities Act.
The rules of the Commission generally prohibit the Underwriters and other
members of the selling group from making a market in the Company's Common Stock
during the "cooling off" period immediately preceding the commencement of sales
in the offering. The Commission has, however, adopted an exemption from these
rules that permits passive market making under certain conditions. These rules
permit an Underwriter or other member of the selling group to continue to make a
market in the Company's Common Stock subject to the conditions, among others,
that its bid not exceed the highest bid by a market maker not connected with the
offering and that its net purchases on any one trading day not exceed prescribed
limits. Pursuant to these exemptions, certain Underwriters and other members of
the selling group intend to engage in passive market making in the Company's
Common Stock during the cooling off period.
LEGAL MATTERS
The law firm of Morrison Cohen Singer & Weinstein, LLP, New York, New York
has acted as counsel to the Company in connection with this offering and will
render an opinion as to the legality of the securities being offered hereby.
Stephen A. Cohen, a member of the firm and a Director of the Company, currently
owns 4,789 shares of Common Stock and holds options to purchase an additional
17,600 shares of Common Stock. Freshman, Marantz, Orlanski, Cooper & Klein, a
law corporation, has acted as counsel to the Underwriter in connection with
certain legal matters relating to this offering.
EXPERTS
The consolidated balance sheets as of June 30, 1994 and 1995, and the
consolidated statements of income, changes in shareholders' equity and cash
flows for the three years ended June 30, 1993, 1994 and 1995 have been included
in this Prospectus in reliance upon the report of Grant Thornton LLP,
independent certified public accountants, given on the authority of such firm as
experts in accounting and auditing.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Annual Report on Form 10-K, as amended, for the fiscal year ended June
30, 1995 filed with the Commission by the Company is incorporated by reference
in this Prospectus.
Any statement contained herein or in any document incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein, which also is or is
deemed to be incorporated by reference herein, modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus.
The Company hereby undertakes to furnish without charge to each person,
including any beneficial owner, to whom a copy of this Prospectus is delivered,
upon the written or oral request of such person, copies of any or all of the
documents which are incorporated by reference herein (other than exhibits to
such documents, unless such exhibits are specifically incorporated by reference
into such documents). Written or telephone requests for such documents should be
directed to Mr. Jeffrey D. Gash, Vice President and Principal Financial Officer,
Jaco Electronics, Inc., 145 Oser Avenue, Hauppauge, New York 11788. The
Company's telephone number is (516) 273-5500.
35
<PAGE> 36
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-2 under the Act with respect to the shares of Common Stock offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and a schedule thereto pursuant to the
Act and the rules and regulations of the Commission thereunder. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement and to the exhibits and a
schedule filed as a part thereof. Copies of all or any part of the Registration
Statement, including exhibits thereto, may be obtained upon payment of the
prescribed fees, or inspected without charge at the offices of the Commission in
Washington, D.C. See "Available Information."
36
<PAGE> 37
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants.................................... F-2
Consolidated Balance Sheets........................................................... F-3
Consolidated Statements of Earnings................................................... F-4
Consolidated Statement 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> 38
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
JACO ELECTRONICS, INC.
We have audited the accompanying consolidated balance sheets of Jaco
Electronics, Inc. and Subsidiaries (the "Company") as of June 30, 1994 and 1995,
and the related consolidated statements of earnings, changes in shareholders'
equity and cash flows for each of the three years in the period ended June 30,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits 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, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Jaco
Electronics, Inc. and Subsidiaries as of June 30, 1994 and 1995, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended June 30, 1995, in conformity with
generally accepted accounting principles.
As discussed in Note A to the consolidated financial statements, the
Company changed its method of accounting for income taxes in fiscal 1994.
GRANT THORNTON LLP
Melville, New York
August 15, 1995, except for Note H, as to which
the date is August 30, 1995
F-2
<PAGE> 39
JACO ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30,
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents...................................... $ 434,798 $ 393,671
Accounts receivable, less allowance for doubtful accounts of
$610,000 in 1994 and 1995................................... 17,135,923 20,437,664
Inventories.................................................... 20,081,596 26,653,881
Prepaid expenses and other..................................... 1,072,219 1,256,319
Due from officers.............................................. 291,119 309,808
Deferred income taxes.......................................... 433,000 571,000
----------- -----------
Total current assets........................................ 39,448,655 49,622,343
PROPERTY, PLANT AND EQUIPMENT -- AT COST, NET.................... 3,560,786 4,106,221
DEFERRED INCOME TAXES............................................ 199,000 174,000
EXCESS OF COST OVER NET ASSETS ACQUIRED,
less accumulated amortization of $216,800 in 1994 and
$297,700 in 1995............................................... 1,515,900 1,353,031
OTHER ASSETS..................................................... 960,687 1,067,643
----------- -----------
$45,685,028 $56,323,238
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable............................................... $13,593,794 $16,651,774
Notes payable -- bank.......................................... 8,938,087
Current maturities of long-term debt and
capitalized lease obligations............................... 346,172 452,995
Accrued expenses............................................... 1,262,916 1,300,611
Income taxes payable........................................... 147,499 475,702
----------- -----------
Total current liabilities................................... 24,288,468 18,881,082
LONG-TERM DEBT AND CAPITALIZED LEASE OBLIGATIONS................. 9,694,108 23,665,624
DEFERRED COMPENSATION............................................ 500,000 550,000
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock -- authorized, 100,000 shares, $10 par value;
none issued
Common stock -- authorized, 5,000,000 shares, $.10 par value;
issued and outstanding, 1,652,309 and 2,464,384 shares,
respectively................................................ 165,231 246,438
Additional paid-in capital..................................... 3,810,516 5,013,663
Retained earnings.............................................. 7,226,705 7,966,431
----------- -----------
11,202,452 13,226,532
----------- -----------
$45,685,028 $56,323,238
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 40
JACO ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
YEAR ENDED JUNE 30,
<TABLE>
<CAPTION>
1993 1994 1995
---------- ----------- -----------
<S> <C> <C> <C>
Net sales.......................................... $96,675,405 $105,213,077 $138,683,331
Cost of goods sold................................. 75,630,576 83,038,254 109,902,639
----------- ------------ ------------
Gross profit..................................... 21,044,829 22,174,823 28,780,692
Selling, general and administrative expenses....... 17,785,532 19,154,802 23,551,196
----------- ------------ ------------
Operating profit................................. 3,259,297 3,020,021 5,229,496
Interest expense................................... 1,077,902 1,117,354 2,010,554
----------- ------------ ------------
Earnings before income taxes and cumulative
effect of a change in accounting for income
taxes......................................... 2,181,395 1,902,667 3,218,942
Income tax provision............................... 797,000 714,000 1,303,000
----------- ------------ ------------
Earnings before cumulative effect of a change in
accounting for income taxes................... 1,384,395 1,188,667 1,915,942
Cumulative effect of a change in accounting for
income taxes..................................... 241,000
----------- ------------ ------------
NET EARNINGS..................................... $ 1,384,395 $ 1,429,667 $ 1,915,942
=========== ============ ============
Earnings per common share:
Earnings before cumulative effect of a change in
accounting for income taxes...................... $ .55 $ .47 $ .78
Cumulative effect of a change in accounting for
income taxes.................................. .09
----------- ------------ ------------
Net earnings per common share.................... $ .55 $ .56 $ .78
=========== ============ ============
Weighted average common and common equivalent
shares outstanding............................... 2,522,980 2,551,173 2,461,091
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 41
JACO ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
PAID-IN RETAINED SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- -------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
Balance at July 1, 1992............... 1,708,637 $170,864 $3,936,613 $4,412,643 $ 8,520,120
Net earnings.......................... 1,384,395 1,384,395
--------- -------- ---------- ---------- ------------
Balance at June 30, 1993.............. 1,708,637 170,864 3,936,613 5,797,038 9,904,515
Cancellation of shares in satisfaction
of amounts due in connection with a
previous acquisition................ (56,953) (5,695) (126,972) (132,667)
Exercise of stock options............. 625 62 875 937
Net earnings.......................... 1,429,667 1,429,667
--------- -------- ---------- ---------- ------------
Balance at June 30, 1994.............. 1,652,309 165,231 3,810,516 7,226,705 11,202,452
Exercise of stock options............. 28,000 2,800 105,700 108,500
10% stock dividend.................... 167,979 16,798 1,159,056 (1,175,854)
Payment for fractional shares
resulting from 10% stock dividend... (362) (362)
4-for-3 stock split................... 616,096 61,609 (61,609)
Net earnings.......................... 1,915,942 1,915,942
--------- -------- ---------- ---------- ------------
Balance at June 30, 1995.............. 2,464,384 $246,438 $5,013,663 $7,966,431 $ 13,226,532
========= ======== ========== ========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 42
JACO ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED JUNE 30,
<TABLE>
<CAPTION>
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities
Net earnings.................................... $ 1,384,395 $ 1,429,667 $ 1,915,942
Adjustments to reconcile net earnings to net
cash provided by (used in) operating
activities
Depreciation and amortization................ 300,780 412,704 693,290
Deferred compensation........................ 50,000 50,000 50,000
Deferred income tax expense (benefit)........ 50,000 (111,000) (31,000)
Loss on sale of equipment.................... 12,447 35,006 18,403
Provision for doubtful accounts.............. 549,000 160,000 458,000
Changes in operating assets and liabilities,
net of effects of acquisition
Increase in accounts receivable............ (2,287,602) (1,807,919) (3,759,741)
(Increase) decrease in inventories......... 1,281,159 (1,936,676) (6,572,285)
Increase in prepaid expenses and other..... (16,490) (224,965) (184,100)
Increase (decrease) in accounts payable.... (265,606) 2,493,897 3,057,980
Increase (decrease) in accrued expenses.... 176,204 (234,864) 37,695
Increase (decrease) in income taxes
payable................................. 341,066 (392,514) 328,203
------------ ------------ ------------
Net cash provided by (used in) operating
activities.............................. 1,575,353 (126,664) (3,987,613)
------------ ------------ ------------
Cash flows from investing activities
Capital expenditures............................ (155,628) (875,797) (908,153)
Proceeds from the sale of equipment............. 36,058 49,302 20,000
Purchase of subsidiary, net..................... (1,796,355)
(Increase) decrease in due from officers, net... 123,263 (101,878) (18,689)
(Increase) decrease in other assets............. (215,533) 16,452 (106,956)
------------ ------------ ------------
Net cash used in investing activities...... (211,840) (2,708,276) (1,013,798)
------------ ------------ ------------
Cash flows from financing activities
Borrowings from line of credit.................. 95,927,072 110,434,283 141,391,776
Payments of line of credit...................... (96,954,529) (109,501,754) (136,774,193)
Principal payments under equipment financing.... (148,959) (269,613) (434,854)
Borrowings from term loans...................... 1,982,071 669,417
Proceeds from exercise of stock option.......... 937 108,500
Payments for fractional shares.................. (362)
------------ ------------ ------------
Net cash (used in) provided by financing
activities.............................. (1,176,416) 2,645,924 4,960,284
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH............ 187,097 (189,016) (41,127)
Cash and cash equivalents at beginning of year.... 436,717 623,814 434,798
------------ ------------ ------------
Cash and cash equivalents at end of year.......... $ 623,814 $ 434,798 $ 393,671
============ ============ ============
Supplemental cash flow disclosures:
Interest paid................................... $ 1,096,000 $ 1,126,000 $ 1,970,000
Income taxes paid............................... 484,000 660,000 993,000
Supplemental schedule of noncash financing and
investing activities:
Equipment under capital leases.................. $ 86,000 $ 288,000
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 43
JACO ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1993, 1994 AND 1995
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Jaco Electronics, Inc. and Subsidiaries (the "Company") is primarily
engaged in the distribution of electronic components, electromechanical devices
and computer subsystems, produced by others, to numerous manufacturing
companies. Further, through a fiscal 1994 acquisition, the Company provides
contract manufacturing services.
Electronics parts distribution sales include exports made principally to
customers located in Western Europe. For the years ended June 30, 1993, 1994 and
1995, export sales amounted to approximately $5,356,000, $5,289,000 and
$5,032,000, respectively.
A summary of the significant accounting policies applied in the preparation
of the accompanying consolidated financial statements follows:
1. Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Jaco Electronics, Inc. and its subsidiaries, all of which are wholly-owned. All
significant intercompany balances and transactions have been eliminated.
2. Revenue Recognition
The Company recognizes revenue as products are shipped and title passes to
customers.
3. Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out and average cost methods.
4. Property, Plant and Equipment
Depreciation is provided for using accelerated methods, principally the
double-declining balance method over the estimated useful life of the assets
related to the Company's distribution business. Plant and equipment related to
the Company's manufacturing business is depreciated using the straight-line
method.
5. Excess of Cost Over Net Assets Acquired
The excess of cost over net assets acquired is amortized over periods of
ten to forty years using the straight-line method. In March 1995, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 121 ("SFAS No. 121") that establishes accounting standards for the
impairment of long-lived assets, certain intangibles, and goodwill related to
those assets to be held and used, and for long-lived assets and certain
identifiable intangibles to be disposed of. In accordance with SFAS No. 121, it
is the Company's policy to periodically review and evaluate whether there has
been a permanent impairment in the value of intangibles. Factors considered in
the valuation include current operating results, trends and anticipated
undiscounted future cash flows.
6. Income Taxes
The Company has adopted Statement of Financial Accounting Standards No. 109
("SFAS No. 109"), "Accounting for Income Taxes," as of July 1, 1993 and recorded
income of $241,000 as the cumulative effect of a change in accounting for income
taxes. Pursuant to SFAS No. 109, deferred income taxes are recognized for
temporary differences between financial statement and income tax bases of assets
and liabilities and net operating loss carryforwards for which income tax
expenses or benefits are expected to be realized in future years. A valuation
allowance has been established to
F-7
<PAGE> 44
JACO ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1993, 1994 AND 1995
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
reduce deferred tax assets attributable to the Company's acquired subsidiary, as
it is more likely than not that all, or some portion, of such deferred tax
assets will not be realized. The effect on deferred taxes of a change in tax
rates is recognized in income in the period that includes the enactment date.
7. Earnings Per Common Share
Earnings per common share is based upon the weighted average number of
shares of common stock outstanding during the year and reflects the dilutive
effect of outstanding stock options. All per share information has been restated
to reflect stock dividends and stock splits.
8. Statement of Cash Flows
For purposes of the statement of cash flows, the Company considers all
highly liquid investments with an original maturity of three months or less to
be cash equivalents.
9. Concentration of Risk
Financial instruments which potentially subject the Company to
concentration of credit risk consist principally of receivables. Concentration
of credit risk with respect to these receivables is generally diversified due to
the large number of entities comprising the Company's customer base, their
dispersion across geographic areas and the Company's policy of maintaining
credit insurance. The Company routinely addresses the financial strength of its
customers and, as a consequence, believes that its receivable credit risk
exposure is limited.
The Company generally purchases products from manufacturers pursuant to
nonexclusive distributor agreements. During the year ended June 30, 1995, the
Company's top three suppliers accounted for 15%, 13% and 9%, respectively, of
net sales. In June 1995 the Company's largest supplier canceled its distributor
agreement with the Company. While the Company believes that it will be able to
replace a major portion of those sales with sales of other product lines from
other suppliers, there can be no assurance that it will, in fact, be able to
replace these sales.
NOTE B -- INVENTORY
Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
-------------------------
1994 1995
---------- ----------
<S> <C> <C>
Finished goods and goods held for resale.................... $18,092,596 $23,374,881
Work-in-process............................................. 742,000 718,000
Raw materials............................................... 1,247,000 2,561,000
---------- ----------
$20,081,596 $26,653,881
========== ==========
</TABLE>
F-8
<PAGE> 45
JACO ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1993, 1994 AND 1995
NOTE C -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of:
<TABLE>
<CAPTION>
JUNE 30,
USEFUL LIFE -----------------------
IN YEARS 1994 1995
----------- --------- ---------
<S> <C> <C> <C>
Land, building and improvements................... 10 to 30 $1,259,781 $1,389,603
Machinery and equipment........................... 3 to 8 3,721,215 4,699,761
Transportation equipment.......................... 3 to 5 186,060 134,997
Leasehold improvements............................ 5 to 10 600,780 687,566
---------- ----------
5,767,836 6,911,927
Less accumulated depreciation and amortization
(including $496,884 in 1994 and $607,851 in 1995
of capitalized lease amortization).............. 2,207,050 2,805,706
---------- ----------
$3,560,786 $4,106,221
========== ==========
</TABLE>
Included in machinery and equipment is computer equipment recorded under
capitalized leases at June 30, 1994 and 1995 for $654,933 and $943,038,
respectively.
NOTE D -- INCOME TAXES
The provision for income taxes for the fiscal years ended June 30, 1993,
1994 and 1995, respectively, is as follows:
<TABLE>
<CAPTION>
JUNE 30,
-------------------------------------
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Federal
Current........................................ $ 645,000 $ 505,000 $1,063,000
Deferred....................................... 50,000 111,000 (31,000)
--------- --------- ----------
695,000 616,000 1,032,000
State............................................ 102,000 98,000 271,000
--------- --------- ----------
$ 797,000 $ 714,000 $1,303,000
========= ========= ==========
</TABLE>
The Company's effective income tax rate differs from the statutory U.S.
Federal income tax rate as a result of the following:
<TABLE>
<CAPTION>
JUNE 30,
-------------------------
1993 1994 1995
----- ----- -----
<S> <C> <C> <C>
Statutory Federal tax rate................................... 34.0% 34.0% 34.0%
State income taxes, net of Federal tax benefit............... 3.5 5.0 5.6
Prior period tax adjustments................................. (3.7)
Earnings of foreign sales corporation........................ (.9) (1.0) (.6)
Sales expense for which no tax benefit arises................ 1.0 2.4 1.7
Other........................................................ (1.1) .8 (.2)
----- ----- -----
Effective tax rate........................................... 36.5% 37.5% 40.5%
===== ===== =====
</TABLE>
F-9
<PAGE> 46
JACO ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1993, 1994 AND 1995
NOTE D -- INCOME TAXES (CONTINUED)
Deferred income tax assets and liabilities resulting from differences
between accounting for financial statement purposes and tax purposes, pursuant
to SFAS No. 109, at June 30, 1994 and 1995, are summarized as follows:
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Deferred tax assets
Net operating loss carryforwards............................ $ 528,000 $ 521,000
Allowance for bad debts..................................... 223,000 222,000
Inventory valuation......................................... 465,000 532,000
Deferred compensation....................................... 195,000 201,000
Other deferred assets....................................... 60,000 30,000
---------- ----------
1,471,000 1,506,000
Deferred tax liabilities
Depreciation................................................ (46,000) (56,000)
Other....................................................... (53,000) (47,000)
---------- ----------
1,372,000 1,403,000
Valuation allowance........................................... (740,000) (658,000)
---------- ----------
Net deferred tax asset........................................ $ 632,000 $ 745,000
========== ==========
</TABLE>
At June 30, 1995, the Company, through an acquisition (see Note I), has
available a Federal net operating loss carryforward of approximately $1,426,000.
Such net operating loss is subject to certain limitations and expires in varying
amounts during the fiscal years 2007 through 2009. Further, the Company has
established a valuation allowance with respect to the net deferred tax assets
attributable to this acquired subsidiary. During fiscal 1995, $82,000 of such
net deferred tax asset was recognized as a reduction of the excess of cost over
net assets acquired attributable to the acquired subsidiary. The subsequent
realization of the majority of such deferred tax asset will result in the
reduction of the excess of cost over net assets acquired.
The components of the deferred income tax expense (benefit) for the year
ended June 30, 1993 are comprised of the following:
<TABLE>
<S> <C>
Deferred compensation............................ $(17,000)
Inventory capitalization......................... 19,000
Bad debts........................................ 49,000
Other............................................ (1,000)
--------
$ 50,000
========
</TABLE>
F-10
<PAGE> 47
JACO ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1993, 1994 AND 1995
NOTE E -- DEBT AND CAPITALIZED LEASE OBLIGATIONS
Debt and capitalized lease obligations are as follows:
<TABLE>
<CAPTION>
JUNE 30,
-------------------------
1994 1995
---------- ----------
<S> <C> <C>
Term loans and revolving line of credit(a).................. $ 9,446,429 $22,787,811
Other term loans(b)......................................... 485,646
Equipment notes(c).......................................... 469,191 487,189
Capitalized lease obligations(d)............................ 143,900 413,722
----------- -----------
10,059,520 24,174,368
Less amounts representing interest on capitalized leases.... 19,240 55,749
----------- -----------
10,040,280 24,118,619
Less current maturities..................................... 346,172 452,995
----------- -----------
$ 9,694,108 $23,665,624
=========== ===========
</TABLE>
(a) Term Loans and Revolving Line of Credit Facility
On April 25, 1995, the Company amended its agreement with a bank which, as
amended, provides the Company with a $30,000,000 term loan and revolving line of
credit facility based principally on eligible accounts receivable and
inventories of the Company as defined in the agreement. The amendment increased
the credit facility to $30,000,000 from $24,500,000 and bears interest at the
higher of the (1) bank's prime rate or the Federal funds rate plus 1/2% or (2)
at the Company's option LIBOR plus 2.5% for fixed time periods, and extended the
maturity date of the term loan to January 31, 1998 and the revolving line of
credit to April 30, 1998. The agreement contains provisions for maintenance of
certain financial ratios and prohibits the payment of cash dividends. The
outstanding balance on the revolving line of credit facility, $13,555,670 at
June 30, 1995, bears interest at the bank's prime rate. Pursuant to the same
agreement, at June 30, 1995, there are two outstanding term loans in the amounts
of: (1) $8,000,000 due January 31, 1998, and (2) $1,232,141 payable in
eighty-four consecutive monthly installments of $17,857, which commenced on
April 1, 1994, both bearing interest at the bank's prime rate (9% at June 30,
1995). These borrowings are collateralized by substantially all of the assets of
the Company.
(b) Other Term Loans
Other term loans as of June 30, 1995 are as follows:
<TABLE>
<CAPTION>
MONTHLY
DATE OF LOAN BALANCE TERM PAYMENT
------------ -------- --------- -------
<S> <C> <C> <C>
March 16, 1995................................... $ 57,407 60 months $1,160
March 16, 1995................................... 184,396 84 months 2,730
March 16, 1995................................... 243,843 84 months 4,216
--------
$485,646
========
</TABLE>
The above loans are collateralized by the related equipment acquired,
having a carrying value of approximately $495,000 at June 30, 1995. The
agreements contain, among other things, restrictive covenants on one of the
Company's subsidiaries, which place limitations on: (i) consolidations,
F-11
<PAGE> 48
JACO ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1993, 1994 AND 1995
NOTE E -- DEBT AND CAPITALIZED LEASE OBLIGATIONS (CONTINUED)
mergers and acquisitions, (ii) additional indebtedness, encumbrances and
guarantees, (iii) loans to shareholders, officers or directors, (iv) dividends
and stock redemptions, and (v) transactions with affiliates, all as defined in
the agreements. The loans bear interest payable monthly, at 6%, 5.5% and 1.5%
over a bank's prime rate, respectively.
(c) Equipment Notes
The equipment notes are payable through September 1999, bearing implicit
interest rates from 7.55% to 13.25%.
(d) Capitalized Lease Obligations
The Company leases certain equipment under agreements accounted for as
capital leases. The obligations for the equipment require the Company to make
monthly payments through June 1999, with implicit interest rates from 7.55% to
13.20%.
The following is a summary of the aggregate annual maturities of long-term
debt and capitalized lease obligations as of June 30, 1995:
<TABLE>
<CAPTION>
LONG-TERM CAPITALIZED
DEBT LEASES
---------- -----------
<S> <C> <C>
Year ending June 30,
1996...................................................... $ 377,278 $ 97,035
1997...................................................... 401,863 99,014
1998...................................................... 21,973,472 99,014
1999...................................................... 410,097 97,300
2000...................................................... 302,138 21,359
Thereafter................................................ 295,798
----------- -----------
$23,760,646 $ 413,722
=========== ===========
</TABLE>
NOTE F -- COMMITMENTS AND CONTINGENCIES
1. Leases
The Company leases office and warehouse facilities under noncancellable
operating leases. The leases also provide for the payment of real estate taxes
and other operating expenses of the buildings. The minimum annual lease payments
at June 30, 1995 are as follows:
<TABLE>
<S> <C>
Year ending June 30,
1996........................................... $592,000
1997........................................... 124,000
1998........................................... 50,000
1999........................................... 4,000
--------
$770,000
========
</TABLE>
F-12
<PAGE> 49
JACO ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1993, 1994 AND 1995
NOTE F -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company leases office and warehouse facilities from a partnership owned
by two officers and directors of the Company. The lease expires in December 1995
and requires minimum annual lease payments of $337,500 for the year ending June
30, 1996.
In addition, the Company is contingently liable as a guarantor of a
mortgage on such property in the amount of approximately $396,000 as of June 30,
1995. The Company's rent expense was approximately $583,000, $571,000 and
$571,000 for the years ended June 30, 1993, 1994 and 1995, respectively, in
connection with the above lease.
Rent expense on office and warehouse facilities leases for the years ended
June 30, 1993, 1994 and 1995 was approximately $834,000, $872,000 and $909,000,
respectively, net of sublease income of approximately $194,000, $147,000 and
$135,000, respectively.
2. Other Leases
The Company also leases various office equipment and automobiles under
noncancellable operating leases expiring through December 1999. The minimum
rental commitments required under these leases at June 30, 1995 are as follows:
<TABLE>
<S> <C>
Year ending June 30,
1996........................................... $305,000
1997........................................... 242,000
1998........................................... 157,000
1999........................................... 64,000
2000........................................... 12,000
--------
$780,000
========
</TABLE>
3. Employment Agreement
Effective July 1, 1993, the Company entered into a new employment agreement
with the Chairman which expires July 1, 1997. Pursuant to this agreement, he
received a base salary of $250,000 and $300,000 in 1994 and 1995, respectively,
and will receive a base salary of $325,000 for each of the years ending June 30,
1996 and 1997. In addition, the Chairman will be entitled to an annual bonus
equal to 4% of earnings before income taxes, if earnings for a particular fiscal
year exceed $1,000,000 or 6% if earnings before income taxes are in excess of
$2,500,000. The agreement also provides for the continuation of the deferred
compensation arrangement first established in fiscal 1985, whereby $50,000 per
year has been accrued and becomes payable in its entirety no later than January
15 of the year next following the last to occur of the following events: (1) the
Chairman's attainment of age 60 (fiscal 1999) or (2) cessation of the Chairman's
employment with or without cause after July 1, 1993. In the event of a change in
control resulting in termination of the Chairman's employment, the Chairman will
receive between $450,000 and $600,000 depending on the date of termination. For
the years ended June 30, 1994 and 1995, bonuses of approximately $76,000 and
$193,000, respectively, were earned pursuant to the Chairman's employment
agreement. Further, the Chairman has outstanding demand loans at June 30, 1995
aggregating $309,808 which bear interest at 9 3/4% per annum.
F-13
<PAGE> 50
JACO ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1993, 1994 AND 1995
NOTE G -- RETIREMENT PLAN
The Company maintains a 401(k) Plan that is available to all employees, to
which the Company contributes up to a maximum of 1% of each employee's salary.
For the years ended June 30, 1993, 1994 and 1995, the Company contributed to
this plan approximately $60,000, $61,000 and $90,000, respectively.
NOTE H -- SHAREHOLDERS' EQUITY
On February 3, 1995, the Company declared a 10% stock dividend which was
paid on March 10, 1995. Further, on August 30, 1995, the Company authorized a
4-for-3 stock split. The 4-for-3 split will be effective on September 22, 1995.
All references to the number of common shares and earnings per common shares
have been restated to reflect the 10% stock dividend and the 4-for-3 stock
split.
The Company has stock option plans which provide for the granting of stock
options to employees, directors and officers under the following stock option
plans:
In November 1981, the Company approved the adoption of a qualified
incentive stock option plan, hereinafter referred to as the "1981 Plan." The
stock options granted under the 1981 Plan are generally exercisable for a period
of five years at a price not less than the market value on the date of grant. A
total of 2,750 shares are reserved for issuance upon exercise of stock options
under this plan.
In December 1992, the Board of Directors approved the adoption of a
nonqualified stock option plan, known as the "1993 Non-Qualified Stock Option
Plan," hereinafter referred to as the "1993 Plan." The Board of Directors or
Plan Committee is responsible for the granting of and price of these options.
Such price shall be equal to the fair market value of the common stock subject
to such option at the time of grant. The options expire five years from the date
of grant and are exercisable over the period stated in each option. The Company
has reserved 293,333 shares of common stock for the 1993 Plan, of which 100,100
options are outstanding.
In October 1993, the Board of Directors approved the adoption of a stock
option plan for outside directors, known as the "1993 Stock Option Plan for
Outside Directors," hereinafter referred to as the "Outside Directors Plan."
Each outside director who was serving as of December 31, 1993 was granted a
nonqualified stock option to purchase 14,667 shares of the Company's common
stock at the fair market value on the date of grant. Of the 111,467 options
currently available for grant under the Outside Directors Plan, each person who
is an outside director on December 31 of each calendar year subsequent to 1993
shall be granted options to purchase 2,933 shares of the Company's common stock
annually. Granted options shall expire upon the earlier of five years after the
date of grant or one year following the date on which the outside director
ceases to serve in such capacity. The Company has reserved 146,667 shares of
common stock for the Outside Directors Plan of which 35,200 options are
outstanding.
F-14
<PAGE> 51
JACO ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1993, 1994 AND 1995
NOTE H -- SHAREHOLDERS' EQUITY (CONTINUED)
Outstanding options granted to employees, directors and officers for the
last three fiscal years are summarized as follows:
<TABLE>
<CAPTION>
NONQUALIFIED STOCK
INCENTIVE STOCK OPTIONS OPTIONS
------------------------ ------------------------
PRICE RANGE SHARES PRICE RANGE SHARES
------------ ------- ------------ -------
<S> <C> <C> <C> <C>
Outstanding at July 1, 1992........... $1.02 - 2.65 44,734
Granted...............................
Exercised.............................
-------
Outstanding at June 30, 1993.......... $1.02 - 2.65 44,734
Granted............................... $4.77 - 5.80 129,433
Exercised............................. $1.02 (917)
------- -------
Outstanding at June 30, 1994.......... $1.02 - 2.65 43,817 $4.77 - 5.80 129,433
Granted............................... $4.94 5,867
Exercised............................. $2.65 (41,067)
------- -------
Outstanding at June 30, 1995.......... $1.02 2,750 $4.77 - 5.80 135,300
======= =======
Amounts exercisable at June 30,
1995................................ $1.02 2,750 $4.77 - 5.80 135,300
======= =======
</TABLE>
NOTE I -- ACQUISITION
On March 11, 1994, the Company purchased all of the outstanding common
stock of a contract manufacturer for $1,796,355 in cash, financed in part by the
Company obtaining a term loan (see Note E). The acquisition was accounted for by
the purchase method and, accordingly, the purchase price was allocated to assets
acquired and liabilities assumed based upon their fair market value as of the
date of acquisition. The amount paid in excess of the fair market value,
$418,478, as adjusted to reflect the realization of deferred tax assets not
previously recognized, is being amortized over a ten-year period and is included
in the accompanying consolidated financial statements as of June 30, 1995, net
of accumulated amortization of $62,580. The operations of the contract
manufacturer are included in the accompanying financial statements from the date
of acquisition. The fair market values of the assets and the liabilities assumed
at the date of acquisition were as follows:
<TABLE>
<S> <C>
Fair value of assets acquired............................................. $5,455,526
Liabilities assumed....................................................... (3,659,171)
----------
Purchase price............................................................ $1,796,355
==========
</TABLE>
The pro forma unaudited results of operations for the year ended June 30,
1994, assuming consummation of the purchase and term loan borrowing as of July
1, 1993, are as follows:
<TABLE>
<S> <C>
Net sales................................................................ $108,793,684
============
Net earnings............................................................. $ 799,967
============
Net earnings per share................................................... $.31
====
</TABLE>
F-15
<PAGE> 52
JACO ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1993, 1994 AND 1995
NOTE I -- ACQUISITION (CONTINUED)
As a result of this acquisition, the Company now has two business segments:
electronics parts distribution and contract manufacturing. The following is a
summary of selected consolidated information for the electronics components
distribution and contract manufacturing segments for fiscal 1995 and 1994.
Fiscal year ended 1994 information for the contract manufacturing segment is
from March 11, 1994 (the date of acquisition) to June 30, 1994.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------
1994 1995
------------ ------------
<S> <C> <C>
Sales
Electronics components distribution..................... $102,493,000 $126,545,000
Contract manufacturing.................................. 2,720,000 12,138,000
------------ ------------
$105,213,000 $138,683,000
============ ============
Operating profit
Electronics components distribution..................... $ 2,991,000 $ 4,666,000
Contract manufacturing.................................. 29,000 563,000
------------ ------------
$ 3,020,000 $ 5,229,000
============ ============
Identifiable assets
Electronics components distribution..................... $ 39,545,000 $ 47,909,000
Contract manufacturing.................................. 6,140,000 8,414,000
------------ ------------
$ 45,685,000 $ 56,323,000
============ ============
Capital expenditures
Electronics components distribution..................... $ 828,000 $ 342,000
Contract manufacturing.................................. 48,000 566,000
------------ ------------
$ 876,000 $ 908,000
============ ============
Depreciation and amortization
Electronics components distribution..................... $ 329,000 $ 397,000
Contract manufacturing.................................. 84,000 296,000
------------ ------------
$ 413,000 $ 693,000
============ ============
</TABLE>
NOTE J -- SUPPLEMENTAL SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1994 1994 1995 1995
------------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Net sales.......................... $31,087,594 $33,747,154 $35,825,167 $38,023,416
Gross profit....................... 6,394,122 6,919,043 7,496,699 7,970,828
Net earnings....................... 262,494 447,765 554,284 651,399
Earnings per common share
Net earnings per common
share (a)..................... $.11 $.18 $.23 $.26
====== ====== ====== ======
</TABLE>
F-16
<PAGE> 53
JACO ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1993, 1994 AND 1995
NOTE J -- SUPPLEMENTAL SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1993 1993 1994 1994
------------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Net sales.......................... $25,027,679 $24,035,522 $27,528,315 $28,621,561
Gross profit....................... 5,424,908 5,178,809 5,634,382 5,936,724
Earnings before cumulative effect
of a change in accounting for
income taxes..................... 413,033 242,982 382,528 150,124
Net earnings....................... 654,033 242,982 382,528 150,124
Earnings per common share
Earnings per share before
cumulative effect of a change
in accounting for income
taxes......................... $.16 $.10 $.15 $.06
Cumulative effect of a change in
accounting for income taxes
per share..................... .09 -- -- --
------ ------ ----- -----
Net earnings per common share
(a)........................... $.25 $.10 $.15 $.06
====== ====== ===== =====
</TABLE>
- -------------------------------
(a) As adjusted to reflect the 10% stock dividend paid on March 10, 1995
and a 4-for-3 stock split authorized on August 30, 1995.
F-17
<PAGE> 54
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(logo w/4 pictures of taped and reeled components, assembly of fractional horse
power motors, assembly of electronic components on printed circuit boards and
printed circuit board)
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF THE
COMMON STOCK OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL
OR SOLICITATION OF ANY OFFER TO BUY THE SHARES OF COMMON STOCK BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................ 2
Prospectus Summary................... 3
Risk Factors......................... 6
Use of Proceeds...................... 9
Dividend Policy...................... 9
Price Range of Common Stock.......... 10
Capitalization....................... 11
Selected Consolidated Financial
Data............................... 12
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 13
Business............................. 18
Management........................... 27
Principal and Selling Shareholders... 31
Description of Capital Stock......... 32
Shares Eligible for Future Sale...... 33
Underwriting......................... 34
Legal Matters........................ 35
Experts.............................. 35
Incorporation of Certain Documents By
Reference.......................... 35
Additional Information............... 36
Index to Consolidated Financial
Statements......................... F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1,600,000 SHARES
LOGO
COMMON STOCK
JACO ELECTRONICS, INC.
------------------------
P R O S P E C T U S
------------------------
CRUTTENDEN ROTH
I N C O R P O R A T E D
CLEARY GULL REILAND & MCDEVITT INC.
OCTOBER 20, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
