FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period ended September 30, 1999
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to ________________________
Commission File Number 0-5896
JACO ELECTRONICS, INC.
(Exact name of registrant as specified in its charter)
NEW YORK 11-1978958
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
145 OSER AVENUE, HAUPPAUGE, NEW YORK 11788
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (516) 273-5500
Indicated by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such report), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO __
Number of Shares of Registrant's Common Stock Outstanding as of November 12,1999
- - 3,653,521 (Excluding 412,200 Shares of Treasury Stock).
<PAGE>
<TABLE>
<CAPTION>
FORM 10-Q September 30, 1999
Page 2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
JACO ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, June 30,
1999 1999
------------ ------------
ASSETS
Current Assets
<S> <C> <C>
Cash $ 936,178 $ 922,247
Marketable securities 817,869 881,622
Accounts receivable - net 25,668,271 23,408,900
Inventories 33,229,723 33,224,719
Prepaid expenses and other 776,773 660,782
Prepaid and refundable income taxes 741,778 990,855
Deferred income taxes 465,000 336,000
----------- -----------
Total current assets 62,635,592 60,425,125
Property, plant and equipment - net 6,841,773 6,983,761
Deferred income taxes 395,000 390,000
Excess of cost over net assets acquired - net 3,541,333 3,588,449
Other assets 1,509,222 1,543,328
----------- -----------
$74,922,920 $72,930,663
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
FORM 10-Q September 30, 1999
Page 3
JACO ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, June 30,
1999 1999
------------- -----------
LIABILITIES & SHAREHOLDERS' EQUITY
Current Liabilities
<S> <C> <C>
Accounts payable and accrued expenses $ 19,547,947 $ 17,635,319
Current maturities of long term debt and
capitalized lease obligations 944,910 791,814
------------- ------------
Total current liabilities 20,492,857 18,427,133
Long term debt and capitalized lease obligations 18,593,489 18,885,664
Deferred compensation 762,500 750,000
SHAREHOLDERS' EQUITY
Preferred stock - authorized, 100,000 shares,
$10 par value; none issued
Common stock - authorized 10,000,000 shares,
$.10 par value; issued 4,065,721 shares
and 3,653,521 shares outstanding 406,572 406,572
Additional paid-in capital - net 22,565,045 22,531,295
Retained earnings 14,134,882 13,920,807
Accumulated other comprehensive income 172,090 213,707
Treasury stock (2,204,515) (2,204,515)
------------ ------------
Total shareholders' equity 35,074,074 34,867,866
---------- ----------
$74,922,920 $72,930,663
=========== ============
</TABLE>
See accompanying notes to condensed consolidatedfinancial statements.
3
<PAGE>
<TABLE>
<CAPTION>
FORM 10-Q September 30, 1999
Page 4
JACO ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
1999 1998
-------------- -------------
<S> <C> <C>
NET SALES $42,017,363 $33,256,456
COST AND EXPENSES
Cost of goods sold 34,081,758 26,554,068
---------- ----------
Gross profit 7,935,605 6,702,388
Selling, general and administrative expenses 7,248,597 6,795,052
------------ ------------
Operating profit (loss) 687,008 (92,664)
Interest expense 322,933 313,442
------------ ------------
Earnings (Loss) before income taxes 364,075 (406,106)
Income tax provision (benefit) 150,000 (164,000)
------------ ------------
NET EARNINGS (LOSS) $ 214,075 $ (242,106)
============ ============
Net earnings (loss) per common share
Basic and diluted $ 0.06 $ (0.06)
============ ============
Weighted average common shares outstanding
Basic 3,653,521 3,830,397
Diluted 3,709,450 3,830,397
============ ============
See accompanying notes to condensed consolidated financial statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
FORM 10-Q September 30, 1999
Page 5
JACO ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
Accumulated
Additional other
paid-in Retained comprehensive
Shares Amount capital earnings income
----------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at July 1, 1999 4,065,721 $ 406,572 $ 22,801,295 $13,920,807 $ 213,707
Net earnings 214,075
Unrealized loss on marketable
securities - net (41,617)
Comprehensive income
Deferred compensation
----------- ---------- ----------- ----------- ---------
Balance at September 30, 1999 4,065,721 $ 406,572 $ 22,801,295 $14,134,882 $ 172,090
=========== ========== =========== =========== ==========
Total
Treasury Deferred shareholders'
stock compensation equity
----------- ---------- -----------
<S> <C> <C> <C> <C>
Balance at July 1, 1999 $ (2,204,515) $ (270,000) $ 34,867,866
------------
Net earnings 214,075
Unrealized loss on marketable
securities - net (41,617)
--------
Comprehensive income 172,458
--------
Deferred compensation 33,750 33,750
------------- ------------- -----------
Balance at September 30, 1999 $ (2,204,515) $ (236,250) $ 35,074,074
=========== ============ ============
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
FORM 10-Q September 30, 1999
Page 6
JACO ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
1999 1998
------------ -----------
Cash flows from operating activities
Net earnings (loss) $ 214,075 $ (242,106)
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities
Depreciation and amortization 438,686 375,299
Deferred compensation 46,250 46,250
Deferred income tax benefit (110,000) (29,000)
Provision for doubtful accounts 119,950 120,814
Changes in operating assets and liabilities,
(Increase) decrease in operating assets- net(2,251,239) 392,090
Increase (decrease) in operating
liabilities - net 1,912,628 (381,717)
------------ -----------
Net cash provided by operating activities 370,350 281,630
------------ -----------
Cash flows from investing activities
Capital expenditures (112,242) (742,538)
Increase in marketable securities, net (1,864)
Decrease in other assets 22,995 46,071
------------ -----------
Net cash used in investing activities (91,111) (696,467)
------------ -----------
Cash flows from financing activities
Borrowings under line of credit 12,795,589 15,987,250
Payments under line of credit (12,860,157) (13,656,102)
Principal payments under equipment financing
and term loans (200,740) (188,075)
Purchase of treasury stock (771,250)
------------ -----------
Net cash (used in) provided by financing activities (265,308) 1,371,823
------------ -----------
NET INCREASE IN CASH 13,931 956,986
------------ -----------
Cash at beginning of period 922,247 562,556
------------ -----------
Cash at end of period $ 936,178 $ 1,519,542
============ ===========
Supplemental schedule of non-cash financing and
investing activities
Equipment under capital leases $ 126,229 $ 552,544
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
FORM 10-Q September 30, 1999
Page 7
JACO ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
1) The accompanying condensed consolidated financial statements reflect all
adjustments, consisting only of normal recurring accrual adjustments, which are
in the opinion of management, necessary for a fair presentation of the
consolidated financial position and the results of operations at and for the
periods presented. Such financial statements do not include all the information
or footnotes necessary for a complete presentation. Therefore, they should be
read in conjunction with the Company's audited consolidated statements for the
year ended June 30, 1999 and the notes thereto included in the Company's annual
report on Form 10-K. The results of operations for the interim periods are not
necessarily indicative of the results for the entire year.
2) The Company has a $30,000,000 term loan and revolving line of credit facility
with its banks, which are based principally on eligible accounts receivables and
inventories as defined in the agreement. The agreement was amended to extend the
maturity date to September 13, 2001. The interest rate is based on the average
30 day LIBOR rate plus 3/4 % to 1 1/4% depending on the Company's performance
for the immediately preceding four fiscal quarters measured by a certain
financial ratio. The applicable interest rate may be adjusted quarterly and
borrowings under this facility are collateralized by substantially all of the
assets of the Company.
3) The Board of Directors of the Company has authorized the purchase of up to
650,000 shares of its outstanding common stock under a stock repurchase program.
The purchases may be made by the Company from time to time on the open market.
The Company has made purchases of 412,200 shares of its common stock from July
31, 1996 through November 8, 1999 for aggregate consideration of $2,204,515.
4) For interim financial reporting purposes, the Company uses the gross profit
method for computing inventories, which consists of goods held for resale
5) In fiscal 1998, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 128 ("SFAS No. 128"), "Earnings per Share." SFAS No.
128 replaces the calculation of primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share.
7
<PAGE>
<TABLE>
<CAPTION>
FORM 10-Q September 30, 1999
Page 8
The number of shares used in the Company's basic and diluted earnings
per share computations are as follows:
Three Months Ended
September 30,
--------------------------------------------
1999 1998
----------------- ------------------
Weighted average common shares
outstanding net of treasury shares,
<S> <C> <C>
for basic earnings per share 3,653,521 3,830,397
Common stock equivalents for
stock options 55,929
----------------- ------------------
Weighted average common shares
outstanding for diluted earnings per share 3,709,450 3,830,397
================= ==================
</TABLE>
For the three months ended September 30, 1999 options to purchase
574,796 shares of common stock at a price range of $2.69 to $12.75 and warrants
to purchase 70,000 shares of common stock at $22.95 were outstanding during the
period. The stock options and warrants not included in the computation of
diluted earnings per share was due to the exercise prices being greater than the
average market price of the common shares.
6) In fiscal 1999, the Company adopted Statement of Financial Accounting
Standards No. 130 ("SFAS No. 130"), "Reporting Comprehensive Income." SFAS No.
130 establishes new rules for the reporting and display of comprehensive income
and its components; however, the adoption of SFAS No. 130 has had no impact on
the Company's earnings or stockholders' equity. SFAS No. 130 requires unrealized
holding gains or losses on debt and equity securities available for sale, which
prior to adoption were only reported separately in stockholders' equity, to be
included in comprehensive income and accumulated other comprehensive income.
Prior year financial statements have been reclassified to conform to the
requirements of SFAS No. 130.
8
<PAGE>
FORM 10-Q September 30, 1999
Page 9
7) The Company adopted Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related Information." SFAS No.
131 requires that the Company disclose certain information about its operating
segments defined as "components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance." Generally, financial information is required to be reported on the
basis that it is used internally for evaluating segment performance and deciding
how to allocate resources to segments.
The Company has two reportable segments: electronics parts
distribution and contract manufacturing. The Company's primary business activity
is conducted with small and medium size manufacturers, located in North America,
that produce electronic equipment used in a variety of industries. Information
pertaining to the Company's operations in different geographic areas for the
three months ended September 30, 1999 and 1998 is not considered material to the
financial statements.
The Company's chief operating decision maker utilizes net sales and
net earnings (loss) information in assessing performance and making overall
operating decisions and resource allocations. The accounting policies of the
operating segments are the same as those described in the summary of significant
accounting policies. Information about the Company's segments is as follows:
<TABLE>
<CAPTION>
Three Months Ended,
September 30,
---------------------------------------
1999 1998
(in thousands)
Net sales from external customers
<S> <C> <C>
Electronics components distribution $39,224 $30,043
Contract manufacturing 2,793 3,213
------- -------
$42,017 $33,256
====== ======
Intersegment net sales
Electronics components distribution $ 68 $ 71
Contract manufacturing _ 60
------- -------
$ 68 $ 131
======== =======
Operating profit (loss)
Electronics components distribution $ 582 $ (226)
Contract manufacturing 105 133
------- -------
$ 687 $ (93)
======= ========
Interest expense
Electronics components distribution $ 192 $ 185
Contract manufacturing 131 128
-------- --------
$ 323 $ 313
======== =======
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
FORM 10-Q September 30, 1999
Page 10
Three Months Ended
September 30,
-------------------------------------
1999 1998
(in thousands)
Income tax provision (benefit)
<S> <C> <C>
Electronics components distribution $ 161 $ (166)
Contract manufacturing (11) 2
-------- ------
$ 150 $ (164)
======= =========
Identifiable assets
Electronics components distribution $ 64,699 $ 62,533
Contract manufacturing 10,224 12,187
---------- --------
$ 74,923 $ 74,720
======== ========
Capital expenditures
Electronics components distribution $ 66 $ 220
Contract manufacturing 46 523
--------- ----------
$ 112 $ 743
========= =========
Depreciation and amortization
Electronics components distribution $ 288 $ 247
Contract manufacturing 151 128
---------- ----------
$ 439 $ 375
========= ==========
</TABLE>
10
<PAGE>
FORM 10-Q September 30, 1999
Page 11
JACO ELECTRONICS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995:
Statements in this filing, and elsewhere, which look forward in time
involve risks and uncertainties which may effect the actual results of
operations. The following important factors, among others, have affected and, in
the future, could affect the Company's actual results: dependence on a limited
number of suppliers for products which generate a significant portion of the
Company's sales, the effect upon the Company of 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, and general economic
downturns in the electronics distribution industry which may have an adverse
economic effect upon manufacturers, end-users of electronic components and
electronic component distributors.
GENERAL
Jaco is a distributor of electronic components, provider of contract
manufacturing and value-added services. Products distributed by Jaco include
semiconductors, capacitors, resistors, electromechanical devices, flat panel
displays and monitors, and power supplies 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), and contract manufacturing
through Nexus Custom Electronics,Inc., a wholly owned subsidiary of the Company.
11
<PAGE>
<TABLE>
<CAPTION>
FORM 10-Q September 30, 1999
Page 12
Results of Operations
The following table sets forth certain items in the Company's statement of
earnings as a percentage of net sales for the periods shown
Three Months Ended
September 30,
--------------------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of goods sold 81.1 79.8
------------ ------------
Gross profit 18.9 20.2
Selling, general and
administrative expenses 17.3 20.4
------------ ------------
Operating profit (loss) 1.6 (0.2)
Interest expense 0.7 1.0
------------ ------------
Earnings (Loss) before income taxes 0.9 (1.2)
Income tax provision (benefit) 0.4 (0.5)
------------ ------------
NET EARNINGS (LOSS) 0.5% (0.7)%
============ =============
</TABLE>
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1999 ("FISCAL 2000") WITH
THREE MONTHS ENDED SEPTEMBER 30, 1998 ("FISCAL 1999")
Net sales for the first quarter of Fiscal 2000 increased 26% to $42.0
million as compared to $33.3 million for the first quarter of Fiscal 1999. The
increase in net sales was attributed to an improving demand for components in
all product segments. The Company continues to experience growth in the sale of
flat panel displays division and has seen strong demand for its inventory
management systems with targeted small to mid-size customers. This program
enables the Company to increase the level of sales generated at these focus
accounts.
Gross profit margin as a percentage of net sales was 18.9% for the three
months ended September 30, 1999 compared to 20.2% for the comparable period in
the last fiscal year. The decrease was attributable to industry wide pressures
on pricing and a shift in product mix toward a greater amount of active
components, including flat panel devices, which historically, have a lower gross
profit margin compared to passive components. Prior to the end of the current
quarter, the Company experienced an increase in demand for products, resulting
in a stabilizing of resale pricing.
12
<PAGE>
FORM 10-Q September 30, 1999
Page 13
Selling, General and Administrative expenses ("SG&A") were $7.3 million
during the first quarter of Fiscal 2000, an increase of $.5 million, or 6.7%,
compared to $6.8 million during the first quarter of Fiscal 1999. The increase
in SG&A was attributable to higher commissions paid due to the increase in gross
profit dollars, the additional staffing of sales, marketing and corporate
personnel in anticipation of an improvement in demand for electronic components
and to provide the services required to support the inventory management
programs and technical support offered to customers.
Interest expense increased slightly to approximately $323,000 during
the first quarter of Fiscal 2000, as compared to $313,000 during the comparable
quarter of Fiscal 1999. The 3.0% increase in interest expense was attributable
to an increase in the Company's borrowing rate.
Net earnings for the three months ended September 30, 1999 was $214,000, or
$.06 per share diluted compared to a net loss for Fiscal 1999 of $242,000, or
$.06 per share diluted. The increase in earnings was attributable to the
increase in net sales. The Company is cautiously optimistic that it is
positioned to see increased performance based on the continued strengthening of
the electronics component industry in addition to the Company's expenditures
during prior periods in the flat panel division, automated inventory management
programs and field application engineers.
LIQUIDITY AND CAPITAL RESOURCES
The Company's agreement with its banks, 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 expiring September 13, 2001. The interest rate of the
credit facility is based on the average 30 day LIBOR rate plus 3/4% to 1-1/4%
depending on the Company's performance for the immediately preceding four fiscal
quarters measured by a certain financial ratio, and may be adjusted quarterly.
The outstanding balance on the revolving line of credit facility was $16,899,007
at September 30, 1999. The term loan, with a remaining balance of $321,428 at
September 30, 1999, requires monthly principal payments of $17,857, together
with interest through March 1, 2001. Borrowings under this facility are
collateralized by substantially all of the assets of the Company. The agreement
contains provisions for maintenance of certain financial ratios, all of which
the Company is in compliance with at September 30, 1999, and prohibits the
payment of cash dividends.
For the three months ended September 30, 1999, the Company's net cash
provided by operating activities was approximately $0.4 million, as compared to
net cash provided by operating activities of $0.3 million for the three months
ended September 30, 1998. The principal portion of cash flow resulted from the
increase in accounts payable and accrued expenses. This was offset by an
increase in accounts receivable. Net cash used in investing activities decreased
to $0.1 million for the three months ended September 30, 1999, as compared to
$0.7 million for the three months ended September 30, 1998. The decrease is
primarily attributable to a reduction in capital expenditures. Net payments
under the Company's line of credit was approximately $0.1 million for the three
months ended September 30, 1999, as compared to net borrowings of $2.3 million
for the three months ended September 30, 1998. The change is primarily
attributable to a reduction in capital expenditures and no additional purchases
of treasury stock during the three months ended September 30, 1999. The
Company's cash expenditures may vary significantly from current levels, based on
a number of factors, including, but not limited to, future acquisitions, if any.
For the first three months of Fiscal 2000 and Fiscal 1999, inventory
turnover was 4.1x and 3.0x, respectively. The average days outstanding of the
Company's accounts receivable at September 30, 1999 was 53 days, as compared to
59 days at September 30, 1998.
The Board of Directors of the Company had authorized the purchase of up
to 250,000 shares of its common stock under a stock repurchase program. During
Fiscal 1999, the Board of Directors authorized the repurchase of up to an
additional 400,000 shares of the Company's common stock. The purchases may be
made by the Company from time to time on the open market at the Company's
discretion and will be dependent on market conditions. Through November 8, 1999,
the Company has purchased 412,200 shares of its common stock for aggregate
consideration of $2,204,515 under this program.
13
<PAGE>
FORM 10-Q September 30, 1999
Page 14
The Company believes that cash flow from operations and funds available under
its credit facility will be sufficient to fund the Company's capital needs for
at least the next twelve months.
Year 2000 Compliance
The year 2000 ("Y2K") issue is the result of computer programs using a
two-digit format, as opposed to four digits, to indicate the year. Such computer
systems will be unable to interpret dates beyond the year 1999, which could
cause a system failure or other computer errors, leading to disruptions in
operations. In April 1996, the Company developed a three-phase program for Y2K
information systems compliance. Phase I was to identify those systems with which
the Company has exposure to Y2K issues. Phase II was the development and
implementation of action plans to be Y2K compliant in all areas by late 1998.
Phase III, to be fully completed by late 1999, is the final major area of
exposure to ensure compliance. The Company has identified three major areas
determined to be critical for successful Y2K compliance: (1) financial and
informational system applications, (2) manufacturing applications and (3) third
party relationships.
As of September 1, 1998, Jaco completed the redesign and development of
an entirely new distribution software system. All of the dates in this new
database are 8 characters, including the century. The system has been tested and
has been in production as of September 1, 1998. The systems include customer
order entry, purchase order entry to the Company's manufacturers, warehousing
and inventory control.
The financial systems, Accounts Payable and General Ledger have been
Y2K compliant since April 1997. The Accounts Receivable system is Y2K compliant
as of September 1, 1998.
Jaco's distribution facilities: warehouse, shipping and other physical
handling have been tested and are Y2K compliant. The Company, as it relates to
the contract manufacturing operations in accordance with Phase I of the program,
is in the process of conducting an internal review of all systems and contacting
all software suppliers to determine major areas of exposure to Y2K issues. In
the financial and information system area a number of applications have been
identified as Y2K compliant due to their recent implementation. The contract
manufacturing core financial and reporting systems are not Y2K compliant but are
scheduled to be complete and fully tested by late 1999. As a contingency plan,
these systems can be performed manually. The costs relating to Y2K compliance in
the contract manufacturing area are not expected to be material to the Company.
In the third party area, the Company has contacted most of its major suppliers
and vendors. These parties state that they intend to be Y2K compliant by the
year 2000. The Company's management is in the process of developing a
"worst-case scenario" with respect to Y2K non-compliance and to develop
contingency plans designed to minimize the effects of such scenario. Although
management believes that it is very unlikely that the worst-case scenario will
occur, contingency plans will be developed and will address both IT (Information
Technology) system and non-IT system (items containing embedded chips, such as
elevators electronic door locks, telephone, etc.) failure. In the event of Y2K -
related IT system failure, the Company would be unable to ship orders because
its power system would not be functioning. In such event, the Company plans to
use its own generators as a back-up power source. In terms of non-IT and
third-party Y2K non compliance, the worst - case scenario for the Company would
involve the loss of supply of component parts or other materials from one or
more of its major suppliers. The Company believes it has made contingency plans
with its vendors to have product available.
14
<PAGE>
FORM 10-Q September 30, 1999
Page 15
There is still uncertainty about the broader scope of the Year 2000
issue as it may affect the Company and third parties that are critical to the
Company's operations. For example, lack of readiness by electrical and water
utilities, financial institutions, governmental agencies or other providers of
general infrastructure could pose significant impediments to the Company's
ability to carry on its normal operations. The Company intends to request
assurances of Y2K readiness from its telephone and utilities suppliers. However,
management has been informed that some suppliers have either declined to provide
the requested assurances, or have limited the scope of assurances to which they
are willing to permit. If suppliers of services that are critical to the
Company's operations were to experience business disruptions as a result of
their lack of Y2K readiness, their problems could have a material adverse affect
on the financial position and results of operations of the Company. The impact
of a failure of readiness by critical suppliers cannot be estimated with
confidence, and the effectiveness of contingency plans to mitigate the effect of
any such failure is largely untested. Management cannot provide an assurance
that there will be no material adverse effects to the financial condition or
results of operations of the Company as a result of Y2K issues.
The Company has spent to date approximately $1.8 million to replace the
core financial and reporting software systems for its distribution business. The
Company has utilized outside consultants to undertake a portion of the work.
Inflation
Inflation has not had a significant impact on the Company's operations
during the last three fiscal years.
Quantitative and Qualitative Disclosure about Market Risk.
The Company is exposed to interest rate change market risk with respect
to its credit facility with a financial institution which is priced based on the
average 30 day LIBOR rate plus 3/4% to 1 1/4% depending on the Company's
performance for the immediately preceding four fiscal quarters measured by a
certain financial ratio, and may be adjusted quarterly. At October 31, 1999,
$16,187,227 was outstanding under the credit facility. Changes in the LIBOR
interest rate during the fiscal year ending June 30, 2000 will have a positive
or negative effect on the Company's interest expense. Each 1% fluctuation in the
LIBOR interest rate will increase or decrease interest expense for the Company
by approximately $162,000.
15
<PAGE>
FORM 10-Q September 30, 1999
Page 16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Nothing to Report
Item 2. Changes in Securities and Use of Proceeds
Nothing to Report
Item 3. Defaults Upon Senior Securities
Nothing to Report
Item 4. Submission of Matters to a Vote of Security Holders
Nothing to Report
Item 5. Other Information
Nothing to Report
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
27.1 Financial Data Schedule
99.8.5 Amendment to Second Restated
and Amended Loan and Security Agreement
dated October 26, 1999
b) Reports on Form 8-K None
16
<PAGE>
S I G N A T U R E
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
JACO ELECTRONICS, INC.
(Registrant)
BY: /s/ Jeffrey D. Gash
Jeffrey D. Gash, Vice President/Finance
(Principal Financial Officer)
DATED: November 12, 1999
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited condensed consolidated balance sheet as of September 30, 1999 and the
unaudited condensed consolidated statement of operations for the three months
ended September 30, 1999 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 936,178
<SECURITIES> 817,869
<RECEIVABLES> 26,260,475
<ALLOWANCES> 592,204
<INVENTORY> 33,229,723
<CURRENT-ASSETS> 62,635,592
<PP&E> 11,630,840
<DEPRECIATION> 4,789,067
<TOTAL-ASSETS> 74,922,920
<CURRENT-LIABILITIES> 20,492,857
<BONDS> 19,355,989
0
0
<COMMON> 406,572
<OTHER-SE> 34,667,502
<TOTAL-LIABILITY-AND-EQUITY> 74,922,920
<SALES> 42,017,363
<TOTAL-REVENUES> 42,017,363
<CGS> 34,081,758
<TOTAL-COSTS> 34,081,758
<OTHER-EXPENSES> 7,248,597
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 322,933
<INCOME-PRETAX> 364,075
<INCOME-TAX> 150,000
<INCOME-CONTINUING> 214,075
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 214,075
<EPS-BASIC> 0.06
<EPS-DILUTED> 0.06
</TABLE>
October 26, 1999
JACO ELECTRONICS, INC.
145 Oser Avenue
Hauppauge, NY 11788
NEXUS CUSTOM ELECTRONICS, INC.
Prospect Street
Brandon, VT 05733
Gentlemen:
Reference is made to the Second Restated and Amended Loan and
Security Agreement in effect between GMAC Commercial Credit LLC (as successor by
merger to BNY Financial Corporation), the other Lenders and you, with an
effective date of September 13, 1995, as supplemented and amended from time to
time (the "Agreement") and more specifically to a letter amendment dated August
1, 1997 (the "Amendment"). Initially capitalized terms not defined herein shall
have the meanings ascribed to such terms in the Agreement or if applicable in
the Amendment.
It is hereby agreed by and between us that effective as of
September 1, 1999, that the first sentence of paragraph 21 of the Agreement, as
amended by the Amendment, is hereby amended to read, in its entirety as follows:
"This (Second Restated and Amended Loan and Security)
Agreement shall (subject to compliance with the Conditions Precedent)
become effective on the Closing Date hereof, without any interruption
or break in continuity (as more fully described in the second paragraph
hereof) and shall continue until the sixth anniversary of the Closing
Date."
Except as herein specifically amended, the Agreement and the
Amendment shall remain in full force and effect in accordance with their
original terms, except as previously amended.
<PAGE>
If the foregoing accurately reflects our understanding, kindly
sign the enclosed copy of this letter and return it to our office as soon as
practicable.
Very truly yours,
GMAC COMMERCIAL CREDIT LLC (as successor by
merger to BNY FINANCIAL CORPORATION
as successor in interest to THE BANK OF NEW YORK
COMMERCIAL CORPORATION)
as Agent and Lender
By: /s/ Frank Imperto
Title: Senior Vice President
FLEET BANK, N.A. f/k/a/
NATWEST BANK N.A., as Lender
By: /s/Alice Adleberg
Title: Vice President
AGREED AND ACCEPTED:
JACO ELECTRONICS, INC.
By: /s/ Jeffrey D. Gash
Title: Secretary
NEXUS CUSTOM ELECTRONICS, INC.
By:/s/ Jeffrey D. Gash
Title: Vice President/Finance
Continued on Page 3.
<PAGE>
We, the undersigned entities, as guarantors of the Obligations under the
Agreement, hereby agree to the above amendment to the Agreement and hereby
ratify and confirm that the guarantees shall continue to guaranty the
Obligations under the Agreement as amended in the preceding Amendment above, and
such guarantees shall remain in full force and effect and apply to the Agreement
as previously supplemented and amended and as amended above.
RATIFIED AND CONFIRMED:
DISTEL, INC.
By: /s/ Jeffrey D. Gash
Title: Vice President/Finance
JACO OVERSEAS, INC.
By: /s/ Jeffrey D. Gash
Title: Vice President/Finance
QUALITY COMPONENTS, INC.
By: /s/ Jeffrey D. Gash
Title: Vice President/Finance
R.C. COMPONENTS, INC.
By: /s/ Jeffrey D. Gash
Title: Vice President/Finance
NEXUS CUSTOM ELECTRONICS, INC.
By: /s/ Jeffrey D. Gash
Title: Vice President/Finance
