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As filed with the Securities and Exchange Commission on September 20, 2000
Registration No. 333- ______________
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
JACO ELECTRONICS, INC.
(Exact Name of Registrant as Specified in its Charter)
NEW YORK 11-1978958
(State or other Jurisdiction (I.R.S. Employer Identification
of Incorporation or Organization) Number)
145 OSER AVENUE
HAUPPAUGE, NEW YORK 11788
(631) 273-5500
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
JOEL H. GIRSKY
CHAIRMAN OF THE BOARD, PRESIDENT
AND TREASURER
145 OSER AVENUE
HAUPPAUGE, NEW YORK 11788
(631) 273-5500
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code of Agent for Service)
Copies to:
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MICHAEL R. REINER GEOFFREY R. MORGAN
MORRISON COHEN SINGER & WEINSTEIN, LLP MICHAEL BEST & FRIEDRICH LLP
750 LEXINGTON AVENUE 100 EAST WISCONSIN AVENUE, SUITE 3300
NEW YORK, NEW YORK 10022 MILWAUKEE, WI 53202
(212) 735-8600 (414) 271-6560
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act, check the following box . / /
If the registrant elects to deliver its latest annual report to
security holders, or a complete and legible facsimile thereof, pursuant to Item
11(a)(1) of this form, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / _________
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / / ___________
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / / ________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
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Calculation of Registration Fee
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PROPOSED
TITLE OF EACH CLASS MAXIMUM PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED PER SHARE (1) OFFERING PRICE FEE
---------- ---------- ------------- -------------- ---
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Common Stock, $0.10 par 1,840,000 $17.0625 $31,395,000 $8,288.28
value per share
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(1) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(c) of the Securities Act of 1933, as amended.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED SEPTEMBER 20, 2000.
1,600,000 SHARES
JACO ELECTRONICS, INC. [LOGO]
COMMON STOCK
We are offering 1,600,000 shares of our common stock. Our common stock is traded
on the Nasdaq National Market under the symbol "JACO." On September 14, 2000,
the last reported sale price of our common stock on the Nasdaq National Market
was $17.06.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 6.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES, OR
DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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UNDERWRITING
PRICE TO PUBLIC DISCOUNT PROCEEDS TO JACO(1)
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Per Share...................................... $[_______] $[_______] $[_______]
Total(2)....................................... $[_______] $[_______] $[_______]
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(1) Before deducting estimated expenses of $[_______], which are payable by
Jaco.
(2) Two of our shareholders have granted to the underwriters a 30-day
option to purchase up to 240,000 additional shares of common stock to
cover over allotments. We will not receive any of the proceeds from the
sale of shares by the two shareholders. See "Underwriting" and
"Principal and Selling Shareholders."
TUCKER ANTHONY CAPITAL MARKETS NEEDHAM & COMPANY, INC.
The date of this prospectus is [_______], 2000.
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TABLE OF CONTENTS
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Page
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Prospectus Summary................................................................................................1
Risk Factors ....................................................................................................6
Special Note Regarding Forward-looking Statements................................................................11
Use of Proceeds..................................................................................................12
Dividend Policy..................................................................................................12
Capitalization...................................................................................................13
Price Range of Common Stock......................................................................................14
Selected Consolidated Financial Data.............................................................................15
Management's Discussion and Analysis of Financial Condition and Results of Operations............................17
Business.........................................................................................................23
Management.......................................................................................................30
Principal and Selling Shareholders...............................................................................34
Certain Relationships and Related Transactions...................................................................36
Description of Securities........................................................................................37
Shares Eligible for Future Sale..................................................................................38
Underwriting ...................................................................................................39
Legal Matters ...................................................................................................41
Experts..........................................................................................................41
Documents We Incorporate by Reference............................................................................41
Where You Can Find More Information..............................................................................42
Index to Financial Statements...................................................................................F-1
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT, AND THE UNDERWRITERS HAVE NOT, AUTHORIZED ANY OTHER PERSON TO PROVIDE YOU
WITH DIFFERENT INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO SELL, NOR IS IT
SEEKING AN OFFER TO BUY, THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE
IS NOT PERMITTED.
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PROSPECTUS SUMMARY
The summary highlights information contained elsewhere in this prospectus.
Because this is only a summary, it does not contain all the information that you
should consider before buying shares in this offering. You should read the
entire prospectus carefully, including our consolidated financial statements and
the related notes included elsewhere in this prospectus.
OUR COMPANY
We are a leading distributor of electronic components to industrial
OEMs and contract manufacturers throughout North America. We also provide
contract manufacturing services to our industrial OEM customers. We distribute
products such as semiconductors, capacitors, resistors, electromechanical
devices, flat panel displays and monitors and power supplies, which are used in
the manufacture and assembly of electronic products, including:
- telecommunications equipment - computers and office equipment
- medical devices and instrumentation - industrial equipment and controls
- military/aerospace systems - automotive and consumer electronics
We have two distribution centers and 19 strategically located sales
offices throughout the United States. We distribute more than 35,000 products
from over 75 vendors, including such market leaders as Kemet Electronics
Corporation, Vishay Intertechnology, Inc. and Samsung Semiconductor, Inc., to a
base of over 6,000 customers through a dedicated and highly motivated sales
force. To enhance our ability to distribute electronic components, we provide a
variety of value-added services including automated inventory management
services, assembling stock items for our customers into pre-packaged kits,
integrating and assembling various custom components with flat panel displays to
customer specifications (box build) and providing contract manufacturing
services. Our core customer base consists primarily of small and medium-sized
manufacturers that produce electronic equipment used in a wide variety of
industries.
According to IPC, an independent market research firm, the electronic
components distribution industry has experienced significant growth during the
past 12 months and continues to benefit from favorable supply/demand trends.
Unit growth within the worldwide semiconductor industry has remained at or above
30% in each of the last six months. Strong demand for Internet infrastructure
equipment, wireless communications, and digital consumer applications has caused
unit demand to run well above the historical trend-line rate of 12% annual
growth. In addition, lengthening lead times across an expanding range of
semiconductor components is contributing to stable pricing. As a result, our
industry continues to benefit from strong unit demand and stable pricing.
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According to the most recent data available from the National
Electronics Distributors' Association, an industry trade association, in 1998,
the electronics distribution industry recorded approximately $30.1 billion in
sales. Of these sales, approximately $20.8 billion consisted of sales of active
components (semiconductors and computer products) and approximately $8.5 billion
consisted of sales of passive components (capacitors, electromechanical devices
and resistors). Active components and passive components each represents
approximately 50% of our net distribution sales in each of our last three fiscal
years.
Our primary objective is to strengthen our position as a leading
electronic components distributor in North America by capitalizing on (i) our
recently expanded scope of operations through the acquisition of Interface
Electronics Corp. (see "--Recent Developments"), and (ii) the expected continued
growth in demand for electronic components. To achieve this objective, we will
continue to employ the following strategies:
ADD AND ENHANCE ALLIANCES WITH CORE VENDORS. We intend to continue to
add new alliances and enhance existing alliances with leading electronic
component product vendors. We believe that the combination of new vendors with
our existing vendor lines, will lead to substantial marketing opportunities to
our existing customer base and enhance our ability to develop new customer
relationships. Additionally, we believe that a strategy focused on core vendors
results in more effective marketing of those vendors' products through greater
sales force expertise and strengthens our vendor relationships through increased
purchases and sales.
GAIN MARKET SHARE IN FLAT PANEL DISPLAYS. We intend to strengthen our
position as a leading supplier of flat panel display ("FPD") products and
related value-added services for the industrial market. Industrial FPD
applications include cellular phones, personal digital assistants, electronic
books, smart handhelds, Internet appliances, digital albums, games and home
appliances. In 1999, the market for FPDs grew 67% to $18.5 billion. FPDs
represent the fastest growing segment of electronic components and are projected
to grow at an annual rate of 30% through 2005. Accordingly, we intend to
aggressively target this market using our expanded operations and dedicated
sales force.
EMPHASIZE OUR INDUSTRY LEADING PASSIVE COMPONENTS LINE. We believe that
we offer a premier line of passive components and we intend to continue to
aggressively promote our selection of passive components to obtain new customers
and further penetrate our existing customer base. Additionally, we believe the
increasing use of sophisticated electronics and the growing demand for
miniaturization, portability and increased functionality will drive demand for
passive components.
FOCUS ON THE FAST GROWING MID-TIER ELECTRONIC MANUFACTURERS. We intend
to target medium-sized, growth-oriented OEMs and contract manufacturers that
have traditionally received less attention from the largest distributors. We
believe this strategy enables us to gain market positions with customers in fast
growing segments of the electronic components industry, such as data storage and
telecommunications.
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GROW THROUGH STRATEGIC ACQUISITIONS. We intend to grow through
strategic acquisitions in order to (i) obtain new vendor lines, (ii) expand our
customer base and increase our cross-selling opportunities, (iii) expand our
geographic presence, and (iv) increase economies of scale. The electronic
components distribution industry continues to consolidate on a global basis
driven by efficiency gains derived primarily through economies of scale. This
trend has made growth through internal sources or by acquisitions imperative to
maintaining competitiveness. We generally seek acquisition candidates that have
strong, entrepreneurial management teams and leading vendor lines.
RECENT DEVELOPMENTS
In June 2000, we acquired Interface Electronics Corp. We paid $15.4
million in cash and assumed $3.3 million in bank debt and are obligated to make
deferred payments of up to approximately $6.6 million during the next two years
if certain "minimum sales" levels are achieved. Interface is a distributor of
electronic components, primarily in the Northeast and Southeast United States.
As a result of the Interface acquisition, we have acquired distribution rights
for certain significant vendor lines in the United States. The Interface
transaction affords us the opportunity to leverage a national sales presence
with our warehouses, thereby providing timely and efficient product distribution
to our customers located anywhere in the United States.
In February 2000, we acquired the operating assets of PGI Industries,
Inc., an exporter of electronic components for approximately $1.2 million in
cash.
CORPORATE INFORMATION
We were organized in the State of New York in 1961. Our principal
executive offices are located at 145 Oser Avenue, Hauppauge, New York 11788, and
our telephone number is (631) 273-5500.
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THE OFFERING
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Common Stock offered by Jaco 1,600,000 shares
Common Stock outstanding after the offering 7,233,959 shares*
Use of Proceeds We expect to use the proceeds to reduce our
outstanding bank indebtedness
(approximately $39.9 million as of June 30,
2000). See "Use of Proceeds."
Nasdaq National Market Symbol JACO
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* Based on the number of shares outstanding on September 14, 2000. Excludes
670,420 shares issuable upon exercise of options outstanding as of September 14,
2000.
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SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table summarizes our consolidated financial data. You
should read the summary consolidated financial data below in conjunction with
our consolidated financial statements and related notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
beginning on page 17.
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FISCAL YEAR ENDED JUNE 30,
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2000(1) 1999 1998 1997 1996
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CONSOLIDATED STATEMENT OF INCOME DATA:
Net sales .................................. $ 209,325 $ 140,711 $ 153,674 $ 155,098 $ 167,149
Gross profit ............................... 46,882 27,376 31,878 32,105 34,044
Operating profit (loss) .................... 12,360 (266) 3,171 4,465 7,797
Net earnings (loss) ........................ 6,376 (1,157) 1,184 2,079 3,850
========= ========= ========= ========= =========
Net earnings (loss) per common share (2)
Basic ............................. $ 1.16 $ (0.21) $ 0.21 $ 0.36 $ 0.74
========= ========= ========= ========= =========
Diluted ........................... $ 1.11 $ (0.21) $ 0.20 $ 0.35 $ 0.72
========= ========= ========= ========= =========
Weighted average number of common and common
equivalent shares outstanding (2)
Basic ............................. 5,498 5,547 5,755 5,849 5,220
Diluted ........................... 5,766 5,547 5,882 5,922 5,331
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AT JUNE 30, 2000
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ACTUAL AS ADJUSTED (3)
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CONSOLIDATED BALANCE SHEET DATA:
Working capital.............................................................. $ 58,384 __________
Total assets................................................................. 126,329 __________
Short-term debt.............................................................. 807 __________
Long-term debt............................................................... 40,941 __________
Shareholders' equity......................................................... 42,790 __________
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(1) In June 2000, we consummated the acquisition of Interface, which was
accounted for as a purchase. Accordingly, our results of operations include
the results of Interface from the date of the acquisition. See the Pro
Forma information included elsewhere in this prospectus.
(2) Adjusted to give effect to a 3-for-2 stock split which was effective on
July 24, 2000.
(3) The information under "As Adjusted" in the balance sheet data reflects the
receipt of the estimated net proceeds from the sale of 1,600,000 shares of
common stock by us in this offering at an assumed public offering price of
$______ per share and after the application of the net proceeds used to
repay a portion of our outstanding bank indebtedness.
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RISK FACTORS
You should carefully consider the risks described below before making
an investment decision. The risks and uncertainties described below are not the
only ones facing Jaco. Additional risks and uncertainties not presently known to
us or that we currently deem immaterial also may impair our business operations.
If any of the following actually occur, our business could be harmed. In such
case, the trading price of our common stock could decline, and you may lose all
or part of your investment.
RISKS RELATED TO OUR BUSINESS
WE ARE DEPENDENT ON A LIMITED NUMBER OF SUPPLIERS. IF ONE OR MORE OF OUR LARGEST
SUPPLIERS CHOOSES NOT TO SELL PRODUCTS TO US, OUR OPERATING RESULTS COULD
SUFFER.
We rely on a limited number of suppliers for products which generate a
significant portion of our sales. Substantially all of our inventory has and
will be purchased from suppliers with which we have entered into non-exclusive
distributor agreements which are typically cancelable on short notice. In the
fiscal year ended June 30, 2000, products purchased from our four largest
suppliers accounted for approximately 51% of our sales. No other supplier
accounted for more than five percent of our sales. While we do not believe that
the loss of any one supplier would have a material adverse effect upon us since
most products sold by us are available from multiple sources, our 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 our business, since there can be no assurance that we will be able to
replace lost suppliers.
WE DO NOT HAVE LONG-TERM CONTRACTS WITH OUR CUSTOMERS AND, AS A RESULT, OUR
CUSTOMERS MAY BE ABLE TO CANCEL, REDUCE OR DELAY THEIR ORDERS WITHOUT PENALTY.
We typically do not obtain long-term purchase orders or commitments but
instead work with our customers to develop nonbinding forecasts of the future
volume of orders. Based on such nonbinding forecasts, we make commitments
regarding the level of business that we will seek and accept, and the levels and
utilization of personnel and other resources. A variety of conditions, both
specific to each individual customer and generally affecting each customer's
industry, may cause our customers to cancel, reduce or delay orders that were
either previously made or anticipated. Generally, our customers may cancel,
reduce or delay purchase orders and commitments without penalty, except for in
certain circumstances, charges associated with such cancellation, reduction or
delay. Significant or numerous cancellations, reductions or delays in orders by
customers, or any inability by customers to pay for our products could have a
material adverse effect on our operating results.
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WE ARE DEPENDENT ON FOREIGN MANUFACTURERS AND SUBJECT TO TRADE REGULATIONS WHICH
EXPOSE US TO POLITICAL AND ECONOMIC RISK.
A significant number of components sold by us are manufactured by
foreign manufacturers. As a result, our ability to sell certain products at
competitive prices, could be adversely affected by the following:
- increases in tariffs or duties;
- changes in trade treaties;
- strikes or delays in air or sea transportation; and
- future United States legislation with respect to pricing
and/or import quotas on products imported from foreign
countries.
Our 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 we
purchase products from United States subsidiaries or affiliates of foreign
manufacturers, our purchases are paid for in U.S. dollars, which usually reduces
or eliminates the potential adverse effects of currency fluctuations. While we
believe that the factors involving foreign components supply have not adversely
impacted our business in the past, there can be no assurance that such factors
will not materially adversely affect our business in the future.
OUR INDUSTRY IS SUBJECT TO SUPPLY SHORTAGES. ANY DELAY OR INABILITY TO OBTAIN
COMPONENTS MAY HAVE AN ADVERSE EFFECT ON OUR OPERATING RESULTS.
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 our
suppliers. Although such shortages and allocations have not had a material
adverse effect on our operating results, there can be no assurance that any
future shortages or allocations would not have such an effect on us.
OUR INDUSTRY IS CYCLICAL, WHICH CAUSES OUR OPERATING RESULTS TO FLUCTUATE
SIGNIFICANTLY.
In the Fall of 1999, our industry emerged from a four-year period of
reduced demand and increased supply. We cannot predict when the next cycle will
begin, or the severity of the downturn. The electronic components 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 components distributors such as Jaco. In
addition, the life-cycle of existing electronic products and timing of new
product development and introduction can affect demand for electronic
components. These market changes have caused in the past, and will likely cause
in the future, our operating results to fluctuate.
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THE PRICES OF OUR COMPONENTS ARE SUBJECT TO VOLATILITY.
We sell a significant amount of products that have historically
experienced volatile pricing. These products include dynamic random access
memory ("RAM"), static RAMs and liquid crystal displays ("LCDs"). If market
pricing for these products decreases significantly, we may experience periods
when our investment in inventory exceeds the market price of such products.
These market conditions could have a negative impact on sales and gross profit
margins unless and until our suppliers reduce the cost of these products.
SALES TO A GROUP OF CUSTOMERS REPRESENT A SIGNIFICANT PERCENT OF OUR SALES. THE
LOSS OF THESE KEY CUSTOMERS COULD AFFECT OUR OPERATING RESULTS.
Sales by Interface to several contract manufacturers, which are
directed by EMC Corporation, are expected to account for a significant percent
of Jaco's net sales for the fiscal year ending June 30, 2001. If we were to lose
this group of customers, or if they reduced their level of purchasing, it could
have a material adverse effect on our business and our investment in Interface.
In addition, the insolvency or other inability or unwillingness of these
customers to pay for our products could have a material adverse effect on our
business.
OUR INDUSTRY IS HIGHLY COMPETITIVE AND COMPETITION COULD HARM OUR ABILITY TO
SELL OUR PRODUCTS AND SERVICES AND THEREBY REDUCE OUR MARKET SHARE.
The electronic components distribution and the contract manufacturing
industries are highly competitive. In the electronic components distribution
industry, we generally compete with local, regional and national distributors
and electronic components manufacturers, including some of our own suppliers. In
the area of contract manufacturing, we compete against numerous domestic and
offshore manufacturers, as well as the in-house manufacturing capabilities of
our existing and potential customers. Many of such competitors have greater name
recognition and financial and other resources than we do. Moreover, the
electronic components distribution industry is going through a period of rapid
consolidation that is intensifying competition. There can be no assurance that
we will continue to compete successfully with existing or new competitors and
failure to do so could have a material adverse effect on our operating results.
WE MAY NOT BE ABLE TO MANAGE AND SUSTAIN FUTURE GROWTH.
Recently, we have experienced growth from increased sales and from
acquisitions. We will need to manage our expanding operations effectively,
maintain or accelerate our growth as planned and integrate any new businesses
which we may acquire into our operations successfully in order to continue our
desired growth. If we are unable to do so, particularly in instances in which we
have made significant investments, it could have a material adverse effect on
our operations. We may be unsuccessful in sustaining continued growth if we are
unable to:
- secure adequate supplies of competitive products on a timely
basis and on commercially reasonable terms;
- turn our inventories and collect our accounts receivable in a
timely manner;
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- maintain our existing key vendor relationships as well as
develop new relationships with leading suppliers of electronic
components;
- hire and retain additional qualified management, marketing and
other personnel to successfully manage our growth, including
personnel to monitor our operations, control costs and
maintain effective management, inventory and credit controls;
and
- invest to maintain and enhance our information systems in
order to maintain our competitiveness and to develop new
logistics services.
OUR ACQUISITIONS COULD BE DIFFICULT TO INTEGRATE, DISRUPT OUR BUSINESS AND
AFFECT OUR OPERATIONS.
Our growth strategy depends, in part, on our ability to identify and
acquire compatible electronic components distributors and to integrate the
acquired operations. A portion of our sales growth during the fiscal year ended
June 30, 2000 resulted from the acquisition of the operating assets of PGI
Industries, an exporter of electronic components, and the acquisition of the
capital stock of Interface, a distributor of electronic components, primarily
servicing the Northeast and Southeast. See Note J of the Notes to our
Consolidated Financial Statements. There can be no assurance that we 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 our acquisitions could have a material adverse effect on us. We
could be forced to alter our strategy in the future if suitable acquisition
candidates are not available.
WE DEPEND ON THE CONTINUED SERVICES OF OUR EXECUTIVE OFFICERS, AND THE LOSS OF
KEY PERSONNEL COULD AFFECT OUR ABILITY TO SUCCESSFULLY GROW OUR BUSINESS.
We are highly dependent upon the services of Joel H. Girsky, our
Chairman, President and Treasurer. The permanent loss for any reason of Joel
Girsky, or one or more of our other key executives, could have a material
adverse effect upon our operating results. While we believe that we would be
able to locate suitable replacements for our executives if their services were
lost, there can be no assurance that we would, in fact, be able to do so. Our
future success will also depend, in part, upon our continuing ability to attract
and retain highly qualified personnel.
OUR OFFICERS AND DIRECTORS HAVE AND WILL CONTINUE TO HAVE SIGNIFICANT CONTROL
OVER US AND MAY APPROVE OR REJECT MATTERS CONTRARY TO YOUR VOTE.
Upon completion of the offering, Messrs. Joel H. Girsky and Charles B.
Girsky will beneficially own an aggregate of 1,090,357 shares of common stock,
representing approximately 15.1% of the outstanding shares of common stock,
assuming that they do not sell any of their shares of common stock in the
offering. In the event of the exercise of all of their outstanding stock
options, after completion of the offering the Girskys would beneficially own an
aggregate of 1,525,955 shares of common stock, representing approximately 20.4%
of the outstanding shares of common stock. As a result of such stock ownership
and their positions as executive officers and
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as two of the six directors of Jaco, they are and will continue to be in a
position to control the day-to-day affairs of Jaco.
WE WILL NEED ADDITIONAL AUTHORIZED SHARES TO RAISE EQUITY CAPITAL FOR GENERAL
CORPORATE PURPOSES AND FOR FUTURE ACQUISITIONS.
Our Certificate of Incorporation authorizes the issuance of 10 million
shares of common stock and 100,000 shares of preferred stock. After this
offering and giving effect to the issuance of 790,420 shares of common stock
covered by outstanding options, only approximately 1,042,321 authorized shares
of common stock would remain unissued. We intend to seek approval from our
shareholders to increase the number of shares of common stock authorized to be
issued to 20 million at our 2000 Annual Meeting of Shareholders. If our
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. If our shareholders do not approve an increase in the number of
authorized shares of common stock, our continued growth could be materially
limited by our inability to raise additional equity capital when needed or to
issue shares of common stock in connection with future acquisitions or for other
corporate purposes.
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 Jaco.
ANTI-TAKEOVER PROVISIONS.
As a New York corporation, we are subject to the New York Business
Corporation Law. The New York Business Corporation Law imposes restrictions on
the ability of a third party to effect a change in control of Jaco. Pursuant to
Section 912 of the New York Business Corporation Law, except under certain
circumstances, we may not engage in a business transaction with any holder of
20% or more of our voting stock, unless our Board of Directors approves the
transaction. This may have the effect of delaying, deterring or preventing a
change in control of Jaco.
10
<PAGE> 15
RISKS RELATED TO THE OFFERING
OUR STOCK PRICE IS HIGHLY VOLATILE.
The market price for our common stock has been highly volatile and is
likely to continue to fluctuate as the market prices of securities of electronic
components distribution companies have been highly volatile. You may not be able
to resell your shares of common stock at or above your purchase price.
Our stock price is affected, among other things, by the following
factors, many of which are outside of our control:
- actual or anticipated variations in quarterly operating
results;
- changes in financial estimates by securities analysts;
- conditions or trends in the electronic components distribution
industry;
- changes in the economic performance or market valuations of
other electronic components distribution companies;
- announcements by us or our competitors of significant
acquisitions, strategic partnerships, joint ventures, or
capital commitments;
- additions or departures of key personnel; and
- issuance of additional shares of our common stock.
In the past, securities class action litigation has often been
instituted against a company following periods of volatility in its stock price.
If we were sued in this type of litigation, we could incur substantial costs and
our management's attention and resources could be diverted from our operations.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus constitute
forward-looking statements. In some cases, you can identify forward-looking
statements by terms such as "may," "will," "should," "expect," "plan," "intend,"
"forecast," "anticipate," "believe," "estimate," "predict," "potential,"
"continue" or the negative of these terms or other comparable terminology. The
forward-looking statements contained in this prospectus involve known and
unknown risks, uncertainties and other factors that may cause our or our
industry's current results, level of activity, performance or achievements to be
materially different from any future results, levels of activity, performance or
achievements expressed or implied by these statements. These factors include,
among others, those listed under "Risk Factors" and elsewhere in this
prospectus.
Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. You should not place undue
reliance on forward-looking statements.
11
<PAGE> 16
USE OF PROCEEDS
The net proceeds to be paid to us from the sale of the 1,600,000 shares
of common stock offered by us in this prospectus are estimated to be
approximately $[________] million, based on an assumed public offering price of
$[__________] per share and after deducting the underwriting discount and
estimated offering expenses that we must pay. We will not receive any proceeds
from any sale of common stock by the selling shareholders. See "Underwriting."
We intend to use the net proceeds to reduce the outstanding balance of
our bank indebtedness (approximately $39.9 million as of June 30, 2000) under
our credit facility with GMAC Commercial Credit LLC and Fleet Bank, N.A. The
maximum amount available under the credit facility is $50 million. Our
borrowings under the credit facility have been used for working capital and to
effect acquisitions. As of June 30, 2000, approximately $10.1 million remained
available to us under the credit facility.
All of the amounts under the credit facility are due in September 2001
unless the credit facility is extended. The credit facility bears interest at
the higher of the prime rate or the federal funds rate plus 0.5% or, at our
option, at a rate equal to the average 30-day LIBOR plus 1.0% to 2.25% depending
on our performance for the immediately preceding four fiscal quarters measured
by a certain financial ratio, and may be adjusted quarterly. The rate charged at
June 30, 2000 was 8.4%.
As a result of the repayment of the credit facility, we will be able to
borrow additional amounts that may be drawn down in the future. The additional
funds may be used for working capital or potential acquisitions of other
electronic components distributors which might be acquired for geographic,
consolidation or franchise expansion reasons, or of other electronics
manufacturing services/contract manufacturers. We have 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
We have never declared or paid any cash dividends on our common stock.
We intend for the foreseeable future to retain future earnings for use in our
business. The amount of dividends we pay in the future, if any, will be at the
discretion of our Board of Directors and will depend upon our financial
condition, operating results and other factors as the Board of Directors, in its
discretion, deems relevant. In addition, our credit facility prohibits us from
paying cash dividends on our common stock.
12
<PAGE> 17
CAPITALIZATION
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following table sets forth our capitalization as of June 30, 2000
on an actual and as adjusted basis. The "Actual" column reflects our
capitalization as of June 30, 2000 on an historical basis, without any
adjustments to reflect subsequent events or anticipated events. The "As
Adjusted" column reflects our capitalization as of June 30, 2000 as adjusted to
give effect to this offering and the application of net proceeds to reduce debt.
The following share data is based upon the number of shares outstanding
as of June 30, 2000 adjusted to give effect to a 3-for-2 stock split which was
effective on July 24, 2000. It excludes, as of June 30, 2000, 790,420 shares of
common stock subject to outstanding options at a weighted average exercise price
of $3.74 per share and 321,554 shares of common stock available for future grant
under our stock option plan and our stock purchase plan. For a discussion of our
stock option plan and our stock purchase plan, see Note I to the consolidated
financial statements.
<TABLE>
<CAPTION>
AT JUNE 30, 2000
------------------------------
ACTUAL AS ADJUSTED
------ -----------
<S> <C> <C>
Current maturities of long-term debt and capitalized lease obligations...... $ 807 $__________
Long-term debt and capitalized lease obligations............................ 40,941 __________
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; 10,000,000 shares authorized; 6,252,259
shares issued and 5,633,959 outstanding; 7,852,259
shares issued and 7,233,959 outstanding, as adjusted............... 625 __________
Additional paid-in capital.................................................. 23,906 __________
Retained earnings........................................................... 20,297 __________
Treasury stock (618,300 shares) ............................................ (2,205) __________
Accumulated other comprehensive income...................................... 167 ___________
Total shareholders' equity....................... 42,790 ___________
--------
Total capitalization............................. $ 84,538 ___________
========
</TABLE>
13
<PAGE> 18
PRICE RANGE OF COMMON STOCK
Our common stock is traded on the Nasdaq National Market under the
symbol "JACO." The stock prices listed below represent the high and low sale
prices of the common stock, as reported by the Nasdaq National Market, for each
fiscal quarter beginning with the first fiscal quarter of the fiscal year ended
June 30, 1999. Stock prices prior to July 25, 2000 have been adjusted to give
effect to a 3-for-2 stock split which was effective on July 24, 2000.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
FISCAL YEAR 1999:
First quarter ended September 30, 1998............................ $ 4.25 $ 1.50
Second quarter ended December 31, 1998............................ 5.00 2.08
Third quarter ended March 31, 1999................................ 3.46 1.67
Fourth quarter ended June 30, 1999................................ 3.08 1.67
FISCAL YEAR 2000:
First quarter ended September 30, 1999............................ 4.38 1.67
Second quarter ended December 31, 1999............................ 4.00 2.00
Third quarter ended March 31, 2000................................ 9.83 3.21
Fourth quarter ended June 30, 2000................................ 18.67 5.33
FISCAL YEAR 2001:
(through September 14, 2000)...................................... 20.83 10.00
</TABLE>
On September 14, 2000, the last reported sale price of our common stock
on the Nasdaq National Market was $17.06 per share (which gives effect to the
3-for-2 stock split which was effective on July 24, 2000). As of September 14,
2000, there were 134 holders of record of our common stock. We believe our stock
is held by more than 1,100 beneficial owners.
14
<PAGE> 19
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected consolidated statement of operations data for each of the
fiscal years ended June 30, 2000, 1999 and 1998 and the selected consolidated
balance sheet data as of June 30, 2000 and 1999 have been derived from audited
financial statements, which are included elsewhere in this prospectus. The
selected consolidated statement of operations data for each of the fiscal years
ended June 30, 1997 and 1996 and the selected consolidated balance sheet data as
of June 30, 1998, 1997 and 1996 have been derived from audited financial
statements not included in this prospectus. The selected consolidated financial
data set forth below contains only a portion of our financial statements and
should be read in conjunction with the consolidated financial statements and
related notes and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this prospectus. The historical
results are not necessarily indicative of results to be expected for any future
period. The share and per share data have been adjusted to give effect to a
3-for-2 stock split which was effective on July 24, 2000.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
2000(1) 1999 1998 1997 1996
------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales .................................. $ 209,325 $ 140,711 $ 153,674 $ 155,098 $ 167,149
Cost of goods sold ......................... 162,443 113,335 121,796 122,993 133,105
--------- --------- --------- --------- ---------
Gross profit ............................... 46,882 27,376 31,878 32,105 34,044
Selling, general and administrative expenses 34,522 27,642 28,707 27,640 26,247
--------- --------- --------- --------- ---------
Operating profit (loss) ................ 12,360 (266) 3,171 4,465 7,797
Interest expense ........................... 1,559 1,309 1,140 971 1,347
--------- --------- --------- --------- ---------
Earnings (Loss) before income taxes .... 10,801 (1,575) 2,031 3,494 6,450
Income tax provision (benefit) ............. 4,425 (418) 847 1,415 2,600
--------- --------- --------- --------- ---------
Net earnings (loss) ........................ $ 6,376 $ (1,157) $ 1,184 $ 2,079 $ 3,850
========= ========= ========= ========= =========
Net earnings (loss) per common share
Basic .............................. $ 1.16 $ (0.21) $ 0.21 $ 0.36 $ 0.74
========= ========= ========= ========= =========
Diluted ............................ $ 1.11 $ (0.21) $ 0.20 $ 0.35 $ 0.72
========= ========= ========= ========= =========
Weighted average number of common and
common equivalent shares outstanding
Basic .............................. 5,498 5,547 5,755 5,849 5,220
Diluted ............................ 5,766 5,547 5,882 5,922 5,331
</TABLE>
--------------------------
(1) In June 2000, we consummated the acquisition of Interface, which was
accounted for as a purchase. Accordingly, our results of operations include
the results of Interface from the date of the acquisition. See Pro Forma
information included elsewhere in this prospectus.
15
<PAGE> 20
<TABLE>
<CAPTION>
AT JUNE 30,
------------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital................................ $ 58,384 $41,998 $42,481 $41,146 $36,964
Total assets................................... 126,329 72,931 73,419 69,996 61,143
Short-term debt................................ 807 792 663 599 474
Long-term debt................................. 40,941 18,886 17,037 15,553 8,791
Shareholders' equity........................... 42,790 34,868 36,625 35,892 34,304
</TABLE>
16
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
We are a leading distributor of electronic components to industrial OEMs
and contract manufacturers throughout North America. We also provide contract
manufacturing services to our industrial OEM customers. We distribute products
such as semiconductors, capacitors, resistors, electromechanical devices, flat
panel displays and monitors and power supplies, which are used in the
manufacture and assembly of electronic products.
We have two distribution centers and 19 strategically located sales
offices throughout the United States. We distribute more than 35,000 products
from over 75 vendors, including such market leaders as Kemet, Vishay and
Samsung, to a base of over 6,000 customers through a dedicated and highly
motivated sales force. To enhance our ability to distribute electronic
components, we provide a variety of value-added services including automated
inventory management services, integrating and assembling various custom
components with FPDs to customer specifications (box build), assembling stock
items for customers into pre-packaged kits and providing contract manufacturing
services. Our core customer base consists primarily of small and medium-sized
manufacturers that produce electronic equipment used in a wide variety of
industries.
We generate revenues primarily from the resale of electronic components.
Sales from our distribution business are recognized when we ship products to our
customers. In addition, we perform contract manufacturing services for several
industrial OEM customers. Sales from our contract manufacturing business are
recognized at the time products are shipped to customers and may vary depending
on the time of customers' orders, product mix and availability of component
parts. Substantially all of our contract manufacturing business is performed on
a turnkey basis, which involves the procurement of component parts. The gross
profit margin for such materials is generally lower than the gross profit
associated with the manufacturing process and other value-added services.
We do not typically enter into long-term purchase orders or commitments
from our customers. Instead we work with our customers to develop forecasts for
future orders which are not binding. Customers may cancel their orders, change
their orders, change production quantities from forecasted volumes or delay
production for a number of reasons beyond our control. Cancellations, reductions
or delays by a significant customer or by a group of customers could have an
adverse effect on us. In addition, as many of our costs and operating expenses
are relatively fixed, a reduction in customer demand can adversely affect our
gross margins and operating income.
17
<PAGE> 22
RESULTS OF OPERATIONS
The following table sets forth certain items in our statement of
operations as a percentage of net sales for the periods shown:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
-----------------------------
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Net sales .................................. 100.0% 100.0% 100.0%
Cost of goods sold ......................... 77.6 80.5 79.3
----- ----- -----
Gross profit ............................... 22.4 19.5 20.7
Selling, general and administrative expenses 16.5 19.7 18.7
----- ----- -----
Operating profit (loss) .................... 5.9 (0.2) 2.0
Interest expense ........................... 0.8 0.9 0.7
----- ----- -----
Earnings (loss) before income taxes ........ 5.1 (1.1) 1.3
Income tax provision (benefit) ............. 2.1 (0.3) 0.5
----- ----- -----
Net earnings (loss) ........................ 3.0% (0.8)% 0.8%
===== ===== =====
</TABLE>
COMPARISON OF FISCAL YEAR ENDED JUNE 30, 2000 ("FISCAL 2000") WITH FISCAL YEAR
ENDED JUNE 30, 1999 ("FISCAL 1999")
Net sales for Fiscal 2000 were $209.3 million, an increase of $68.6
million, or 48.8%, as compared to $140.7 million reported for Fiscal 1999. Our
net sales benefitted from strong demand for components throughout the
electronics industry. In addition, we have continued to experience strong demand
for flat panels and flat panel monitors. We have also made significant
investments in sales personnel and infrastructure, which has contributed to our
sales growth. We continue to enhance our sales by providing value-added services
related to assisting customers in procurement and inventory management.
Gross profit was $46.9 million in Fiscal 2000, an increase of $19.5
million or 71.2%, compared to $27.4 million in Fiscal 1999. Gross profit margins
as a percentage of net sales were 22.4% during Fiscal 2000 compared to 19.5%
during Fiscal 1999. The strong demand for electronic components is primarily
responsible for the increase in gross profit margins during Fiscal 2000.
Selling, general and administrative ("SG&A") expenses were $34.5
million in Fiscal 2000, an increase of $6.9 million, or 24.9%, compared to $27.6
million in Fiscal 1999. As a percentage of net sales, SG&A expenses decreased in
Fiscal 2000 to 16.5% compared to 19.7% in Fiscal 1999. The increase in spending
is primarily attributable to expenses necessary to support the growth in sales.
These expenses include additional sales and marketing personnel, investments in
our infrastructure, and the additional costs associated with the acquisition of
PGI and Interface.
18
<PAGE> 23
The decrease as a percentage of net sales reflects operating efficiencies
realized by us with higher revenue levels.
Operating profit (loss) for Fiscal 2000 was $12.4 million as compared
to $(0.3) million for Fiscal 1999. As a percentage of net sales, operating
profit (loss) increased in Fiscal 2000 to 5.9% as compared to (0.2)% in Fiscal
1999.
Interest expense increased to $1.6 million in Fiscal 2000, as compared
to $1.3 million in Fiscal 1999. The 19.1% increase was primarily due to the
additional net borrowings of approximately $15 million to acquire Interface
during the fourth quarter of Fiscal 2000. We will continue to see increased
interest expense to the extent of the higher borrowing levels.
Net earnings for Fiscal 2000 were $6.4 million, or $1.11 per share
diluted compared to a net loss for Fiscal 1999 of $1.2 million, or $.21 per
share diluted. Diluted earnings per share includes the dilutive effect of
outstanding stock options. The increase in net earnings was attributable to the
increase in net sales, the increase in gross profit margins, the reduction in
SG&A expenses and the acquisition of Interface.
COMPARISON OF FISCAL 1999 WITH FISCAL YEAR ENDED JUNE 30, 1998 ("FISCAL 1998")
Net sales for Fiscal 1999 were $140.7 million, a decrease of $13
million, or 8.4%, as compared to $153.7 million reported for Fiscal 1998. Our
net sales were impacted throughout the fiscal year by continued industry wide
pricing pressures, compounded by weak demand for components which had impacted
the electronic components industry for over three years. Toward the end of
Fiscal 1999, we experienced an increase in activity in many product sectors.
Gross profit was $27.4 million in Fiscal 1999, a decrease of $4.5
million, or 14.1%, compared to $31.9 million in Fiscal 1998. Gross profit
margins as a percentage of net sales were 19.5% in Fiscal 1999 compared to 20.7%
in Fiscal 1998. The decrease was attributable to industry wide pressures 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.
SG&A expenses were $27.6 million in Fiscal 1999, a decrease of $1.1
million, or 3.7%, compared to $28.7 million in Fiscal 1998. Due to the weakness
in the electronic components distribution industry during Fiscal 1999, we had
implemented cost containment measures. Additionally, SG&A expenses decreased due
to a reduction in variable costs such as commissions paid to sales personnel.
The decreases were partially offset by a bad debt of approximately $630,000
during the fourth quarter of Fiscal 1999 and additional staffing of sales and
marketing personnel toward the end of Fiscal 1999 in anticipation of an
improvement in demand for electronic components.
19
<PAGE> 24
Operating profit (loss) for Fiscal 1999 was $(0.3) million as compared
to $3.1 million for Fiscal 1998. As a percentage of net sales, operating profit
(loss) decreased in Fiscal 1999 to (0.2)% as compared to 2.0% in Fiscal 1998.
Interest expense increased to approximately $1.3 million in Fiscal
1999, as compared to $1.1 million in Fiscal 1998. The 14.8% increase in interest
expense was primarily attributable to increased net borrowings due to our
purchases of common stock under our stock repurchase program, fixed asset
additions primarily for contract manufacturing, operational expenditures made to
upgrade our core financial and reporting software, and an increase in borrowing
rates.
Net loss for Fiscal 1999 was $(1.2) million, or $(.21) per share
diluted, as compared to net earnings for Fiscal 1998 of $1.2 million, or $.20
per share diluted. During Fiscal 1999, the decrease in net earnings was
primarily attributable to the decrease in net sales and decrease in gross profit
dollars attributable to overall industry weakness as it related to electronic
components.
QUARTERLY RESULTS OF OPERATIONS
The following tables present unaudited quarterly results of operations
for the eight quarters ended June 30, 2000. We believe that all necessary
adjustments, consisting only of normal recurring adjustments, have been included
in the amounts stated below to present fairly such quarterly information. The
operating results for any quarter are not necessarily indicative of results for
a subsequent period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------------------------------
JUNE 30, MARCH 31, DEC. 31, SEPT. 30, JUNE 30, MARCH 31, DEC. 31, SEPT. 30,
2000 2000 1999 1999 1999 1999 1998 1998
---- ---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales ............. $ 70,514 $ 51,694 $ 45,100 $ 42,017 $ 36,301 $ 36,188 $ 34,966 $ 33,256
Gross profit .......... 17,066 12,013 9,868 7,936 6,985 6,994 6,695 6,702
Net earnings (loss) .. 3,512 1,766 883 214 (919) 71 (68) (242)
Net earnings (loss) per
common share(1)
Basic ............ $ 0.63 $ 0.32 $ 0.16 $ 0.04 $ (0.17) $ 0.01 $ (0.01) $ (0.04)
======== ======== ======== ======== ======== ======== ======== ========
Diluted .......... $ 0.58 $ 0.30 $ 0.16 $ 0.04 $ (0.17) $ 0.01 $ (0.01) $ (0.04)
======== ======== ======== ======== ======== ======== ======== ========
Weighted average
number of common and
common equivalent
shares outstanding(1)
Basic ........... 5,545 5,486 5,480 5,480 5,480 5,480 5,481 5,746
Diluted ......... 6,047 5,887 5,558 5,564 5,480 5,496 5,481 5,746
</TABLE>
------------
(1) As adjusted to reflect a 3-for-2 stock split effective on July 24, 2000.
20
<PAGE> 25
LIQUIDITY AND CAPITAL RESOURCES
Our agreement with our banks, as amended, which expires on September
13, 2001, provides us with a $50 million term loan and revolving line of credit
facility based principally on eligible accounts receivable and inventories as
defined in the agreement. The interest rate of the credit facility is based on
the average 30-day LIBOR rate plus 1.75% through the quarter ending September
30, 2000. At such time, the rate converts to the average 30-day LIBOR rate plus
1.0% to 2.25% depending on our 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
$39.9 million at June 30, 2000. Borrowings under this facility are
collateralized by substantially all of our assets. The agreement contains
provisions for maintenance of certain financial ratios, all of which we were in
compliance with at June 30, 2000, and prohibits the payment of cash dividends.
For Fiscal 2000, our net cash used in operating activities was
approximately $7.0 million, as compared to net cash provided by operating
activities of $1.4 million for Fiscal 1999. The increase in net cash used is
primarily attributable to an increase in inventory and accounts receivable as a
result of the increase in net sales during the fiscal year, partially offset by
an increase in accounts payable and accrued expenses and net earnings for Fiscal
2000. Net cash used in investing activities increased to $13.4 million for
Fiscal 2000 as compared to $1.6 million for Fiscal 1999. The increase is
primarily attributable to the acquisition of the operating assets of PGI and the
purchase of Interface, representing a net cash outlay of $14.9 million.
Our cash expenditures may vary significantly from current levels, based
on a number of factors, including, but not limited to, future acquisitions, if
any.
For Fiscal 2000 and Fiscal 1999, our inventory turnover was 3.7x and
3.3x, respectively. The average days outstanding of our accounts receivable at
June 30, 2000 was 57 days, as compared to 59 days at June 30, 1999.
We believe that cash flow from operations and funds available under our
credit facility will be sufficient to fund our capital needs for at least the
next twelve months.
INFLATION
Inflation has not had a significant impact on our operations during the
last three fiscal years.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We are exposed to interest rate changes with respect to our credit
facility which bears interest at the higher of the prime rate or the federal
funds rate plus 0.5%, or at our option, at a rate equal to the average 30-day
LIBOR rate plus 1.0% to 2.25% depending on our performance for the immediately
preceding four fiscal quarters measured by a certain financial ratio, and may be
adjusted quarterly. At June 30, 2000, $39.9 million was outstanding under the
credit facility. Changes in the LIBOR interest rate during Fiscal 2000 will have
a positive or negative effect on our
21
<PAGE> 26
interest expense. Each 1.0% fluctuation in the LIBOR interest rate will increase
or decrease interest expense for us by approximately $0.4 million based on
outstanding borrowings at June 30, 2000.
The impact of interest rate fluctuations on other floating rate debt is
not material.
22
<PAGE> 27
BUSINESS
OUR COMPANY
We are a leading distributor of electronic components to industrial OEMs
and contract manufacturers throughout North America. We also provide contract
manufacturing services to our industrial OEM customers. We distribute products
such as semiconductors, capacitors, resistors, electromechanical devices, flat
panel displays and monitors and power supplies, which are used in the
manufacture and assembly of electronic products, including:
- telecommunications equipment - computers and office equipment
- medical devices and instrumentation - industrial equipment and controls
- military/aerospace systems - automotive and consumer electronics
We have two distribution centers and 19 strategically located sales
offices throughout the United States. We distribute more than 35,000 products
from over 75 vendors, including such market leaders as Kemet, Vishay and
Samsung, to a base of over 6,000 customers through a dedicated and highly
motivated sales force. To enhance our ability to distribute electronic
components, we provide a variety of value-added services including automated
inventory management services, assembling stock items for our customers into
pre-packaged kits, integrating and assembling various custom components with
flat panel displays to customer specifications (box build) and providing
contract manufacturing services. Our core customer base consists primarily of
small and medium-sized manufacturers that produce electronic equipment used in a
wide variety of industries.
OUR INDUSTRY
The electronic components distribution industry has become an increasingly
important sales channel for component manufacturers. Distributors market
manufacturers' products to a broader range of OEMs than such manufacturers could
economically serve with their direct sales forces. Today, distributors have
become an integral part of their customers' purchasing and inventory process.
Distributors offer their customers the ability to outsource their purchasing and
warehousing responsibilities. Electronic Data Interchange ("EDI") permits
distributors to receive timely scheduling of component requirements from
customers enabling them to provide these value-added services. Distributors also
work with their suppliers to ensure that manufacturers' components are
integrated into the design of new products.
According to the most recent data available from the National Electronics
Distributors' Association, an industry trade association, in 1998, the
electronics distribution industry recorded approximately $30.1 billion in sales.
Of these sales, approximately $20.8 billion consisted of sales of active
components (semiconductors and computer products) and approximately $8.5 billion
consisted of sales of passive components (capacitors, electromechanical devices
and resistors).
23
<PAGE> 28
Active components and passive components each represented approximately 50% of
our net distribution sales in each of our last three fiscal years.
OUR STRATEGY
Our primary objective is to strengthen our position as a leading
electronic components distributor in North America by capitalizing on (i) our
recently expanded scope of operations through the acquisition of Interface, and
(ii) the expected continued growth in demand for electronic components. To
achieve this objective, we will continue to employ the following strategies:
ADD AND ENHANCE ALLIANCES WITH CORE VENDORS. We intend to continue to add
new alliances and enhance existing alliances with leading electronic component
product vendors. We believe that the combination of new vendors with our
existing vendor lines, will lead to substantial marketing opportunities to our
existing customer base and enhance our ability to develop new customer
relationships. Additionally, we believe that a strategy focused on core vendors
results in more effective marketing of those vendors' products through greater
sales force expertise and strengthens our vendor relationships through increased
purchases and sales.
GAIN MARKET SHARE IN FLAT PANEL DISPLAYS. We intend to strengthen our
position as a leading supplier of FPD products and related value-added services
for the industrial market. Industrial FPD applications include cellular phones,
personal digital assistants, electronic books, smart handhelds, Internet
appliances, digital albums, games and home appliances. In 1999, the market for
FPDs grew 67% to $18.5 billion. FPDs represent the fastest growing segment of
electronic components and are projected to grow at an annual rate of 30% through
2005. Accordingly, we intend to aggressively target this market using our
expanded operations and dedicated sales force.
EMPHASIZE OUR INDUSTRY LEADING PASSIVE COMPONENTS LINE. We believe that we
offer a premier line of passive components and we intend to continue to
aggressively promote our selection of passive components to obtain new customers
and further penetrate our existing customer base. Additionally, we believe the
increasing use of sophisticated electronics and the growing demand for
miniaturization, portability and increased functionality will drive demand for
passive components.
FOCUS ON THE FAST GROWING MID-TIER ELECTRONIC MANUFACTURERS. We intend to
target medium-sized, growth-oriented OEMs and contract manufacturers that have
traditionally received less attention from the largest distributors. We believe
this strategy enables us to gain market positions with customers in fast growing
segments of the electronic components industry, such as data storage and
telecommunications.
GROW THROUGH STRATEGIC ACQUISITIONS. We intend to grow through strategic
acquisitions in order to (i) obtain new vendor lines, (ii) expand our customer
base and increase our cross-selling opportunities, (iii) expand our geographic
presence, and (iv) increase economies of scale. The electronic components
distribution industry continues to consolidate on a global basis driven by
efficiency gains derived primarily through economies of scale. This trend has
made growth through internal sources or by acquisitions imperative to
maintaining competitiveness. We generally seek
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<PAGE> 29
acquisition candidates that have strong, entrepreneurial management teams and
leading vendor lines.
PRODUCTS
We currently distribute over 35,000 stock items. Our management believes
that it is necessary for us to carry a wide variety of items in order to fully
service our customers' requirements. Our products fall into two broad
categories: "active" and "passive" components. Active components and passive
components each represented approximately 50% of our net distribution sales in
each of our last three fiscal years.
Active components include semiconductors and computer subsystems.
Semiconductors consist of such items as integrated circuits, microprocessors,
transistors, diodes, dynamic RAMs, static RAMs, video RAMs and metal oxide field
effect transistors. Computer subsystems are an integral part of personal
computers and computer workstations and incorporate such items as disk drives,
tape drives, flat panels and flat panel monitors, touchscreens and controllers.
Passive components consist primarily of capacitors, electromechanical devices,
and resistors.
VALUE-ADDED SERVICES
We also provide a number of value-added services which are intended to
attract new customers, to maintain and increase sales to existing customers and,
in the case of box build and contract manufacturing, to generate revenues from
new customers. Value-added services include:
- Automated Inventory Management Services. We offer comprehensive,
state-of-the-art solutions that effectively manage our customers'
inventory reordering, stocking and administration functions. These
services reduce paperwork, inventory, cycle time, and the overall
cost of doing business for our customers.
- Kitting. Kitting consists of assembling to a customer's
specifications two or more of our 35,000 stock items into
pre-packaged kits ready for use in the customer's assembly line.
Kitting services allow us to provide a partial or complete fill of a
customer's order and enable the customer to more efficiently manage
its inventory.
- Box Build. We assemble various custom components with flat panel
displays to a customer's specifications in order to provide an
assembled product.
- Contract Manufacturing. We also provide contract manufacturing
services to our OEM customers which include procurement of customer
specified components and raw materials from our network of suppliers
and other suppliers, assembly of components on printed circuit
boards ("PCBs"), and post assembly testing. Our manufacturing
process consists of both advanced surface mount technology ("SMT")
as well as conventional pin-through-hole ("PTH") interconnection
technologies. The SMT process allows for more miniaturization, cost
savings and shorter lead paths between components (which results in
greater signal speed).
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<PAGE> 30
SALES AND MARKETING
We believe we have developed valuable long-term customer relationships and
an in-depth understanding of our customers' needs and purchasing patterns. Our
sales personnel are trained to identify our customers' requirements and to
actively market our entire product line to satisfy those needs. We serve a broad
range of customers in the computer, computer-related, telecommunications, data
transmission, defense, aerospace, medical equipment and other industries. None
of our customers individually represented more than five percent of net sales in
each of Fiscal 2000, 1999 and 1998.
As an authorized distributor for key vendors, we are able to offer our
customers engineering support as well as warranty protection from the product
manufacturers which enhances our ability to attract new customers and close
sales. We provide additional customer support through communication with
customers from computer to computer or through EDI, and through technically
competent product managers and Field Application Engineers ("FAEs"). Our FAEs
provide design support and technical assistance to our customers with detailed
data solutions employing the latest technologies.
Sales are made throughout the North America from the sales departments
maintained at our two distribution facilities located on the East and West
Coasts of the United States in California and New York and from 19 strategically
located sales offices. Sales are made primarily through personal visits by our
employees and by a staff of trained telephone sales personnel who answer
inquiries and receive and process orders from customers. In addition, we utilize
the services of independent sales representatives whose territories include
parts of North America and several foreign countries. These independent sales
representatives operate under agreements which are terminable by either party
upon 30 days' notice and prohibit them from representing competing product
lines. Independent sales representatives are authorized to solicit sales of all
of our product lines.
SUPPLIERS
Manufacturers of electronic components are increasingly relying on the
marketing, customer service and other resources 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 often by
providing value-added services not offered by the manufacturer. 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, we have non-exclusive distribution agreements with many
manufacturers, including California Micro Devices Corporation, International
Resistive Company, Inc., Johanson Dielectrics, Inc., Kemet Electronics
Corporation, Rohm Electronics U.S.A., LLC, Samsung Semiconductor, Inc., TDK
Corporation of America, Vishay Intertechnology, Inc. and ZeTeX, Inc. We
continuously seek to identify potential new suppliers and obtain additional
distributorships for new lines of products. We believe that such expansion and
diversification will increase our sales and market share.
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<PAGE> 31
We generally purchase products from manufacturers pursuant to
non-exclusive distributor agreements. As an authorized distributor, we are able
to offer our suppliers marketing support.
Most of our 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 inventory.
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 us to exchange inventory in an
amount up to five percent of a prior period's purchases. Upon termination of a
distributor agreement, the right of return typically requires the manufacturer
to repurchase our inventory at our adjusted purchase price. We believe that the
above-described provisions of our distributorship agreements generally have
served to reduce our exposure to loss from unsold inventory. Because price
protection, stock rotation privileges and the right to return inventory are
limited in scope, there can be no assurances that we will not experience
significant losses from unsold inventory in the future.
OPERATIONS
Component Distribution. Inventory management is critical to a
distributor's business. We constantly focus on a high number of resales or
"turns" of existing inventory to reduce exposure to product obsolescence and
changing customer demand.
Our central computer system facilitates the control of purchasing and
inventory, accounts payable, shipping and receiving, and invoicing and
collection information of our distribution business. Our distribution software
system includes financial systems, EDI, customer order entry, purchase order
entry to manufacturers, warehousing and inventory control. Each of our sales
departments and offices is electronically linked to our central computer systems
which provides fully integrated on-line real-time data with respect to our
inventory levels. Our inventory management system was developed internally and
is considered proprietary. We track inventory turns by vendor and by product,
and our 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. Our inventory management system also
uses bar-code technology along with scanning devices, which we supply to certain
customers, and is networked to the facilities of such customers. In some cases,
customers use computers that interface directly with our computers to identify
available inventory and rapidly process orders. We also monitor supplier stock
rotation programs, inventory price protection, rejected material and other
factors related to inventory quality and quantity. This system enables us to
more effectively manage our inventory and to respond more quickly to customer
requirements for timely and reliable delivery of components. Our inventory
turnover was approximately 3.7 times for Fiscal 2000.
Contract Manufacturing. We conduct our contract manufacturing operations
through our wholly owned subsidiary Nexus Custom Electronics, Inc., at two
locations. The first location is an approximately 32,000 square foot facility
located in Brandon, Vermont. The second location is an approximately 30,000
square foot facility located in Woburn, Massachusetts that recently commenced
operations. Nexus provides turnkey contract manufacturing services to our OEM
customers, which includes procurement of customer specified components and raw
materials from our network of suppliers and other suppliers, assembly of
components on PCBs and post-assembly
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<PAGE> 32
testing. OEMs then incorporate the PCBs into finished products. In assembling
PCBs, Nexus is capable of employing both PTH and 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.
Nexus' Vermont manufacturing facility has earned ISO 9002 certification by
the Geneva-based organization dedicated to the development of worldwide
standards for quality management guidelines and quality assurance. Management
believes sophisticated customers increasingly are requiring their manufacturers
to be ISO 9002-certified for purposes of quality assurance.
COMPETITION
The electronic components distribution industry is highly competitive,
primarily with respect to price and product availability. We believe that the
breadth of our customer base, services and product lines, our level of technical
expertise and the quality of our services generally are also particularly
important. We compete with large national distributors such as Arrow
Electronics, Inc. and Avnet, Inc., as well as regional and specialty
distributors, such as All American Semiconductor, Inc. and Reptron Electronics,
Inc., many of whom distribute the same or competitive products. Many of our
competitors have significantly greater name recognition and greater financial
and other resources than we do.
The electronics contract manufacturing industry is highly fragmented and
is characterized by relatively high levels of volatility, competition and
pricing and margin pressure. Many large contract manufacturers operate
high-volume facilities and primarily focus on high-volume product runs. In
contrast, certain contract manufacturers, such as Nexus, focus on low-to-medium
volume and service-intensive products.
BACKLOG
As the trend toward outsourcing increases, customers have been entering
into just-in-time contracts with distributors, instead of placing orders with
long lead-times. Orders constituting our backlog are subject to delivery
rescheduling, price negotiations and cancellations by the customer, sometimes
without penalty or notice. Therefore, backlog is not necessarily indicative of
future sales for any particular period.
EMPLOYEES
At June 30, 2000, we had a total of 471 employees, of which 143 were
employed by Nexus. Of our total employees, twelve were engaged in
administration, 55 were managerial and supervisory employees, 194 were in sales
and 210 performed warehouse, manufacturing and clerical functions. Of these
employees, Nexus employed two in administration, 17 in management and
supervisory positions, one in sales and 123 in warehouse, manufacturing and
clerical functions. There are no collective bargaining contracts covering any of
our employees. We believe our relationship with our employees is satisfactory.
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<PAGE> 33
PROPERTIES
All of our facilities are leased except for the Brandon, Vermont property
which is owned by Nexus. We currently lease 22 facilities strategically located
throughout the United States, two of which are multipurpose facilities used
principally as administrative, sales, and purchasing offices, as well as
warehouses, one of which is used for contract manufacturing and the remainder of
which are used exclusively by us as sales offices. All facilities are linked by
computer terminals to our Hauppauge, New York headquarters. The following table
sets forth certain information regarding our five principal leased facilities:
<TABLE>
<CAPTION>
LEASE
BASE RENT EXPIRATION
LOCATION PER MONTH SQUARE FEET USE DATE
<S> <C> <C> <C> <C> <C>
Hauppauge, NY(1) $51,000 72,000 Administrative, Sales 12/31/03
and Warehouse
Franklin, MA 18,000 11,700 Sales 3/31/05
Woburn, MA 14,300 30,000 Manufacturing 7/31/05
Westlake Village, CA 10,550 10,000 Administrative, Sales 4/30/03
and Warehouse
San Jose, CA 9,400 3,800 Sales 4/30/03
</TABLE>
------
(1) Leased from a partnership owned by Joel H. Girsky and Charles B. Girsky at
a current monthly rent which the Company believes represents the fair
market value for such space. We sublease a portion of this space to an
unaffiliated third party.
Nexus owns and occupies an approximately 32,000 square foot facility
located in Brandon, Vermont, that is used for manufacturing, storage and office
space.
We believe that our present facilities will be adequate to meet our needs
for the foreseeable future.
LEGAL PROCEEDINGS
We are a party to legal matters arising in the general conduct of
business. The ultimate outcome of such matters is not expected to have a
material adverse effect on our results of operations or financial position.
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<PAGE> 34
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following are our directors and executive officers:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Joel H. Girsky .......................... 61 Chairman of the Board, President and
Treasurer
Joseph F. Oliveri........................ 51 Vice Chairman of the Board and Executive
Vice President
Charles B. Girsky........................ 66 Executive Vice President and Director
Jeffrey D. Gash.......................... 47 Vice President, Finance and Secretary
Gary Giordano............................ 43 Executive Vice President
Stephen A. Cohen......................... 63 Director
Edward M. Frankel........................ 62 Director
Joseph F. Hickey, Jr..................... 42 Director
</TABLE>
Joel H. Girsky has been a Director and executive officer of Jaco since it
was founded in 1961. He also is a director of Nastech Pharmaceutical Company,
Inc. of Hauppauge, New York, and Frequency Electronics, Inc. of Uniondale, New
York. Messrs. Joel H. Girsky and Charles B. Girsky are brothers.
Joseph F. Oliveri became Vice Chairman of the Board of Directors and an
Executive Vice President in June 2000. From March 1983 to June 2000 he was
President and Chief Executive Officer of Interface. We acquired Interface in
June 2000. Mr. Oliveri is also a director of EMC Corporation, a designer and
manufacturer of hardware and software products and a provider of services for
the storage, management, protection and sharing of electronic information.
Charles B. Girsky was a founder, Director, and our President from 1961
through January 1983. He became an executive officer again in August 1985 and
has been an Executive Vice President since January 1988. He has been a Director
since 1986. Messrs. Charles B. Girsky and Joel H. Girsky are brothers.
Jeffrey D. Gash became Vice President of Finance in January 1989, and was
our Controller for more than five years prior thereto. In September 1999, he
became our Secretary. He has also served in similar capacities with our
subsidiaries.
Gary Giordano became Executive Vice President in June 2000. From February
1992 to June 2000 he was a Vice President of Sales and Marketing.
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<PAGE> 35
Stephen A. Cohen has been a Director since 1970. Since August 1989, he has
practiced law as a member of Morrison Cohen Singer & Weinstein, LLP, Jaco's
general counsel.
Edward M. Frankel became a Director in May 1984. For more than five years
he has been President of Vitaquest International, Inc., a distributor of
vitamins and health and beauty products, and its predecessor entities.
Joseph F. Hickey, Jr. became a Director in May 1997. Since February 1991,
he has been employed by Tucker Anthony Capital Markets, a national investment
banking firm. He is a managing director in Tucker Anthony's investment banking
department. Tucker Anthony Capital Markets is an underwriter of this offering.
BOARD COMMITTEES
We have standing Audit and Compensation Committees. The Audit Committee
reviews the work and reports of Jaco's independent accountants. The Audit
Committee is comprised of Stephen A. Cohen, Edward M. Frankel and Joseph F.
Hickey, Jr. The Compensation Committee makes recommendations to the Board of
Directors concerning compensation arrangements for directors, executive
officers, and senior management of Jaco. The Compensation Committee is comprised
of Mr. Frankel and Mr. Hickey. The entire Board of Directors administers our
1993 Non-Qualified Stock Option Plan and our Restricted Stock Plan.
DIRECTOR COMPENSATION
Pursuant to our 1993 Stock Option Plan for Outside Directors, the then
outside directors (directors who are not employees) were each granted options on
December 31, 1993 to purchase 22,000 shares of common stock. In addition, the
Outside Directors' Plan provided that each outside director shall also be
granted on each December 31 subsequent to December 31, 1993 stock options to
purchase 4,399 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. No option may be granted after January 1, 1998 under the
Outside Directors' Plan.
On September 16, 1998, each of Messrs. Cohen and Frankel was granted
options to purchase 11,250 shares of common stock. The options became
exercisable one year from the date of grant and expire on September 15, 2003.
The per share exercise price of each option is equal to the closing price of the
common stock on the date of grant, or $2.75 per share.
On September 15, 1999, we granted each of Mr. Stephen A. Cohen, Mr. Edward
M. Frankel and Mr. Joseph F. Hickey, Jr., five year options to purchase 11,250
shares of common stock at an exercise price of $2.50 per share. The per share
exercise price of each option is equal to the closing price of the common stock
on the date of grant. The options vest on the one-year anniversary date of the
date of grant and were issued pursuant to our 1993 Non-Qualified Stock Option
Plan.
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<PAGE> 36
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Joseph F. Hickey, Jr., a Director and a member of the Compensation
Committee is a managing director of Tucker Anthony Capital Markets which is an
underwriter of this offering. See "Underwriting" for information relating to
fees to be received by the underwriters in this offering.
EXECUTIVE COMPENSATION
The following table sets forth the aggregate compensation paid or accrued
by us for services rendered during the last three fiscal years for each person
who served as Chief Executive Officer or whose total salary and bonus exceeded
$100,000 during such years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
---------------------------------------- -------------------------------------------------------------
Awards Payouts
------ -------
Other Annual Restricted
Name and Compensation Stock Options/ LTIP All Other
Principal Position Year Salary($) Bonus ($) ($)(1) Awards ($)(2) SARs(#)(3) Payouts($) Compensation($)(4)
------------------ ---- --------- --------- ------ ------------- ---------- ---------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Joel H. Girsky(5)(6)(7) 2000 325,000 648,100 -- -- 60,000 -- 66,709
Chairman of the Board 1999 325,000 -- -- -- 300,000 -- 58,556
President, and Treasurer 1998 325,000 81,100 -- -- -- -- 57,949
Joseph F. Oliveri(6)(7)(8) 2000 20,770 15,700 -- -- 30,000 -- --
Vice Chairman and
Executive Vice President
Charles B. Girsky(5)(6)(7) 2000 225,000 324,000 -- -- 15,000 -- 6,831
Executive Vice President 1999 225,000 -- -- -- 37,500 -- 3,144
1998 225,000 41,000 -- -- -- -- 3,145
Jeffrey D. Gash(7) 2000 136,000 60,800 -- -- 15,000 -- 4,953
Vice President, Finance 1999 125,000 25,800 -- -- 15,000 -- 2,217
and Secretary 1998 125,000 28,100 -- -- -- -- 1,895
Gary Giordano(7)(9) 2000 158,000 40,000 -- -- 15,000 -- 1,971
Executive Vice President
</TABLE>
---------------
(1) The costs of certain benefits are not included because they did not
exceed, in the case of each named executive officer, the lesser of $50,000
or ten percent of the total annual salary and bonus reported in the above
table.
(2) On June 9, 1997, the Board of Directors awarded an aggregate of 97,500
shares of common stock under our Restricted Stock Plan to our executive
officers as follows: 37,500 shares of common stock to Mr. Joel Girsky,
37,500 shares of common stock to Mr. Charles Girsky, 15,000 shares of
common stock to Mr. Jeffrey Gash and 7,500 shares of common stock to Mr.
Gary Giordano. These grants were subject to the approval of our
shareholders, which approval was received on December 9, 1997. The awards
vest in one-quarter increments annually. Accordingly, as of June 30, 2000,
the following portions of the aforementioned awards were vested: 28,125
shares of common stock awarded to each of Mr. Joel Girsky and Mr. Charles
Girsky, 11,250 shares of common stock awarded to Mr. Jeffrey Gash and
5,625
32
<PAGE> 37
shares of common stock awarded to Mr. Gary Giordano. The value of the
aggregate restricted stock holdings of these individuals at June 30, 2000
was as follows: $525,000 for Mr. Joel Girsky, $525,000 for Mr. Charles
Girsky, $210,000 for Mr. Jeffrey Gash and $105,000 for Mr. Gary Giordano.
These figures are based upon the fair market value per share of our common
stock at June 30, 2000, minus the purchase price of such awards. The
closing sale price for our common stock as of June 30, 2000 on the Nasdaq
National Market was $14.67.
(3) Adjusted to give effect to a 3-for-2 stock split which was effective on
July 24, 2000.
(4) Includes 401(k) matching contributions, premiums paid on group term life
insurance and, in the case of Mr. Joel Girsky, the taxable portion of
split dollar life insurance policies and deferred compensation accrued in
connection with his employment agreement with us. 401(k) matching
contributions for Fiscal 2000 for the Named Executives were as follows:
Mr. Joel Girsky -- $1,125, Mr. Oliveri -- $0, Mr. Charles Girsky --
$3,786, Mr. Gash -- $4,431 and Mr. Giordano -- $1,665. Premiums paid on
group term life insurance for Fiscal 2000 for the Named Executives were as
follows: Mr. Joel Girsky -- $8,584, Mr. Oliveri -- $0, Mr. Charles Girsky
-- $3,045, Mr. Gash -- $522 and Mr. Giordano -- $306. The taxable portion
of split dollar life insurance policies for Mr. Joel Girsky was $7,000 for
Fiscal 2000. $50,000 deferred compensation was accrued in Fiscal 2000 in
connection with Mr. Joel Girsky's employment agreement with us.
(5) Because we are using the proceeds from this offering to reduce debt and
because this reduction in debt will reduce our interest expense and
accordingly result in an increase in earnings before taxes, Mr. Joel
Girsky and Mr. Charles Girsky may each receive a larger bonus than if the
debt had remained outstanding.
(6) Our employment agreements with Mr. Joel Girsky and Mr. Charles Girsky
provide for the payment of bonuses based upon a percentage of our earnings
before income taxes. Mr. Oliveri's employment agreement with Interface
provides for the payment of bonuses based upon a percentage of the gross
profits from certain customers of Interface.
(7) Our employment agreements with Mr. Joel Girsky, Mr. Joseph Oliveri, Mr.
Charles Girsky and Mr. Jeffrey Gash provide for cash payments in the event
of a change of control of Jaco. In addition, we entered into an agreement
with Mr. Giordano that provides for cash payments to Mr. Giordano in the
event of a change of control of Jaco.
(8) Mr. Oliveri became an Executive Vice President of Jaco on June 6, 2000.
(9) Mr. Giordano became an Executive Vice President of Jaco on June 22, 2000.
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<PAGE> 38
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information concerning the
beneficial ownership of the shares of our common stock as of September 14, 2000
for:
- each person we know to be the beneficial owner of five percent or
more of the outstanding shares of common stock;
- each executive officer listed in the summary compensation table
above;
- each of our directors;
- all executive officers and directors as a group; and
- each selling shareholder.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED(3)
-----------------------------
AGGREGATE NUMBER OF
NAME AND ADDRESS OF SHARES BENEFICIALLY BEFORE AFTER
BENEFICIAL OWNER(1) OWNED(2) OFFERING OFFERING
<S> <C> <C> <C>
Joel H. Girsky(3) 1,020,140 17.1% 13.5%(4)
Joseph F. Oliveri -- -- --
Charles B. Girsky(5) 505,815 8.8 7.0(6)
Stephen A. Cohen(7) 29,683 * *
Edward M. Frankel(8) 31,299 * *
Joseph F. Hickey, Jr.(9) 32,149 * *
Jeffrey D. Gash(10) 47,298 * *
Gary Giordano(11) 22,500 * *
Dimensional Fund Advisors(12) 410,074 7.3 5.7
1299 Ocean Avenue
11th Floor
Santa Monica, CA 90401
All directors and executive officers as a
group (eight persons)(13) 1,688,884 27.2 21.7
</TABLE>
----------------------------
* Less than one percent.
(1) Unless otherwise indicated, the address of each person listed is 145 Oser
Avenue, Hauppauge, New York, 11788.
(2) Assumes a base of 5,633,959 shares of common stock outstanding, before any
consideration is given to outstanding options.
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<PAGE> 39
(3) Includes 323,098 shares of common stock acquirable pursuant to options
exercisable within 60 days granted under our 1993 Non-Qualified Stock
Option Plan and 37,500 shares of common stock awarded under our Restricted
Stock Plan.
(4) Includes up to [___] shares of common stock which may be sold by Mr. Joel
Girsky if the overallotment option is exercised by the underwriters.
(5) Includes (i) 355,315 shares of common stock owned by the Girsky Family
Trust, (ii) 112,500 shares of common stock acquirable pursuant to options
exercisable within 60 days granted under our 1993 Non-Qualified Stock
Option Plan and (iii) 37,500 shares of common stock awarded under our
Restricted Stock Plan.
(6) Includes up to [___] shares of common stock which may be sold by Mr.
Charles Girsky if the overallotment option is exercised by the
underwriters.
(7) Includes 11,250 shares of common stock acquirable pursuant to
non-qualified stock options exercisable within 60 days granted to Mr.
Cohen by the Company and 11,250 shares of common stock acquirable pursuant
to the exercise of options granted under our 1993 Non-Qualified Stock
Option Plan.
(8) Includes (i) 8,799 shares of common stock acquirable pursuant to options
exercisable within 60 days granted under our Outside Directors' Plan, (ii)
11,250 shares of common stock acquirable pursuant to non-qualified stock
options exercisable within 60 days granted to Mr. Frankel by Jaco and
(iii) 11,250 shares of common stock acquirable pursuant to options
exercisable within 60 days granted under our 1993 Non-Qualified Stock
Option Plan.
(9) Includes (i) 4,399 shares of common stock acquirable pursuant to options
exercisable within 60 days granted under our Outside Directors' Plan, (ii)
15,000 shares of common stock acquirable pursuant to non-qualified stock
options exercisable within 60 days granted to Mr. Hickey by Jaco and (iii)
11,250 shares of common stock acquirable pursuant to options exercisable
within 60 days granted under our 1993 Non-Qualified Stock Option Plan.
(10) Includes 30,000 shares of common stock acquirable pursuant to options
exercisable within 60 days granted under our 1993 Non-Qualified Stock
Option Plan and 15,000 shares of common stock awarded under our Restricted
Stock Plan.
(11) Includes 15,000 shares of common stock acquirable pursuant to options
exercisable within 60 days granted under our 1993 Non-Qualified Stock
Option Plan and 7,500 shares of common stock awarded under our Restricted
Stock Plan.
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<PAGE> 40
(12) These securities are held in investment advisory accounts of Dimensional
Fund Advisors, Inc. This information is based upon a Schedule 13G dated
February 4, 2000, and information made available to Jaco.
(13) Includes 565,046 shares of common stock acquirable pursuant to options
exercisable within 60 days and 97,500 shares of common stock awarded under
our Restricted Stock Plan.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During Fiscal 2000, we incurred approximately $612,000 of rental expenses
in connection with our main headquarters and centralized inventory distribution
facility, located in Hauppauge, New York, which was paid to Bemar Realty
Company, 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. The lease on the property, which is net of all expenses,
including taxes, utilities, insurance, maintenance and repairs was renewed on
January 1, 1996 and expires on December 31, 2003. We believe the current rental
rate is at its fair market value.
Joseph F. Oliveri, our Vice Chairman of the Board and an Executive Vice
President, has been a director of EMC Corporation, a public company, since March
1993. Mr. Oliveri was also the President and Chief Executive Officer of
Interface from March 1983 until June 2000, when we acquired Interface. Interface
sells components to contract manufacturers which incorporate such components
into products sold to EMC. Mr. Oliveri was a 40% stockholder of Interface, and
therefore, upon the acquisition of Interface, Mr. Oliveri received his
proportionate share of the $15.4 million purchase price paid by Jaco at the
closing and is entitled to receive his proportionate share of up to
approximately $6.6 million of deferred payments.
Joseph F. Hickey, Jr., a Director is also a managing director of Tucker
Anthony Capital Markets. Tucker Anthony Capital Markets is an underwriter of
this offering. See "Underwriting" for information relating to fees to be
received by the underwriters in this offering.
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<PAGE> 41
DESCRIPTION OF SECURITIES
AUTHORIZED STOCK
The following summarizes the terms of our common stock which you will
receive in this offering. Please read our Certificate of Incorporation, which is
included as an exhibit to the Registration Statement of which this prospectus is
a part.
Our Authorized Capital Stock:
- 10 million shares of common stock, $0.10 par value per share; and
- 100,000 shares of preferred stock, $10 par value per share.
COMMON STOCK
Voting:
- One vote for each share held of record on all matters submitted to a
vote of shareholders;
- No cumulative voting rights;
- Election of directors by plurality of votes cast; and
- All other matters by majority of the votes cast.
Dividends:
- Subject to preferential dividend rights of outstanding shares of
preferred stock, common stockholders are entitled to receive ratably
declared dividends; and
- The Board may only declare dividends out of legally available funds.
Additional Rights:
- Subject to the preferential liquidation rights of outstanding shares
of preferred stock, common stockholder are entitled to receive
ratably net assets (available after payment of debts and other
liabilities) upon our liquidation, dissolution or winding up;
- No preemptive rights;
- No subscription rights;
- No redemption rights;
- No sinking fund rights; and
- No conversion rights.
The rights and preferences of common stockholders are subject to the
rights of any class of preferred stock we may issue in the future.
37
<PAGE> 42
PREFERRED STOCK
By resolution of our Board of Directors, we may, without any further vote
or action by our shareholders, authorize and issue, subject to limitations
prescribed by law, an aggregate of 100,000 shares of preferred stock. The
preferred stock may be issued in one or more classes or class. With respect to
any classes or class, the Board may determine the designation and the number of
shares, preferences, limitations and special rights, including dividend rights,
conversion rights, voting rights, redemption rights and liquidation preferences.
Because of the rights that may be granted, the issuance of preferred stock may
delay, defer or prevent a change of control. Prior to this offering, we had no
shares of preferred issued and outstanding.
TRANSFER AGENT
American Stock Transfer and Trust Company serves as our transfer agent.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, there will be 7,233,959 shares of common
stock outstanding. Of these shares, 1,123,838 shares, together with any shares
acquired by affiliates in this offering, will be subject to Rule 144 under the
Securities Act. As a result, 6,110,121 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 one year,
including persons who may be deemed to be affiliates of Jaco, 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 the
Nasdaq National Market 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
Jaco. 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 one-year holding period. Under Rule
144(k), a person who is not deemed to have been an affiliate of Jaco at any time
during the 90 days immediately preceding a sale by such person, and who has
beneficially owned restricted shares for at least two years, would be entitled
to sell such shares under Rule 144 without regard to any of the limitations
described above.
Jaco, its directors and executive officers have agreed not to offer, sell,
contract to sell or otherwise dispose of any shares of common stock, for a
period of 120 days after the date of the Prospectus, without the prior written
consent of the underwriters. After this period, 1,123,838 shares of common stock
held by this group will be eligible for sale subject to the resale limitations
of Rule 144.
We cannot predict 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 our common stock. Sales of substantial
38
<PAGE> 43
amounts of our common stock in the public market or the perception that such
sales might occur, could adversely affect the prevailing market price of our
common stock.
UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement
dated the date hereof, each underwriter named below has severally agreed to
purchase from us and our selling shareholders the number of shares set forth
opposite the name of such underwriter.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
------------ ----------------
<S> <C>
Tucker Anthony Incorporated..........................
Needham & Company, Inc...............................
Total......................................
================
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares included in this offering are subject to
approval of certain legal matters by counsel and to certain other conditions.
The underwriters are obligated to purchase all the shares (other than those
covered by the over-allotment option described below) if they purchase any of
the shares.
The underwriters, for whom Tucker Anthony Incorporated and Needham &
Company, Inc. are acting as representatives, propose to offer some of the shares
directly to the public at the public offering price set forth on the cover page
of this prospectus. The underwriters may allow, and such dealers may reallow, a
concession not in excess of [ ] per share on sales to certain other dealers.
Our selling shareholders, Mr. Joel Girsky and Mr. Charles Girsky, have
granted to the underwriters an option, exercisable for 30 days from the date of
the prospectus, to purchase up to 240,000 additional shares of common stock at
the public offering price less the underwriting discount. The underwriters may
exercise such options solely for the purpose of covering over-allotments if any
in connection with this offering. To the extent such option is exercised, each
underwriter will be obligated, subject to certain conditions, to purchase a
number of additional shares approximately proportionate to such underwriter's
initial purchase commitment.
We and our officers and directors and our selling shareholders have agreed
that, for a period of 120 days from the date of this prospectus, we will not,
without the prior written consent of Tucker Anthony Incorporated, dispose of or
hedge any shares of common stock of Jaco or securities convertible into or
exchangeable for common stock. Tucker Anthony Incorporated in its sole
discretion may release any of the securities subject to these lock-up agreements
at any time without notice. The common stock is quoted on the Nasdaq National
Market under the symbol "JACO."
The following table shows the underwriting discounts and commissions to be
paid to the underwriters by us and our selling shareholders in connection with
this offering. These amounts are
39
<PAGE> 44
shown assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares of common stock.
<TABLE>
<CAPTION>
Total
----------------------------
No Exercise Full Exercise
of Over- of Over-
allotment allotment
Per Share Option Option
----------- ------------ ------------
<S> <C>
Paid by Jaco.....................
Paid by selling shareholders.....
</TABLE>
In connection with the offering, Tucker Anthony Incorporated, on behalf of
the underwriters, may purchase and sell shares of common stock in the open
market. These transactions may include over-allotment, syndicate covering
transactions and stabilizing transactions. Over-allotment involves syndicate
sales of common stock in excess of the number of shares to be purchased by the
underwriters in the offering, which creates a syndicate short position.
Syndicate covering transactions involve purchases of the common stock in the
open market after the distribution has been completed in order to cover
syndicate short positions. Stabilizing transactions consist of certain bids or
purchases of common stock made for the purpose of preventing or retarding a
decline in the market price of the common stock while the offering is in
progress.
Any of these activities may cause the price of the common stock to be
higher than the price that otherwise would exist in the open market in the
absence of such transactions. These transactions may be effected on the Nasdaq
National Market or in the over-the-counter market, or otherwise and, if
commenced, may be discontinued at any time.
In addition, in connection with this offering, certain of the underwriters
(and selling group members) may engage in passive market making transactions in
the common stock on the Nasdaq National Market, prior to the pricing and
completion of the offering. Passive market making consists of displaying bids on
the Nasdaq National Market no higher than the bid prices of independent market
makers and making purchases at prices no higher than those independent bids and
effected in response to order flow. Net purchases by a passive market maker on
each day are limited to a specified percentage of the passive market makers
average daily trading volume in the common stock during a specified period and
must be discontinued when such limit is reached. Passive market making may cause
the price of the common stock to be higher than the price that otherwise would
exist in the open market in the absence of such transactions. If passive market
making is commenced, it may be discontinued at any time.
We will pay the expenses of this offering, estimated to be $[ ].
We and our selling shareholders have agreed to indemnify the underwriters
against certain liabilities, including liabilities under the Securities Act of
1933, or to contribute to payments the underwriters may be required to make in
respect of any of those liabilities.
40
<PAGE> 45
LEGAL MATTERS
Morrison Cohen Singer & Weinstein, LLP, New York, New York will pass upon
the validity of the shares of common stock for us in connection with this
offering. Stephen A. Cohen, a member of the firm and a Director of Jaco,
currently owns 7,183 shares of common stock and holds options to purchase an
additional 22,500 shares of common stock. The underwriters have been represented
by Michael Best & Friedrich LLP, Milwaukee, Wisconsin.
EXPERTS
The consolidated financial statements at June 30, 2000 and for each of the
three years in the period ended June 30, 2000 contained in this prospectus have
been audited by Grant Thornton, LLP, independent certified public accountants,
as set forth in their report, which is included in this prospectus and are
included in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing. The financial statements for Interface at
December 31, 1998 and for each of the two years in the period ended December
31, 1998 contained in this prospectus have been audited by Wald & Ingle, P.C.,
independent certified public accountants, as set forth in their report, which
is included in this prospectus and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
DOCUMENTS WE INCORPORATE BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with it, which means that we can disclose important information to you by
referring you to other documents that contain the information. The information
we incorporate by reference is considered to be a part of this prospectus and
automatically updates and supersedes previously filed information. We
incorporate by reference our annual report on Form 10-K for Fiscal 2000 and all
of our subsequent filings made pursuant to the Securities Exchange Act of 1934,
as amended, prior to the effectiveness of the registration statement.
These incorporated documents contain important information about our
finances and us. The information incorporated by reference is deemed to be part
of this prospectus, except for any information superseded by information in this
prospectus. The information incorporated by reference is an important part of
this prospectus.
You may request additional copies of documents incorporated by reference
from us at no cost. Please direct your request to: Mr. Jeffrey D. Gash, Vice
President and Principal Financial Officer, Jaco Electronics, Inc., 145 Oser
Avenue, Hauppauge, New York 11788. Our telephone number is (631) 273-5500.
41
<PAGE> 46
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-2, including amendments
thereto, relating to the common stock offered hereby with the Securities and
Exchange Commission, Washington, D.C. This prospectus does not contain all of
the information set forth in the registration statement and the exhibits and
schedules thereto. Statements contained in this prospectus as to the contents of
any contract or other document referred to are not necessarily complete and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the registration statement, each such statement being
qualified in all respects by such reference. For further information with
respect to Jaco and our common stock offered hereby reference is made to the
registration statement, exhibits and schedules. A copy of the registration
statement may be inspected by anyone without charge at the Public Reference Room
at 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of all or any part
thereof may be obtained from the Commission upon the payment of certain fees
prescribed by the Commission. Additional information may also be obtained by
calling the Commission at 1-800-SEC-0330 and on-line at the Commission's Website
at www.sec.gov.
We furnish our shareholders with annual reports containing financial
statements audited by an independent public accounting firm.
42
<PAGE> 47
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE NUMBER
-----------
<S> <C>
JACO ELECTRONICS, INC. AND SUBSIDIARIES
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets at June 30, 2000 and 1999 F-3
Consolidated Statements of Operations for each of the three
years in the period ended June 30, 2000 and 1999 F-5
Consolidated Statement of Changes in Shareholders'
Equity for the three years in the period ended June 30, 2000 F-6
Consolidated Statements of Cash Flows for each of the
three years ended June 30, 2000 F-7
Notes to Consolidated Financial Statements for each of the
three years in the period ended June 30, 2000 F-8
INTERFACE ELECTRONICS CORP.
Condensed Balance Sheet at June 30, 2000 and December 31, 1999
(unaudited) F-30
Condensed Statements of Operations for the six months
ended June 30, 2000 and 1999 (unaudited) F-31
Condensed Statements of Cash Flows for the six months ended
June 30, 2000 and 1999 (unaudited) F-32
Notes to Condensed Financial Statements for the six months ended
June 30, 2000 and 1999 (unaudited) F-33
Report of Independent Certified Public Accountants F-34
Balance Sheet at December 31, 1999 F-35
Statement of Operations and Accumulated Deficit for the year ended
December 31, 1999 F-37
Statement of Cash Flows for the year ended December 31, 1999 F-38
Notes to Financial Statements for the year ended December 31,
1999 F-40
Report of Independent Certified Public Accountants F-45
Consolidated Balance Sheets at December 31, 1998 and 1997 F-46
Consolidated Statements of Operations for the years ended
December 31, 1998 and 1997 F-48
Statements of Retained Earnings for the years ended
December 31, 1998 and 1997 F-48
Consolidated Statements of Cash Flows for the years ended
December 31, 1998 and 1997 F-49
Consolidated Supplementary Information for the years ended
December 31, 1998 and 1997 F-50
Notes to the Financial Statements for the years ended
December 31, 1998 F-51
JACO ELECTRONICS, INC. AND SUBSIDIARIES PRO FORMA FINANCIAL INFORMATION.
Unaudited Pro Forma Consolidated Statement of Operations for the
years ended June 30, 2000 and 1999 F-54
Notes to Unaudited Pro Forma Consolidated Statement of
Operations for the years ended June 30, 2000 and 1999 F-56
</TABLE>
F-1
<PAGE> 48
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, 2000 and 1999
and the related consolidated statements of operations, changes in shareholders'
equity, and cash flows for each of the three years in the period ended June 30,
2000. 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 auditing standards generally accepted
in the United States of America. 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, 2000 and 1999, and the consolidated results
of their operations and their consolidated cash flows for each of the three
years in the period ended June 30, 2000 in conformity with accounting principles
generally accepted in the United States of America.
GRANT THORNTON LLP
Melville, New York
August 15, 2000
F-2
<PAGE> 49
Jaco Electronics, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
June 30,
<TABLE>
<CAPTION>
ASSETS 2000 1999
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 617,603 $ 922,247
Marketable securities 880,954 881,622
Accounts receivable, less allowance for doubtful
accounts of $1,111,000 in 2000 and $440,000
in 1999 42,179,468 23,408,900
Inventories 53,415,793 33,224,719
Prepaid expenses and other 887,804 660,782
Prepaid and refundable income taxes 990,855
Deferred income taxes 1,975,000 336,000
------------ ------------
Total current assets 99,956,622 60,425,125
PROPERTY, PLANT AND EQUIPMENT - AT COST, NET 6,926,734 6,983,761
DEFERRED INCOME TAXES 390,000
GOODWILL, less accumulated amortization of $1,141,000
in 2000 and $895,000 in 1999 16,600,432 3,588,449
OTHER ASSETS 2,845,305 1,543,328
------------ ------------
$126,329,093 $ 72,930,663
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 50
Jaco Electronics, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS (CONTINUED)
June 30,
<TABLE>
<CAPTION>
LIABILITIES AND
SHAREHOLDERS' EQUITY 2000 1999
------------- -------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 35,346,299 $ 15,923,157
Current maturities of long-term debt and
capitalized lease obligations 807,444 791,814
Accrued compensation 2,191,693 891,987
Accrued expenses 1,652,019 820,175
Income taxes payable 1,575,319
------------- -------------
Total current liabilities 41,572,774 18,427,133
LONG-TERM DEBT AND CAPITALIZED LEASE
OBLIGATIONS 40,940,877 18,885,664
DEFERRED INCOME TAXES 225,000
DEFERRED COMPENSATION 800,000 750,000
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock - authorized, 100,000 shares, $10
par value; none issued
Common stock - authorized, 10,000,000 shares, $.10
par value; issued, 6,252,259 and 4,065,721 shares,
respectively, and 5,633,959 and 3,653,521 shares
outstanding, respectively 625,226 406,572
Additional paid-in capital, net 23,906,301 22,531,295
Retained earnings 20,296,761 13,920,807
Accumulated other comprehensive income 166,669 213,707
Treasury stock - 618,300 and 412,200 shares,
respectively, at cost (2,204,515) (2,204,515)
------------- -------------
42,790,442 34,867,866
------------- -------------
$ 126,329,093 $ 72,930,663
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 51
Jaco Electronics, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended June 30,
<TABLE>
<CAPTION>
2000 1999 1998
------------- ------------- -------------
<S> <C> <C> <C>
Net sales $ 209,325,180 $ 140,710,825 $ 153,674,226
Cost of goods sold 162,443,001 113,334,627 121,796,083
------------- ------------- -------------
Gross profit 46,882,179 27,376,198 31,878,143
Selling, general and administrative expenses 34,522,667 27,642,724 28,706,520
------------- ------------- -------------
Operating profit (Loss) 12,359,512 (266,526) 3,171,623
Interest expense 1,558,558 1,308,624 1,140,362
------------- ------------- -------------
Earnings (Loss) before income taxes 10,800,954 (1,575,150) 2,031,261
Income tax provision (benefit) 4,425,000 (418,000) 847,000
------------- ------------- -------------
NET EARNINGS (LOSS) $ 6,375,954 $ (1,157,150) $ 1,184,261
============= ============= =============
Net earnings (loss) per common share:
Basic $ 1.16 $ (0.21) $ 0.21
============= ============= =============
Diluted $ 1.11 $ (0.21) $ 0.20
============= ============= =============
Weighted-average common shares and common
equivalent shares outstanding:
Basic 5,497,866 5,547,405 5,755,050
============= ============= =============
Diluted 5,766,086 5,547,405 5,882,277
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 52
Jaco Electronics, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS' EQUITY
Years ended June 30, 2000, 1999 and 1998
<TABLE>
<CAPTION>
Accumulated
Additional other
paid-in Retained comprehensive
Shares Amount capital earnings income
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at July 1, 1997 3,975,721 $ 397,572 $ 22,180,295 $ 13,893,696 $ 120,200
Net earnings 1,184,261
Unrealized gain on marketable
securities - net 44,185
Comprehensive income
Issuance of restricted stock 90,000 9,000 621,000
Deferred compensation expense
Purchase of treasury stock
------------ ------------ ------------ ------------ ------------
Balance at June 30, 1998 4,065,721 406,572 22,801,295 15,077,957 164,385
Net loss (1,157,150)
Unrealized gain on marketable
securities - net 49,322
Comprehensive loss
Deferred compensation expense
Purchase of treasury stock
------------ ------------ ------------ ------------ ------------
Balance at June 30, 1999 4,065,721 406,572 22,801,295 13,920,807 213,707
Net earnings 6,375,954
Unrealized loss on marketable
securities - net (47,038)
Comprehensive income
Exercise of stock options 102,482 10,248 860,760
Stock options income tax
benefits 431,840
Restricted stock plan income
tax benefits 155,812
Effect of 3-for-2 stock split 2,084,056 208,406 (208,406)
Deferred compensation expense
------------ ------------ ------------ ------------ ------------
Balance at June 30, 2000 6,252,259 $ 625,226 $ 24,041,301 $ 20,296,761 $ 166,669
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Deferred Total
Treasury compen- shareholders'
stock sation equity
------------ ------------ ------------
<S> <C> <C> <C>
Balance at July 1, 1997 $ (700,000) $ 35,891,763
------------
Net earnings 1,184,261
Unrealized gain on marketable
securities - net 44,185
------------
Comprehensive income 1,228,446
------------
Issuance of restricted stock $ (540,000) 90,000
Deferred compensation expense 135,000 135,000
Purchase of treasury stock (719,962) (719,962)
------------ ------------ ------------
Balance at June 30, 1998 (1,419,962) (405,000) 36,625,247
------------
Net loss (1,157,150)
Unrealized gain on marketable
securities - net 49,322
------------
Comprehensive loss (1,107,828)
------------
Deferred compensation expense 135,000 135,000
Purchase of treasury stock (784,553) (784,553)
------------ ------------ ------------
Balance at June 30, 1999 (2,204,515) (270,000) 34,867,866
------------
Net earnings 6,375,954
Unrealized loss on marketable
securities - net (47,038)
------------
Comprehensive income 6,328,916
------------
Exercise of stock options 871,008
Stock options income tax
benefits 431,840
Restricted stock plan income
tax benefits 155,812
Effect of 3-for-2 stock split
Deferred compensation expense 135,000 135,000
------------ ------------ ------------
Balance at June 30, 2000 $ (2,204,515) $ (135,000) $ 42,790,442
============ ============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
<PAGE> 53
Jaco Electronics, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended June 30,
<TABLE>
<CAPTION>
2000 1999 1998
------------ ------------ -------------
<S> <C> <C> <C>
Cash flows from operating activities
Net earnings (loss) $ 6,375,954 $ (1,157,150) $ 1,184,261
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities
Depreciation and amortization 1,868,420 1,587,766 1,356,457
Deferred compensation 185,000 185,000 185,000
Deferred income tax (benefit) expense (996,963) 351,000 33,000
(Gain) loss on sale of equipment (918) 2,717
Provision for doubtful accounts 597,694 981,622 475,816
Changes in operating assets and liabilities, net of
effects of acquisitions
Increase in accounts receivable (14,659,938) (2,502,904) (355,660)
(Increase) decrease in inventories (15,356,153) 2,512,569 (2,426,087)
(Increase) decrease in prepaid expenses and other (57,057) 542,416 156,419
Increase (decrease) in accounts payable 10,630,824 (710,232) 800,191
Increase (decrease) in accrued compensation 1,299,706 (61,188) 65,244
Increase in accrued expenses 540,639 12,488 226,689
Increase (decrease) in income taxes payable 2,566,174 (380,723) (81,889)
------------ ------------ -------------
Net cash (used in) provided by operating activities (7,005,700) 1,359,746 1,622,158
------------ ------------ -------------
Cash flows from investing activities
Purchase of marketable securities (73,407) (39,139) (68,049)
Capital expenditures (892,149) (1,603,361) (1,068,775)
Proceeds from the sale of equipment 128,892 9,689 120,515
Business acquisitions, net of cash acquired (14,877,230)
Decrease (increase) in other assets 2,342,542 (7,834) (258,905)
------------ ------------ -------------
Net cash used in investing activities (13,371,352) (1,640,645) (1,275,214)
------------ ------------ -------------
Cash flows from financing activities
Borrowings from line of credit 95,831,956 53,507,313 152,258,926
Borrowings under term loan for equipment 575,000
Payments of line of credit (76,391,130) (51,851,995) (151,076,073)
Principal payments under equipment financing (612,792) (590,889) (586,345)
Payments under term loan (214,286) (214,286) (214,286)
Purchase of treasury stock (784,553) (719,962)
Proceeds from issuance of restricted stock 90,000
Proceeds from exercise of stock options 871,008
Stock options income tax benefits 431,840
Restricted stock plan income tax benefits 155,812
------------ ------------ -------------
Net cash provided by (used in) financing activities 20,072,408 640,590 (247,740)
------------ ------------ -------------
NET (DECREASE) INCREASE IN CASH (304,644) 359,691 99,204
Cash at beginning of year 922,247 562,556 463,352
------------ ------------ -------------
Cash at end of year $ 617,603 $ 922,247 $ 562,556
============ ============ =============
Supplemental disclosures of cash flow information:
Cash paid during the year for
Interest $ 1,559,000 $ 1,310,000 $ 1,301,000
Income taxes 2,267,000 22,000 929,000
Supplemental schedule of noncash financing and
investing activities:
Equipment under capital leases $ 126,229 $ 552,544 $ 1,165,781
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE> 54
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Jaco Electronics, Inc. and Subsidiaries (the "Company") is primarily
engaged in the distribution of semiconductors, capacitors, resistors,
electromechanical devices, flat panel displays and monitors and power
supplies, which are used in the manufacture and assembly of electronic
products. In addition, the Company provides contract manufacturing
services.
Electronics parts distribution sales include exports made principally to
customers located in Western Europe, Canada, Mexico, and the Far East. For
the years ended June 30, 2000, 1999 and 1998, export sales amounted to
approximately $8,170,000, $4,810,000 and $4,537,000, 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. Investments in Marketable Securities
Investments in marketable securities consist of investments in
mutual funds. Such investments have been classified as
"available-for-sale securities" and are reported at fair market
value, which is inclusive of unrealized gains of $261,379 and
$335,455 in 2000 and 1999, respectively. Changes in the fair value
of available-for-sale securities are included in accumulated other
comprehensive income, net of the related deferred tax effects.
4. Inventories
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out and average cost methods.
F-8
<PAGE> 55
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
5. Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is
provided for using the straight-line method over the estimated
useful life of the assets.
The Company capitalizes costs incurred for internally developed
software where economic and technological feasibility has been
established. These capitalized software costs are being amortized on
a straight-line basis over the estimated useful life of seven years.
6. Goodwill And Other Intangible Assets
Goodwill and other intangible assets represent the excess of the
aggregate price paid by the Company over the fair market value of
the tangible assets acquired in business acquisitions accounted for
as a purchase. Goodwill and other identifiable intangible assets are
amortized on a straight-line basis from five to forty years.
The Company reviews for the impairment of long-lived assets and
certain identifiable intangibles (including goodwill, property and
equipment) whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. An
impairment loss would be recognized when estimated future cash flows
expected to result from the use of the asset and its eventual
disposition is less than its carrying amount. The Company has not
identified such impairment losses.
7. Income Taxes
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 reduce deferred
tax assets attributable to a subsidiary of the Company, 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.
F-9
<PAGE> 56
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
8. Earnings (Loss) Per Common Share
Earnings per share have been restated for all periods presented to
give effect to a 3-for-2 stock split announced on June 26, 2000.
Basic earnings per share are determined by dividing the Company's
net earnings by the weighted average shares outstanding. Diluted
earnings per share include the dilutive effects of outstanding stock
options.
9. Financial Instruments and Business Concentrations
Financial instruments which potentially subject the Company to
concentration of credit risk consist principally of accounts
receivable. Concentration of credit risk with respect to accounts
receivable is generally mitigated due to the large number of
entities comprising the Company's customer base, their dispersion
across geographic areas and industries, along with the Company's
policy of maintaining credit insurance. The Company routinely
addresses the financial strength of its customers and, historically,
its accounts receivable credit risk exposure is limited. However,
during the fourth quarter of fiscal 1999 the Company recorded
approximately $630,000 of additional bad debt expense, relating to
the bankruptcy of a customer.
Statement of Financial Accounting Standards No. 107 ("SFAS No.
107"), "Fair Value of Financial Instruments," requires disclosure of
the estimated fair value of an entity's financial instrument assets
and liabilities. The Company's principal financial instrument
consists of a revolving credit facility, expiring on September 13,
2001, with two participating banks. The Company believes that the
carrying amount of such debt approximates the fair value as the
variable interest rate approximates the current prevailing interest
rate.
The Company generally purchases products from manufacturers pursuant
to nonexclusive distributor agreements. During the year ended June
30, 2000, purchases from three suppliers accounted for 18%, 15% and
10%, respectively, of net sales. As is common in the electronics
distribution industry, from time to time the Company has experienced
terminations of relationships with suppliers. There can be no
assurance that, in the event a supplier cancelled its distributor
agreement with the Company, the Company will be able to replace the
sales with sales of other products.
F-10
<PAGE> 57
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
10. Use of Estimates
In preparing financial statements in conformity with generally
accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements, as well as the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
11. Comprehensive Income
In fiscal 1999, the Company adopted Statement of Financial
Accounting Standards No. 130 ("SFAS No. 130"), "Reporting
Comprehensive Income." SFAS No. 130 established rules for the
reporting and display of comprehensive income and its components;
however, the adoption of SFAS No. 130 had no impact on the Company's
earnings or shareholders' 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
shareholders' 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.
12. Segment Reporting
In fiscal 1999, the Company adopted Statement of Financial
Accounting Standards No. 131 (SFAS 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.
13. Advertising
Advertising costs are expensed as incurred and totaled $109,308,
$250,198 and $257,281 for the years ended June 30, 2000, 1999 and
1998 respectively.
F-11
<PAGE> 58
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000, 1999 and 1998
NOTE B - INVENTORY
Inventories consist of the following:
<TABLE>
<CAPTION>
June 30,
------------------------------
2000 1999
----------- -----------
<S> <C> <C>
Finished goods and goods held for resale $48,609,676 $29,048,654
Work-in-process 885,688 686,180
Raw materials 3,920,429 3,489,885
----------- -----------
$53,415,793 $33,224,719
=========== ===========
</TABLE>
NOTE C - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of:
<TABLE>
<CAPTION>
Useful June 30,
life -------------------------------
in years 2000 1999
-------- ----------- ------------
<S> <C> <C> <C>
Land, building and improvements 10 to 30 $ 1,482,419 $ 1,468,708
Machinery and equipment 3 to 7 8,928,252 7,488,477
Internally developed software costs 7 1,831,851 1,769,857
Transportation equipment 3 to 5 88,105 64,109
Leasehold improvements 5 to 10 601,218 601,218
----------- ------------
12,931,845 11,392,369
Less accumulated depreciation and amortization
(including $950,604 in 2000 and $635,195
in 1999, of capitalized lease amortization) 6,005,111 4,408,608
----------- -----------
$ 6,926,734 $ 6,983,761
=========== ============
</TABLE>
Included in machinery and equipment are assets recorded under capitalized
leases at June 30, 2000 and 1999 for $2,468,686 and $2,342,457,
respectively.
F-12
<PAGE> 59
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000, 1999 and 1998
NOTE D - INCOME TAXES
The components of the Company's provision for income taxes are as follows:
<TABLE>
<CAPTION>
June 30,
----------------------------------------------
2000 1999 1998
----------- --------- --------
<S> <C> <C> <C>
Federal
Current $ 3,448,000 $(887,000) $663,000
Deferred (67,000) 351,000 33,000
----------- --------- --------
3,381,000 (536,000) 696,000
State 1,044,000 118,000 151,000
----------- --------- --------
$ 4,425,000 $(418,000) $847,000
=========== ========= ========
</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,
-------------------------------------
2000 1999 1998
------ ------ ------
<S> <C> <C> <C>
Statutory Federal tax rate 34.0% (34.0)% 34.0%
State income taxes, net of Federal tax
benefit 5.5 5.0 5.0
Sales expense for which no tax
benefit arises .9 2.4 2.4
Other .6 .1 .3
------ ------ ------
Effective tax rate 41.0% (26.5)% 41.7%
====== ====== ======
</TABLE>
F-13
<PAGE> 60
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000, 1999 and 1998
NOTE D - INCOME TAXES (CONTINUED)
Deferred income tax assets and liabilities resulting from differences
between accounting for financial statement purposes and tax purposes are
summarized as follows:
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Deferred tax assets
Net operating loss carryforwards $ 430,000 $ 389,000
Allowance for bad debts 384,000 161,000
Inventory valuation 1,421,000 869,000
Deferred compensation 292,000 274,000
Other deferred tax assets 352,000 243,000
----------- -----------
2,879,000 1,936,000
Deferred tax liabilities
Depreciation (618,000) (683,000)
Unrealized gain on marketable securities
available for sale (99,000) (122,000)
Other (87,000) (80,000)
----------- -----------
2,075,000 1,051,000
Valuation allowance (325,000) (325,000)
----------- -----------
Net deferred tax asset $ 1,750,000 $ 726,000
=========== ===========
</TABLE>
At June 30, 2000, the Company, through an acquisition, has available a
Federal net operating loss carryforward of approximately $1,179,000. Such
net operating loss is subject to certain limitations and expires in
varying amounts during the fiscal years 2007 through 2010. Further, the
Company has established a valuation allowance with respect to the net
deferred tax assets attributable to this acquired subsidiary.
F-14
<PAGE> 61
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000, 1999 and 1998
NOTE E - EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
For the year ended June 30,
-------------------------------------------------------------------------------------------------------
2000 1999 1998
------------------------------- -------------------------------- -------------------------------
INCOME SHARES PER Income Shares Per Income Shares Per
(NUMER- (DENOMI- SHARE (numer- (denomi- share (numer- (denomi- share
ATOR) NATOR) AMOUNT ator) nator) amount ator) nator) amount
---------- --------- ----- ----------- --------- ------ ---------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic earnings per share;
income available to
common shareholders $6,375,954 5,497,866 $1.16 $(1,157,150) 5,547,405 $(0.21) $1,184,261 5,755,050 $0.21
Effect of dilutive
securities Stock options 268,220 127,227
---------- --------- ----------- --------- ---------- ---------
Diluted earnings per
share; income available
to common shareholders
plus assumed
conversions $6,375,954 5,766,086 $1.11 $(1,157,150) 5,547,405 $(0.21) $1,184,261 5,882,277 $0.20
========== ========= =========== ========= ========== =========
</TABLE>
Excluded from the calculation of earnings per share are options and
warrants to purchase 45,000, 832,943 and 431,447 shares in fiscal 2000,
1999 and 1998, respectively, as their inclusion would have been
antidilutive.
F-15
<PAGE> 62
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000, 1999 and 1998
NOTE F - DEBT AND CAPITALIZED LEASE OBLIGATIONS
Debt and capitalized lease obligations are as follows:
<TABLE>
<CAPTION>
June 30,
------------------------------
2000 1999
----------- -----------
<S> <C> <C>
Term loan and revolving line of credit (a) $39,895,981 $17,338,575
Other term loans (b) 469,535 621,797
Equipment note 5,251
Capitalized lease obligations (c) 1,533,389 1,966,520
----------- -----------
41,898,905 19,932,143
Less amounts representing interest on capitalized
lease obligations 150,584 254,665
----------- -----------
41,748,321 19,677,478
Less current maturities 807,444 791,814
----------- -----------
$40,940,877 $18,885,664
=========== ===========
</TABLE>
(a) Term Loan and Revolving Line of Credit Facility
The Company's agreement with its banks, as amended, provides the
Company with a $50,000,000 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
agreement was amended to (i) increase the amount available under the
revolving line of credit (ii) extend the maturity date to September
13, 2001, (iii) change the interest rate to a rate based on the
average 30-day LIBOR plus 1-3/4% through the quarter ending
September 30, 2000 and at that point the rate converts to 30-day
LIBOR plus 1% to 2-1/4% depending on the Company's performance for
the immediately preceding four fiscal quarters measured by a certain
financial ratio, and (iv) change the requirements of certain
financial covenants. The applicable interest rate may be adjusted
quarterly and borrowings under this facility are collateralized by
substantially all of the assets of the Company. The outstanding
balance on the revolving line of credit facility was $39,735,267 at
June 30, 2000, with an associated interest rate of 8.40%. Pursuant
to the same agreement, at June 30, 2000, a term loan with a
remaining balance of $160,714 requires monthly principal payments of
$17,857, together with interest through March 1, 2001. The agreement
contains provisions for maintenance of certain financial ratios, all
of which the Company is in compliance with, and prohibits the
payment of cash dividends.
F-16
<PAGE> 63
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000, 1999 and 1998
NOTE F - DEBT AND CAPITALIZED LEASE OBLIGATIONS (CONTINUED)
(b) Other Term Loans
Other term loans as of June 30, 2000 are as follows:
<TABLE>
<CAPTION>
Monthly
Date of loan Balance Term payment
------------ ------- ---- -------
<S> <C> <C> <C>
March 16, 1995 $ 54,544 84 months $2,730
January 14, 1999 414,991 60 months 9,829
--------
$469,535
========
</TABLE>
The above loans are collateralized by the related equipment
acquired, having a carrying value of approximately $586,000 at June
30, 2000 and $770,000 at June 30, 1999. The agreements contain,
among other things, restrictive covenants on one of the Company's
subsidiaries, which place limitations on: (i) consolidations,
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 5.5% and 1% per annum, respectively.
(c) Capitalized Lease Obligations
The Company leases certain equipment under agreements accounted for
as capital leases. During fiscal 2000, the Company acquired
approximately $126,000 of equipment through a capital lease. The
obligations for the equipment require the Company to make monthly
payments through September 2003, with implicit interest rates from
7.0% to 8.5%.
F-17
<PAGE> 64
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000, 1999 and 1998
NOTE F - DEBT AND CAPITALIZED LEASE OBLIGATIONS (CONTINUED)
The following is a summary of the aggregate annual maturities of debt and
capitalized lease obligations as of June 30, 2000:
<TABLE>
<CAPTION>
Capitalized
Debt leases
----------- ----------
<S> <C> <C>
Year ending June 30,
2001 $ 305,560 $ 589,115
2002 39,874,753 548,753
2003 116,628 357,026
2004 68,575 38,495
----------- ----------
$40,365,516 $1,533,389
=========== ==========
</TABLE>
NOTE G - COMMITMENTS AND CONTINGENCIES
1. Leases
The Company leases certain 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 under such leases are
as follows:
<TABLE>
<CAPTION>
Year ending June 30,
<S> <C>
2001 $1,724,456
2002 1,664,052
2003 1,518,177
2004 931,634
2005 479,968
2006 14,331
----------
$6,332,618
==========
</TABLE>
F-18
<PAGE> 65
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000, 1999 and 1998
NOTE G - COMMITMENTS AND CONTINGENCIES (CONTINUED)
In addition, the Company leases office and warehouse facilities from
a partnership owned by two officers and directors of the Company.
The lease expires in December 2003 and requires minimum annual lease
payments as follows:
<TABLE>
<S> <C>
Year ending June 30,
2001 $ 627,900
2002 659,327
2003 692,293
2004 354,589
----------
$2,334,109
==========
</TABLE>
The Company's rent expense was approximately $602,000 for each of
the years ended June 30, 2000, 1999 and 1998, respectively, in
connection with the above lease.
Rent expense on office and warehouse facilities leases for the years
ended June 30, 2000, 1999 and 1998 was approximately $1,235,000,
$1,131,000 and $1,033,000, respectively, net of sublease income of
approximately $127,000, $110,000 and $115,000, respectively.
2. Other Leases
The Company also leases various office equipment and automobiles
under noncancellable operating leases expiring through June 2005.
The minimum rental commitments required under these leases at June
30, 2000 are as follows:
<TABLE>
<S> <C>
Year ending June 30,
2001 $329,486
2002 310,681
2003 123,905
2004 19,628
2005 2,750
--------
$786,450
========
</TABLE>
F-19
<PAGE> 66
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000, 1999 and 1998
NOTE G - COMMITMENTS AND CONTINGENCIES (CONTINUED)
3. Employment Agreements
The Company has entered into employment agreements with three
executive officers which provide for annual base salary aggregating
$675,000 through June 30, 2003 and contain provisions for severance
payments in the event of change of control as defined in the
agreements. The Company's agreements with its Chairman and Executive
Vice President provides for cash bonuses equal to 4% and 2%,
respectively, of the Company's earnings before income taxes for each
fiscal year in which such earnings are in excess of $1,000,000 or 6%
and 3%, respectively, of the Company's earnings before income taxes
if such earnings are in excess of $2,500,000 up to a maximum annual
cash bonus of $720,000 and $360,000, respectively. In addition, the
Company's agreement with its Chairman provides for a deferred
compensation which accrues at a rate of $50,000 per year and becomes
payable in a lump sum at the later of (i) the Chairman's attainment
of age 60 (which has occurred), or (ii) his cessation of employment,
with or without cause, at any time.
On June 6, 2000, the Company entered into an employment agreement
with an Executive Vice President which provides for an annual base
of $300,000 through May 30, 2003. The employment agreement also
provides for an annual cash bonus equal to 2% of certain gross
profit dollars, as defined.
4. Other Matters
The Company is a party to legal matters arising in the general
conduct of business. The ultimate outcome of such matters is not
expected to have a material adverse effect on the Company's results
of operations or financial position.
NOTE H - 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, 2000, 1999 and 1998, the Company
contributed to this plan approximately $116,000, $96,000 and $132,000,
respectively.
F-20
<PAGE> 67
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000, 1999 and 1998
NOTE I - SHAREHOLDERS' EQUITY
On June 26, 2000, the Company announced a 3-for-2 stock split which was in
the form of a 50% common stock dividend payable on July 24, 2000 to
shareholders of record on July 10, 2000. All references to the number of
weighted average common shares outstanding and earnings per share have
been restated to reflect the 3-for-2 stock split.
In connection with the Company's 1995 public offering, the Company also
issued stock warrants, to the representative underwriters, to purchase up
to 105,000 shares of common stock at an exercise price per share equal to
180% of the, $8.50 per share, public offering price, which expired on
October 20, 1999.
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 and pricing 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. In December 1997, the shareholders of the
Company approved an increase in the amount of shares reserved for the 1993
plan to 900,000 from 440,000, of which 739,723 are outstanding at June 30,
2000.
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 22,000 shares of the
Company's common stock at the fair market value on the date of grant. Each
outside director who was serving on December 31 of each calendar year
subsequent to 1993 was granted options to purchase 4,399 shares of the
Company's common stock annually. The Outside Directors Plan expired on
January 1, 1998, with a total of 13,197 options outstanding at June 30,
2000. 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.
In June 1997, the Company appointed an additional outside director to the
Board of Directors who received 15,000 options to purchase the Company's
common stock at the fair market value on the date of grant. In September
1998, two outside directors were each granted 11,250 options to purchase
the Company's common stock at the fair market value on the date of grant.
These 37,500 options were not granted pursuant to any of the Company's
existing stock option plans.
F-21
<PAGE> 68
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000, 1999 and 1998
NOTE I - SHAREHOLDERS' EQUITY (CONTINUED)
Outstanding options granted to employees, directors and officers for the
last three fiscal years are summarized as follows:
<TABLE>
<CAPTION>
Nonqualified Weighted -
stock options average
-------------------------- exercise
Price range Shares price
----------- ------ -----
<S> <C> <C> <C>
Outstanding at July 1, 1997 $3.18 - $8.50 525,398 $ 4.96
Granted $4.17 13,197 4.17
Expired $8.50 (3,750) 8.50
-------
Outstanding at June 30, 1998 $3.18 - $8.50 534,845 4.91
-------
Granted $1.79 - $2.75 397,500 2.23
Expired $3.18 - $8.50 (204,402) 3.19
-------
Outstanding at June 30, 1999 $1.79 - $8.50 727,943 3.79
-------
Granted $2.50 - $13.71 258,000 4.70
Exercised $1.79 - $8.50 (153,723) 5.67
Expired $2.50 - $4.67 (41,800) 3.44
-------
OUTSTANDING AT JUNE 30, 2000 $1.79 - $13.71 790,420 3.74
=======
AMOUNTS EXERCISABLE AT
JUNE 30, 2000 $1.79 - $8.50 554,170 3.25
=======
</TABLE>
The following table summarizes information concerning currently
outstanding and exercisable nonqualified stock options:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
----------------------------------------- ------------------------------------------
Weighted- Weighted-
average Weighted- average Weighted-
remaining average remaining average
Number contractual exercise Number contractual exercise
Range of exercise prices outstanding life (months) price exercisable life (months) price
------------------------ ----------- ------------- ----- ----------- ------------- -----
<S> <C> <C> <C> <C> <C> <C>
$1.79 - $ 5.00 682,521 42 $ 2.77 491,271 38 $2.76
$5.01 - $ 9.00 62,899 9 $ 7.14 62,899 9 $7.14
$9.01 - $13.71 45,000 59 $ 13.71 -- -- --
</TABLE>
F-22
<PAGE> 69
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000, 1999 and 1998
NOTE I - SHAREHOLDERS' EQUITY (CONTINUED)
The weighted-average option fair value on the grant date was $4.97, $.92
and $1.25 for options issued during the years ended June 30, 2000, 1999
and 1998, respectively.
The Company has adopted the disclosure provisions of Statement of
Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for
Stock-Based Compensation"; it applies APB Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations in accounting for
the Plan and does not recognize compensation expense for such Plan. If the
Company had elected to recognize compensation expense based upon the fair
value at the grant dates for awards under these plans consistent with the
methodology prescribed by SFAS No. 123, the Company's reported net
earnings and earnings per share would be reduced to the pro forma amount
indicated below for the years ended June 30:
<TABLE>
<CAPTION>
2000 1999 1998
------------- ------------- -------------
<S> <C> <C> <C>
Net earnings (loss)
As reported $ 6,375,954 $ (1,157,150) $ 1,184,261
Pro forma 6,098,272 (1,523,550) 1,167,761
Net earnings (loss) per common share - basic
As reported $ 1.16 $ (0.21) $ 0.21
Pro forma 1.11 (0.27) 0.20
Net earnings (loss) per common share - diluted
As reported $ 1.11 $ (0.21) $ 0.20
Pro forma 1.06 (0.27) 0.20
</TABLE>
These pro forma amounts may not be representative of future disclosures
because they do not take into account pro forma compensation expense
related to grants made before fiscal 1996. The fair value of these options
was estimated at the date of grant using the Black-Scholes option-pricing
model with the following weighted-average assumptions for the fiscal years
ended June 30, 2000, 1999 and 1998, respectively; expected volatility of
109%, 55% and 35%; risk-free interest rates of 6.25%, 5.08% and 5.42%; and
expected term of 3 years for all years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the use of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective assumptions can materially
affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair
value of its employee stock options.
F-23
<PAGE> 70
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000, 1999 and 1998
NOTE I - SHAREHOLDERS' EQUITY (CONTINUED)
The Board of Directors of the Company has authorized the purchase of up to
375,000 shares of its common stock under a stock repurchase program. In
fiscal 1998, the Board of Directors authorized the repurchase of up to an
additional 600,000 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. To date,
the Company has purchased 618,300 shares of its common stock for aggregate
consideration of $2,204,515 under this program.
In June 1997, the Company's Board of Directors approved the adoption of a
restricted stock plan, which was subsequently ratified by shareholders
during the Company's December 1997 annual meeting. The plan enables the
Board of Directors or Plan Committee to have sole discretion and authority
to determine who may purchase restricted stock, the number of shares, the
price to be paid and the restrictions placed upon the stock. Pursuant to
this plan, the Company issued 135,000 shares of common stock to certain
employees at a purchase price of $.67 per share. Shares purchased are
subject to a four-year vesting period and the Company recognized $135,000
of compensation expense during fiscal 2000, 1999 and 1998 in connection
with this plan.
NOTE J - ACQUISITIONS
On June 6, 2000, the Company acquired all of the issued and outstanding
shares of common stock, no par value, of Interface Electronics Corp.
("Interface"), a distributor of electronic parts, components and
equipment, located in Massachusetts. The purchase price was $15,400,000
payable in cash at the closing, (June 6, 2000), plus a deferred payment of
up to $3,960,000, payable approximately one year from the anniversary of
the closing. This payment will be made provided that certain conditions,
as defined in the purchase agreement, are met. On the second anniversary
of the closing date a deferred payment of up to $2,640,000 shall be paid
provided that certain conditions, as defined in the purchase agreement,
are met. When this contingency is resolved, the Company shall record the
current fair value of the consideration paid as additional goodwill which
will be amortized over the remaining life of the asset.
The acquisition has been accounted for as a purchase and the operations of
Interface have been included in the Company's Statement of Earnings since
the date of acquisition, June 6, 2000. Included in other assets are the
costs of the identifiable intangible assets acquired, principally an
employment
F-24
<PAGE> 71
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000, 1999 and 1998
NOTE J - ACQUISITIONS (CONTINUED)
agreement and a franchise agreement which are being amortized on a
straight-line basis over five and fifteen years, respectively. The excess
of the purchase price and related expenses over the net tangible and
identifiable intangible assets acquired amounted to approximately
$13,048,000 and is being amortized on a straight line basis over twenty
years. A summary of the preliminary allocation of the assets and
liabilities acquired follows:
<TABLE>
<S> <C>
Operating assets acquired $ 13,736,139
Employment agreement 685,000
Franchise agreement 550,000
------------
14,971,139
Liabilities assumed (12,414,389)
Estimated transaction costs (205,000)
------------
(12,619,389)
Goodwill 13,048,250
------------
Total purchase price $ 15,400,000
============
</TABLE>
Summarized below are the unaudited pro forma results of operations of the
Company as if Interface has been acquired at the beginning of the fiscal
periods presented:
<TABLE>
<CAPTION>
Pro forma years ended June 30,
2000 1999
--------------- ---------------
<S> <C> <C>
Net sales $ 252,756,821 $ 172,131,191
Net income (loss) 3,993,635 (3,531,947)
Net income (loss) per share
Basic 0.73 (0.64)
Diluted 0.69 (0.64)
</TABLE>
The pro forma financial information presented above is not necessarily
indicative of either the results of operations that would have occurred
had the acquisition taken place at the beginning of the periods presented
or of future operating results of the combined companies.
F-25
<PAGE> 72
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000, 1999 and 1998
NOTE J - ACQUISITIONS (CONTINUED)
On February 25, 2000, the Company purchased the operating assets of PGI,
Industries, Inc., ("PGI") an exporter of electronic components, located in
Ronkonkoma, New York. The purchase price was $1,200,000 paid in cash, plus
a deferred payment of $100,000 payable over the next two years based on
certain conditions, as defined in the purchase agreement. When this
contingency is resolved, the Company shall record the current fair value
of the consideration issued as additional costs of the acquired
enterprise. These additional costs shall be amortized over the remaining
life of the asset. The acquisition has been accounted for as a purchase
and the operations of PGI have been included in the Company's Statement of
Earnings since the date of acquisition, February 25, 2000. The excess of
the purchase price over the fair value of the assets acquired,
approximately $210,000, is being amortized on a straight-line basis over
twenty years. Proforma results of operations are not material.
NOTE K - BUSINESS SEGMENTS AND GEOGRAPHIC INFORMATION
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 fiscal years 2000, 1999 and 1998, is not
considered material to the financial statements.
F-26
<PAGE> 73
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000, 1999 and 1998
NOTE K - BUSINESS SEGMENTS AND GEOGRAPHIC INFORMATION (CONTINUED)
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>
Year ended June 30,
--------------------------------------------
2000 1999 1998
--------- --------- --------
(in thousands)
<S> <C> <C> <C>
Net sales from external customers
Electronics components distribution $ 193,111 $ 127,401 $137,297
Contract manufacturing 16,214 13,310 16,377
--------- --------- --------
$ 209,325 $ 140,711 $153,674
========= ========= ========
Intersegment net sales
Electronics components distribution $ 324 $ 336 $ 593
Contract manufacturing 111 382
--------- --------- --------
$ 324 $ 447 $ 975
========= ========= ========
Operating profit (loss)
Electronics components distribution $ 12,012 $ (868) $ 2,251
Contract manufacturing 348 602 921
--------- --------- --------
$ 12,360 $ (266) $ 3,172
========= ========= ========
Interest expense
Electronics components distribution $ 1,053 $ 768 $ 662
Contract manufacturing 506 541 478
--------- --------- --------
$ 1,559 $ 1,309 $ 1,140
========= ========= ========
Income tax provision (benefit)
Electronics components distribution $ 4,489 $ (374) $ 662
Contract manufacturing (64) (44) 185
--------- --------- --------
$ 4,425 $ (418) $ 847
========= ========= ========
</TABLE>
F-27
<PAGE> 74
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000, 1999 and 1998
NOTE K - BUSINESS SEGMENTS AND GEOGRAPHIC INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
Year ended June 30,
--------------------------------------
2000 1999 1998
-------- ------- -------
(in thousands)
<S> <C> <C> <C>
Identifiable assets
Electronics components distribution $115,109 $62,259 $60,929
Contract manufacturing 10,995 10,672 12,490
-------- ------- -------
$126,104 $72,931 $73,419
======== ======= =======
Capital expenditures
Electronics components distribution $ 612 $ 396 $ 1,002
Contract manufacturing 280 1,207 67
-------- ------- -------
$ 892 $ 1,603 $ 1,069
======== ======= =======
Depreciation and amortization
Electronics components distribution $ 1,209 $ 1,049 $ 913
Contract manufacturing 659 539 443
-------- ------- -------
$ 1,868 $ 1,588 $ 1,356
======== ======= =======
</TABLE>
F-28
<PAGE> 75
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000, 1999 and 1998
NOTE L - SUPPLEMENTAL SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Quarter ended
--------------------------------------------------------------------------------------------------
June 30, March 31, December 31, September 30, June 30, March 31,
2000 2000 1999 1999 1999 1999
----------- ----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Net sales $70,513,859 $51,693,699 $45,100,259 $42,017,363 $ 36,300,595 $36,187,676
Gross profit 17,065,608 12,012,855 9,868,111 7,935,605 6,985,022 6,993,692
Net earnings (loss) 3,512,177 1,766,228 883,474 214,075 (918,629) 71,377
Net earnings (loss)
per common share (a)
Basic $0.63 $0.32 $0.16 $0.04 $(0.17) $0.01
Diluted 0.58 0.30 0.16 0.04 (0.17) 0.01
</TABLE>
<TABLE>
<CAPTION>
Quarter ended
-------------------------------
December 31, September 30,
1998 1998
------------ ------------
<S> <C> <C>
Net sales $ 34,966,098 $ 33,256,456
Gross profit 6,695,096 6,702,388
Net earnings (loss) (67,792) (242,106)
Net earnings (loss)
per common share (a)
Basic $(0.01) $(0.04)
Diluted (0.01) (0.04)
</TABLE>
(a) As adjusted to reflect a 3-for-2 stock split effective July 24, 2000.
F-29
<PAGE> 76
INTERFACE ELECTRONICS CORP.
CONDENSED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $482,618 $307,518
Accounts receivable - net 7,314,200 5,503,123
Inventories 5,927,606 2,610,046
Loans receivable, other 11,634 160,054
Prepaid expenses and other current assets 98,965 65,927
---------- ---------
Total current assets 13,835,023 8,646,668
Property and equipment - net 489,240 546,019
Other assets:
Loans receivable, officers 714,657
Due from related party 315,538
Deposits 57,954 57,954
Investments 50,747
Cash surrender value of officers' life insurance 96,923 96,923
---------- ---------
TOTAL ASSETS $14,479,140 $10,428,506
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Note payable, line of credit $3,305,547
Accounts payable, trade $7,948,262 6,912,839
Due to parent company 5,543,168
Due to related party 42,104
Accrued liabilities:
Payroll and payroll taxes 33,101 182,144
Litigation costs 1,000,000
Income taxes payable 192,000
Other 216,869 131,060
---------- ---------
Total current liabilities 13,933,400 11,573,694
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock 85,000 85,000
Additional paid-in capital 1,362,843 312,843
Accumulated deficit (902,103) (1,543,031)
---------- ---------
Total shareholders' equity (deficit) 545,740 (1,145,188)
---------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) $14,479,140 $10,428,506
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
F-30
<PAGE> 77
INTERFACE ELECTRONICS CORP.
CONDENSED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30,
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
NET SALES $32,353,385 $15,563,862
COST AND EXPENSES:
Cost of goods sold 27,496,402 12,912,546
------------------ ------------------
Gross profit 4,856,983 2,651,316
Selling, general and administrative expenses 3,755,418 3,212,216
------------------ ------------------
Operating profit (loss) 1,101,565 (560,900)
Other (expense) income:
Interest expense - net (167,709) (28,756)
Litigation costs (50,000)
Other income 20,072 1,796
------------------ ------------------
Earnings (Loss) before income taxes 903,928 (587,860)
Income tax provision 263,000
------------------ ------------------
NET EARNINGS (LOSS) $640,928 $(587,860)
================== ==================
</TABLE>
See accompanying notes to condensed financial statements.
F-31
<PAGE> 78
INTERFACE ELECTRONICS CORP.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 640,928 $ (587,860)
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities
Depreciation and amortization 50,000 60,000
Provision for doubtful accounts 21,200
Changes in operating assets and liabilities
Increase in operating assets - net (5,034,455) (549,788)
Increase (decrease) in operating liabilities - net 164,189 (864,694)
------------------ -------------------
Net cash used in operating activities (4,158,138) (1,942,342)
------------------ -------------------
Cash flows from investing activities
Capital expenditures (122,113) (246,031)
Proceeds from sale of equipment 128,892
Purchase of long-term investment (747)
Proceeds from sale of investment 50,747
Decrease (increase) in loans receivable, officers 714,657 (89,193)
------------------ -------------------
Net cash provided by (used in) investing activities 772,183 (335,971)
------------------ -------------------
Cash flows from financing activities
(Decrease) increase in due to related party (42,104) 97,904
Decrease in due from related party 315,538
Borrowings from parent company 5,543,168
Borrowings from note payable, line of credit 2,000,000
Payments for note payable, line of credit (3,305,547) (82,050)
Additional paid in capital by stockholders 1,050,000
------------------ -------------------
Net cash provided by financing activities 3,561,055 2,015,854
------------------ -------------------
Net increase (decrease) in cash 175,100 (262,459)
Cash at beginning of period 307,518 561,085
------------------ -------------------
Cash at end of period $ 482,618 $ 298,626
================== ===================
</TABLE>
See accompanying notes to condensed financial statements.
F-32
<PAGE> 79
INTERFACE ELECTRONICS CORP.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
1) On June 6, 2000, Jaco Electronics, Inc. acquired all of the issued and
outstanding shares of common stock of Interface Electronics Corp.
("Interface").
2) The accompanying condensed financial statements reflect all adjustments,
consisting of normal recurring accrual adjustments, which are in the
opinion of management, necessary for a fair presentation of the 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 Interface Electronics Corp.'s audited statements for the
year ended December 31, 1999.
3) Prior to the acquisition, Interface, through its shareholders, had elected
to be taxed as a Subchapter S Corporation as provided in Section 1362(a) of
the Internal Revenue Code. As such, the corporate income is passed through
to the shareholders and combined with their personal income and deductions
to determine taxable income on their individual federal tax returns.
Accordingly, no provision for federal income taxes has been made in the
financial statements for the six months ended June 30, 1999 and for the
period January 1, 2000 through June 6, 2000. As a result of the
acquisition, Interface no longer qualifies as a Subchapter S Corporation
and therefore, a provision for federal income taxes has been made in the
financial statements using a rate of 34% for the period June 7, 2000
through June 30, 2000.
Prior to the acquisition, Interface was defined as a "Qualified S
Corporation" for Massachusetts income tax purposes. Qualified S
Corporations with annual gross receipts of $9,000,000 or more are subject
to a four and one-half percent (4.5%) corporate level tax in addition to
the income being included on the stockholders' individual tax returns.
Accordingly, a rate of 4.5% was used to calculate a provision for state
income taxes in the financial statements for the period January 1, 2000
through June 6, 2000. For the period June 7, 2000 through June 30, 2000 a
rate of 7% was used to calculate a provision for state income taxes in the
financial statements.
4) Interface had a line of credit with a bank, in which advances were limited
to $10,000,000. Interest was payable monthly at the bank's prime rate for
the prime margin portion of the line and the stated LIBOR rate for the
LIBOR portion of the line of credit. On June 6, 2000, the outstanding
balance on the bank line of credit of $3,330,866, including interest, was
paid in full. The bank line of credit was subsequently cancelled.
F-33
<PAGE> 80
To the Board of Directors
Interface Electronics Corp.
Franklin, MA
Independent Auditors' Report
TO BE FILED BY AMENDMENT.
F-34
<PAGE> 81
INTERFACE ELECTRONICS CORP.
Balance Sheet
December 31, 1999
Assets
<TABLE>
<S> <C>
Current assets:
Cash $307,518
Accounts receivable, net of allowance for
doubtful accounts of $60,000 5,503,123
Inventories 2,610,046
Loans receivable, other 160,054
Prepaid expenses and other current assets 65,927
------------
Total current assets 8,646,668
------------
Property and equipment:
Equipment 682,272
Furniture and fixtures 345,440
Software 163,010
Motor vehicles 69,324
Leasehold improvements 67,799
------------
1,327,845
Less accumulated depreciation and amortization 781,826
------------
546,019
Other assets:
Loans receivable, officers 714,657
Due from related party 315,538
Deposits 57,954
Investments 50,747
Cash surrender value of officers' life insurance 96,923
------------
1,235,819
------------
$10,428,506
============
</TABLE>
See accompanying notes.
F-35
<PAGE> 82
INTERFACE ELECTRONICS CORP.
Balance Sheet - Continued
December 31, 1999
Liabilities and Stockholders' Deficit
<TABLE>
<S> <C>
Current liabilities:
Note payable, line of credit $3,305,547
Accounts payable, trade 6,912,839
Due to related party 42,104
Accrued liabilities:
Payroll and payroll taxes 182,144
Litigation costs 1,000,000
Other 131,060
-----------
Total current liabilities 11,573,694
-----------
Commitments and Contingencies
Stockholders' deficit:
Common stock, no par value; 15,000 shares authorized;
10,000 shares issued and outstanding 85,000
Additional paid-in capital 312,843
Accumulated deficit (1,543,031)
----------
Total stockholders' deficit (1,145,188)
-----------
$10,428,506
===========
</TABLE>
See accompanying notes.
F-36
<PAGE> 83
INTERFACE ELECTRONICS CORP.
Statement of Operations and Accumulated Deficit
For the year ended December 31, 1999
<TABLE>
<S> <C>
Sales $36,439,110
Cost of Sales 30,597,798
-------------
Gross profit 5,841,312
Selling, general and administrative expenses 7,022,585
-------------
Loss from operations (1,181,273)
-------------
Other income (expense):
Gain on sale of property and equipment 161
Interest expense (162,780)
Other income 37,807
Litigation costs (1,000,000)
Interest income 26,165
-------------
(1,098,647)
-------------
Loss before income taxes (2,279,920)
Income tax expense -
-------------
Net loss (2,279,920)
Retained earnings at December 31, 1998 807,889
-------------
Distributions to stockholders 71,000
-------------
Accumulated deficit at December 31, 1999 $(1,543,031)
=============
</TABLE>
See accompanying notes.
F-37
<PAGE> 84
INTERFACE ELECTRONICS CORPORATION
Statement of Cash Flows
For the year ended December 31, 1999
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss $(2,279,920)
Adjustments to reconcile net loss to net cash
and cash equivalents used in operating activities:
Depreciation and amortization 180,209
Increase in cash surrender value of officers'
life insurance (13,000)
Changes in operating assets and liabilities:
Increase in accounts receivable (1,159,995)
Increase in inventories (753,083)
Decrease in prepaid expenses and other current assets 92,779
Increase in deposits (5,449)
Increase in accounts payable and accrued liabilities 2,338,780
-------------
Net cash used in operating activities (1,599,679)
-------------
Cash flows from investing activities:
Distributions to officers (71,000)
Purchases of property and equipment (384,593)
Purchases of long-term investment (50,747)
Increase in loans receivable, officers (413,697)
-------------
Net cash used in investing activities (920,037)
-------------
Cash flows from financing activities:
Increase in due from related parties (257,348)
Net proceeds from notes payable, line of credit 2,523,497
-------------
Net cash provided by financing activities 2,266,149
-------------
Net decrease in cash (253,567)
Cash at December 31, 1998 561,085
-------------
Cash at December 31, 1999 $307,518
=============
</TABLE>
See accompanying notes.
F-38
<PAGE> 85
INTERFACE ELECTRONICS CORP.
Statement of Cash Flows - Continued
For the year ended December 31, 1999
Supplemental disclosures of cash flow information:
<TABLE>
<S> <C>
Cash paid during the year for-
Interest $162,780
============
</TABLE>
See accompanying notes.
F-39
<PAGE> 86
INTERFACE ELECTRONICS CORP.
Notes to Financial Statements
December 31, 1999
Note 1 - Business Operations
Nature of Business - Interface Electronics Corp. was organized under the laws of
the Commonwealth of Massachusetts in January, 1983, to conduct business
principally as a distributor of electronic parts, components and equipment in
Massachusetts, New York, New Jersey, Alabama, Connecticut, and North Carolina.
Note 2 - Significant Accounting Policies
A summary of significant accounting policies followed by the Company in
the preparation of the accompanying financial statements is set forth below:
Cash and Cash Equivalents - For purposes of the statement of cash flows, the
Company considers all highly-liquid, short-term investments with an original
maturity of three (3) months or less to be cash equivalents.
Estimates - Management uses estimates and assumptions in preparing financial
statements in conformity with generally accepted accounting principles. Those
estimates and assumptions affect the reported amounts of assets and liabilities,
the disclosures of contingent assets and liabilities, and the reported revenues
and expenses. Actual results could vary from the estimates that were used.
Allowance for Doubtful Accounts - The Company provides an allowance for doubtful
accounts equal to estimated bad debt losses. The estimated losses are based on
historical collection experience together with a review of the current status of
the existing receivables.
Inventories - Inventories are stated at the lower of cost or market, as
determined by the first-in, first-out (FIFO) method.
Property and Equipment - Property and equipment is stated at cost. Major
renewals, additions and betterments are charged to the property accounts, while
replacements, maintenance and repairs which do not improve or extend the lives
of the respective assets are expensed in the year incurred.
Depreciation - Depreciation is computed using accelerated cost recovery methods
over the estimated useful lives of the related assets as follows:
<TABLE>
<CAPTION>
Assets Life in Years
<S> <C>
Equipment 5-7
Furniture and fixtures 5-7
Software 3-5
Motor vehicles 5-7
Leasehold improvements 10-29
Vending machine 5
</TABLE>
F-40
<PAGE> 87
INTERFACE ELECTRONICS CORP.
Notes to Financial Statements - Continued
December 31, 1999
Note 2 - Significant Accounting Policies - Continued
Advertising - Advertising costs incurred for the year ended December 31, 1999
was $55,986. All costs were expensed in the year incurred.
Concentration of Credit Risk - The Company has a potential concentration of
credit risk in that it maintains deposits with financial institutions from time
to time that are in excess of amounts insured by the Federal Deposit Insurance
Corporation (FDIC).
Income Taxes - The Company, through its stockholders, has elected to be taxed as
a Subchapter S Corporation as provided in Section 1362(a) of the Internal
Revenue Code. As such, the corporate income or loss and credits are passed
through to the stockholders and combined with their personal income and
deductions to determine taxable income on their individual federal tax returns.
Accordingly, no provision for federal income taxes has been made in the
financial statements.
The Company is defined as a "Qualified S Corporation" for Massachusetts
income tax purposes. Qualified S Corporations with annual gross receipts of
$9,000,000 or more are subject to a four and one-half percent (4.5%) corporate
level tax in addition to the income being included on the stockholders'
individual tax returns.
Note 3 - Inventories
Inventories consist of the following at December 31, 1999:
<TABLE>
<S> <C>
Inventory in transit $ 404,701
Merchandise held for resale 2,205,345
-----------
$ 2,610,046
===========
</TABLE>
Note 4 - Note Payable, Line of Credit
The Company has a line of credit with a bank, in which advances are
limited in total to $10,000,000. Interest is payable monthly at the bank's prime
rate for the prime margin portion of the line and the stated LIBOR rate for the
LIBOR portion of the line of credit. The line of credit expires May 31, 2001 and
is secured by a first security interest in substantially all of the Company's
assets. The total balance of the line of credit was $3,305,546 at December 31,
1999.
The line of credit is subject to certain other terms and covenants. The
Company was not in compliance with the loan covenants as of December 31, 1999.
The Company has been notified that the line of credit has been frozen.
F-41
<PAGE> 88
INTERFACE ELECTRONICS CORP.
Notes to Financial Statements - Continued
December 31, 1999
Note 5 - Lease Commitments
The Company leases an automobile and office facilities under operating
leases due to expire at various dates through January, 2007. Monthly payments
under these leases approximate $27,301. Lease expense incurred for the year
ended December 31, 1999 was $34,730 for automobiles and $377,964 for office
facilities.
The future minimum lease payments for the years ending after December
31, 1999 are as follows:
Year ended December 31:
<TABLE>
<S> <C>
2000 $ 327,616
2001 319,552
2002 305,546
2003 294,881
2004 and thereafter (leases through 2007)
----------
$1,247,595
==========
</TABLE>
Note 6 - Stockholder Distributions
The Company makes distributions to the stockholders to cover the
federal and state income taxes which must be paid on the stockholders' personal
income tax returns resulting from corporate taxable income included on their
individual tax returns.
During the year, the Company made distributions for taxes of $71,000
based upon the 1998 taxable income of the Company. No accrued distributions were
deemed necessary as of December 31, 1999.
Note 7 - Retirement Plan
The Company has a defined contribution retirement plan which qualifies
under Section 401(k) of the Internal Revenue Code. Under the plan, employees
meeting certain requirements can elect to have up to $10,000 contributed to a
deferred compensation arrangement in lieu of salary payments. Employer
contributions to the plan are discretionary and shall be made from current or
accumulated net income. No employer contributions were made to this plan for the
year ended December 31, 1999.
Note 8 - Major Customers
During the year ended December 31, 1999, the Company made sales to
three (3) customers which accounted for approximately fifty-three percent (53%)
of the Company's net sales. No other customer accounted for more than ten
percent (10%) of sales for the year ended December 31, 1999.
F-42
<PAGE> 89
INTERFACE ELECTRONICS CORP.
Notes to Financial Statements - Continued
December 31, 1999
Note 9 - Accounts Receivable
Accounts receivable consist of unsecured receipts from industrial
customers both in the United States and in foreign countries. Two (2) customers
accounted for $3,385,261 of gross accounts receivable at December 31, 1999. No
other customers accounted for more than ten percent (10%) of accounts receivable
for the year ended December 31, 1999.
Note 10 - Major Suppliers
During the year ended December 31, 1999, the Company made vendor
purchases of approximately fifty-four percent (54%) from two (2) suppliers. No
other supplier accounted for more than ten percent (10%) of inventory purchases
for the year ended December 31, 1999.
Note 11 - Operations
The Company incurred an operating loss of $2,279,920 for the year ended
December 31, 1999 and was not in compliance with its loan covenants. This year's
loss was primarily due to an increase in operating expenses during the period
resulting from the planned expansion into new geographical markets. Incremental
sales resulting from the expansion did not occur within the expected time frame.
Also, the Company accrued $1,000,000 for a litigation settlement (see Note 12).
Bookings have increased to levels that management deems sufficient to
return to profitability. In addition, management has developed a plan to control
operating expenses. Finally, the Company is negotiating a credit facility with a
new bank that will enable them to fund operations through the end of the year
and beyond (see Note 4).
Note 12 - Contingency
The Company is a defendant in litigation related to a dispute about the
purchase and subsequent return of non-conforming goods. Subsequent to year end,
a judgement was entered against the Company for $1,247,313, including interest.
The Company has included a provision for this loss amounting to $1,000,000 in
the accompanying financial statements. The Company's counsel expects to appeal
the award. In any event, the Plaintiff is required to re-deliver to the Company
the components, which the Company estimates to be worth approximately $190,000.
Note 13 - Sale of Subsidiary
The Company sold the stock of a dormant subsidiary, Microelectronics
Corp., to a group comprised of the officers of the Company for a nominal sum.
F-43
<PAGE> 90
INTERFACE ELECTRONICS CORP.
Notes to Financial Statements - Continued
December 31, 1999
Note 14 - Related Party Transactions
The Company has loans receivable from officers totaling $690,176 at
December 31, 1999. These loans carry an interest rate of 4.94% and $24,481 of
interest was accrued on these loans and is included in the total loan balance of
$714,657 at December 31, 1999.
The Company has made advances to a related party totaling $315,538,
which are related to research and development costs of the affiliate in which
the Company's officers have an ownership interest.
The Company has an accrued liability of $42,104 related to amounts owed
to an affiliate for office space that the Company rents from a related party.
F-44
<PAGE> 91
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Interface Electronics Corp.
Franklin, Massachusetts
We have audited the accompanying balance sheets of Interface Electronics Corp.
and subsidiary as of December 31, 1998 and 1997 and the related statements of
income and retained earnings, cash flows and supplementary information for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our 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 statements 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 financial position of Interface Electronics Corp. as
of December 31, 1998 and 1997, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
WALD & INGLE, P. C.
Boston, Massachusetts
March 9, 1999
F-45
<PAGE> 92
INTERFACE ELECTRONICS CORP.
Consolidated Balance Sheets
December 31, 1998 and 1997
Assets
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Current Assets:
Cash $561,085 $704,674
Accounts Receivable - trade, net of
allowance for doubtful accounts of
$ 24,209 in 1998 and 1997 4,343,128 2,051,100
Merchandise inventory (Note 4) 1,856,965 3,145,632
Loans, advances and prepaid items 318,760 182,931
Due from related party (1,641) (1,641)
Loans receivable - officers 300,960 5,674
----------- -----------
Total current assets 7,379,257 6,088,370
----------- -----------
Property and equipment, at cost: (Note 4)
Furniture, fixtures and equipment 904,570 612,042
Leasehold improvements 56,410 108,687
----------- -----------
960,980 720,729
Less: accumulated depreciation 601,617 549,622
----------- -----------
Net property and equipment 359,363 171,107
----------- -----------
Other assets:
Deposits 52,504 17,051
Cash surrender value life insurance 83,922 77,317
----------- -----------
Total other assets 136,426 94,368
----------- -----------
Total assets $7,875,046 $6,353,845
=========== ===========
</TABLE>
See accompanying notes to financial statements
and independent auditors' report.
F-46
<PAGE> 93
INTERFACE ELECTRONICS CORP.
Consolidated Balance Sheets
December 31, 1998 and 1997
Liabilities and Stockholders' Equity
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Current liabilities:
Notes payable to bank (Note 4) $ 782,050 $ 490,000
Accounts payable and accrued expenses 5,655,115 4,993,791
Income taxes payable 232,149 110,795
---------- ----------
Total current liabilities 6,669,314 5,594,586
---------- ----------
General comments, commitments and
contingencies (Notes 5, 6 and 7)
Stockholders' equity:
Common Stock, no par value, 15,000
shares authorized, 10,000 shares
issued and outstanding 85,000 85,000
Paid in capital 312,843 312,843
Retained earnings 807,889 361,416
---------- ----------
Total stockholders' equity 1,205,732 759,259
---------- ----------
Total liabilities and
stockholders' equity $7,875,046 $6,353,845
========== ==========
</TABLE>
See accompanying notes to financial statements
and independent auditors' report.
F-47
<PAGE> 94
INTERFACE ELECTRONICS CORP.
Consolidated Statements of Operations
Years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Sales $33,923,518 $27,648,134
----------- -----------
Cost of goods sold:
Inventory, beginning of period 3,145,632 1,852,974
Merchandise purchased 26,151,702 23,959,806
----------- -----------
29,297,334 25,812,780
Inventory, end of period 1,856,965 3,145,632
----------- -----------
Cost of goods sold 27,440,369 22,667,148
----------- -----------
Gross profit 6,483,149 4,980,986
----------- -----------
Operating expenses 5,670,622 4,656,439
----------- -----------
Income (loss) from operations 812,527 324,547
Income taxes 366,054 140,895
----------- -----------
Net income $ 446,473 $ 183,652
=========== ===========
</TABLE>
Statements of Retained Earnings
December 31, 1998 and 1997
<TABLE>
<S> <C> <C>
Retained earnings, beginning of year $361,416 $177,764
Net income 446,473 183,652
-------- --------
Retained earnings, end of year $807,889 $361,416
======== ========
</TABLE>
See accompanying notes to financial statements
and independent auditors' report.
F-48
<PAGE> 95
INTERFACE ELECTRONICS CORP.
Consolidated Statements of Cash Flows
Years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 446,473 $ 183,652
Adjustments to reconcile net income
to net cash provided by (used by)
operating activities:
Amortization 3,524 4,935
Depreciation 89,676 64,182
Loss on abandonment of leasehold
improvements 71,006 0
Changes in:
Accounts receivable (2,292,028) 1,623,942
Loans, advances and prepaid items (135,829) (10,605)
Due from related party 0 220,723
Refundable income taxes 0 361,852
Loans receivable officers (295,286) 349,907
Merchandise inventory 1,288,667 (1,292,658)
Other assets (45,583) (5,288)
Accounts payable and accrued
expenses 661,324 (1,334,868)
Income taxes payable 121,354 108,169
----------- -----------
Net cash provided by (used by)
operating activities (86,702) 273,943
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment, net (348,937) (46,882)
----------- -----------
Cash flows from financing activities:
Proceeds from bank loans net of
repayments 292,050 231,643
----------- -----------
Net increase (decrease) in cash (143,589) 458,704
Cash at beginning of year 704,674 245,970
----------- -----------
Cash at end of year $ 561,085 $ 704,674
=========== ===========
Interest $ 71,305 $ 43,153
=========== ===========
Income taxes paid $ 244,811 $ 30,556
=========== ===========
</TABLE>
See accompanying notes to financial statements
and independent auditors' report.
F-49
<PAGE> 96
INTERFACE ELECTRONICS CORP.
Consolidated Supplementary Information
Years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Operating expenses:
Advertising $ 75,450 $ 74,470
Amortization 3,524 4,935
Automobile expense 53,655 30,081
Depreciation 89,676 64,182
Dues and subscriptions 21,135 9,386
Employee group insurance 129,469 124,125
Equipment rental 10,427 13,762
Insurance 83,272 129,324
Interest, net 67,296 39,268
Leasehold improvements abandoned 71,006 0
Life insurance 2,783 11,463
Loss on worthless accounts 143,658 16,087
Maintenance and repairs 3,811 13,693
Miscellaneous expense 55,297 18,701
Office supplies and expense 75,236 37,788
Outside services 108,101 132,673
Postage 3,975 3,384
Professional services 69,474 125,148
Profit sharing contribution 0 14,874
Rent 317,087 268,959
Salaries and commissions 3,570,012 2,933,120
Selling and travel expense 290,198 232,206
Taxes - payroll 200,338 173,241
Taxes - other 6,001 1,204
Telephone 199,794 139,246
Utilities 8,169 0
Warehouse expense 11,778 45,119
---------- ----------
Total operating expenses $5,670,622 $4,656,439
========== ==========
</TABLE>
See accompanying notes to financial statements
and independent auditors' report.
F-50
<PAGE> 97
INTERFACE ELECTRONICS CORP.
Notes To Financial Statements
Years ended December 31, 1998
Note 1 - Nature of Business
Interface Electronics Corp. was organized under the laws of the Commonwealth of
Massachusetts in January, 1983 to conduct business principally as a distributor
of electronic parts, components and equipment.
Note 2 - Use of Estimates
The preparation of financial statements in conformity with generally accepted
auditing principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
Note 3 - Summary of Accounting Principles.
Principles of Consolidation
The consolidated financial statements include the accounts of Interface
Electronics Corp. and its wholly-owned subsidiary. All significant intercompany
balances and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly-liquid, short term investments with an original maturity of three months
or less to be cash equivalents.
The Company deposits the majority of its cash in one commercial bank. From time
to time, cash balances in this account exceed federally-insured limits. To date,
the Company has not experienced any losses in such accounts and believes it is
not exposed to any significant credit risk on its cash and cash equivalents.
Merchandise Inventory
Inventories are stated at the lower of cost or market, with cost being
determined generally on the first-in, first-out method. Market value is
determined by replacement cost or estimated net realizable value.
F-51
<PAGE> 98
INTERFACE ELECTRONICS CORP.
Notes To Financial Statements
Years ended December 31, 1998
Note 3 - continued.
Property, Equipment and Depreciation
Property and equipment are carried at cost less accumulated depreciation and
amortization.
Major replacements of and improvements to property and equipment are
capitalized. Minor renewals are charged against current operations.
Depreciation is calculated primarily by the accelerated cost recovery methods at
various rates based on the estimated useful lives of assets, substantially as
follows:
<TABLE>
<CAPTION>
Depreciation Lives
<S> <C>
Furniture 5 - 7 years
Leasehold improvements 10 - 39 years
</TABLE>
On disposition of property and equipment, the cost and related accumulated
depreciation or amortization are eliminated from the accounts and the gain or
loss thereon is reflected in net income.
Note 4 - Notes Payable - Milford National Bank and Trust Company
At December 31, 1998, the Company is indebted to the Milford National Bank and
Trust Company as follows:
On a revolving line of credit in the principal amount of $700,000 which matured
May, 1998. Interest is at a floating rate equal to 1% above the base lending
rate of the bank. The loan is secured by all of the Company's assets.
On June 12, 1998, the Company was indebted to the bank for $297,050 on a note
calling for monthly payments of interest at 7.75% per annum. At December 31,
1998, the balance of this note was $82,050.
Note 5 - Related Party Transactions.
The Company leased its offices and warehouse in Massachusetts from a
partnership, the partners of which are the stockholders of the Company, during
the early part of 1998. The Company relocated its operations during 1998,
leasing from unrelated parties.
F-52
<PAGE> 99
INTERFACE ELECTRONICS CORP.
Notes To Financial Statements
Years ended December 31, 1998
Note 6 - Major Customers.
During the year ended December 31, 1998 sales to three unaffiliated customer
amount to approximately 29%, 19% and 14% respectively of the Company's revenue.
Note 7 - General Comments, Commitments and Contingencies.
(a) At December 31, 1998, commitments for minimum annual rentals through
December 31, 2003 under non-cancelable leases were as follows:
<TABLE>
<CAPTION>
Real Estate Motor Vehicles
<S> <C> <C>
1999 315,266 22,425
2000 314,636 12,980
2001 319,032 520
2002 305,546
2003 294,881
</TABLE>
(b) The Company is a defendant in a lawsuit filed by a vendor under a theory
of goods sold and delivered. The ultimate outcome of the litigation cannot
presently be determined and no provision for any liability has been made
in the accompanying consolidated financial statements. Counsel estimates
that the loss, if any to be in the range of $100,000 to $125,000.
(c) Final determination of income taxes is subject to audit by the respective
federal and state governmental authorities for a period not closed by
statute.
F-53
<PAGE> 100
JACO ELECTRONICS, INC. AND SUBSIDIARIES AND INTERFACE ELECTRONICS CORP.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
Historical Pro Forma
----------------------------- --------------------------------
Jaco Interface Adjustments Consolidated
<S> <C> <C> <C> <C>
Net sales $209,325,180 $46,870,974 $(3,439,333)(A) $252,756,821
Cost of goods sold 162,443,001 39,763,976 (2,375,461)(A) 199,831,516
------------ ------------ ------------ ------------
Gross profit 46,882,179 7,106,998 (1,063,872) 52,925,305
Selling, general and administrative expenses 34,522,667 7,233,796 (497,030)(A) 42,016,672
598,045(C)
33,611(D)
125,583(E)
------------ ------------ ------------ ------------
Operating profit (loss) 12,359,512 (126,798) (1,324,081) 10,908,633
Other expense (income):
Interest expense - net 1,558,558 275,568 874,432(B) 2,708,558
Litigation costs 1,050,000 1,050,000
Other income (56,244) 3,684(A) (52,560)
------------ ------------ ------------ ------------
Earnings (Loss) before income taxes 10,800,954 (1,396,122) (2,202,197) 7,202,635
Income tax provision (benefit) 4,425,000 (1,216,000)(F) 3,209,000
------------ ------------ ------------ ------------
Net earnings (loss) $6,375,954 $(1,396,122) $(986,197) $3,993,635
============ ============ ============ ============
Net earnings per common share:
Basic $1.16 $0.73
============ ============
Diluted $1.11 $0.69
============ ============
Weighted-average common shares and common
equivalent shares outstanding:
Basic 5,497,866 5,497,866
============ ============
Diluted 5,766,086 5,766,086
============ ============
</TABLE>
See accompanying notes to financial statements.
F-54
<PAGE> 101
JACO ELECTRONICS, INC. AND SUBSIDIARIES AND INTERFACE ELECTRONICS CORP.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Historical Pro Forma
---------------------------- --------------------------------
Jaco Interface Adjustments Consolidated
<S> <C> <C> <C> <C>
Net sales $140,710,825 $33,713,694 $(2,293,328)(A) $172,131,191
Cost of goods sold 113,334,627 27,650,192 (1,523,711)(A) 139,461,108
------------ ----------- ------------ ------------
Gross profit 27,376,198 6,063,502 (769,617) 32,670,083
Selling, general and administrative expenses 27,642,724 6,587,979 (256,501)(A) 34,800,615
652,413(C)
37,000(D)
137,000(E)
------------ ----------- ------------ ------------
Operating loss (266,526) (524,477) (1,339,529) (2,130,532)
Other expense (income):
Interest expense - net 1,308,624 67,204 1,059,796(B) 2,435,624
Other income (1,796) (1,796)
------------ ----------- ------------ ------------
Loss before income taxes (1,575,150) (589,885) (2,399,325) (4,564,360)
Income tax benefit 418,000 609,000(F) 1,027,000
------------ ----------- ------------ ------------
Net loss $(1,157,150) $(589,885) $(1,790,325) $(3,537,360)
============ =========== ============ ============
Net loss per common share:
Basic and diluted $(0.21) $(0.64)
============ ============
Weighted-average common shares and common
equivalent shares outstanding:
Basic and diluted 5,547,405 5,547,405
============ ============
</TABLE>
See accompanying notes to financial statements.
F-55
<PAGE> 102
JACO ELECTRONICS, INC. AND SUBSIDIARIES AND INTERFACE ELECTRONICS CORP.
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 2000
(UNAUDITED)
On June 6, 2000, Jaco Electronics, Inc. ("Jaco") acquired all of the issued and
outstanding shares of common stock of Interface Electronics Corp. ("Interface").
Jaco does expect to achieve operating efficiencies from the acquisition. It is
anticipated that cost savings will result principally from such areas as
warehousing, administration and operations. Such anticipated cost savings have
not been reflected in the accompanying unaudited pro forma consolidated
statement of operations.
A - Jaco did not acquire the Systems Division of Interface. This adjustment
is eliminating the sales and direct costs.
B - Adjustment to reflect the net increase in interest expense:
<TABLE>
<CAPTION>
For the Period
July 1, 1999 through
June 6, 2000
-----------------------
<S> <C>
Interest on additional borrowings of $18,705,547
less cash received at closing of $2,609,218
and assuming an interest rate of 7.65% 1,150,000
Elimination of interest expense on Interface debt and interest income
on officers' loans which were repaid at the closing and the
elimination of other
miscellaneous interest (275,568)
-----------------------
Net increase in interest expense 874,432
=======================
</TABLE>
C - Adjustment to reflect 11 months of goodwill amortization determined on a
straight-line basis over 20 years. One month of goodwill amortization was
included in Jaco's Statement of Operations for the Year Ended June 30,
2000.
D - Adjustment to reflect 11 months of amortization of the franchise
agreement determined on a straight-line basis over 15 years. One month of
amortization was included in Jaco's Statement of Operations for the Year
Ended June 30, 2000.
E - Adjustment to reflect 11 months of amortization of the employment
agreement and covenant not to compete determined on a straight-line basis
over 5 years. One month of amortization was included in Jaco's Statement
of Operations for the Year Ended June 30, 2000.
F - Adjustment to reflect the income tax benefit, assuming an effective tax
rate of 41% for the Year Ended June 30, 2000, applied to the deductible
(the amortization of goodwill and the franchise agreement in Note C & D
is not tax benefited) pro forma adjustments to the consolidated statement
of operations stated above and the Historical Loss of Interface.
F-56
<PAGE> 103
JACO ELECTRONICS, INC. AND SUBSIDIARIES AND INTERFACE ELECTRONICS CORP.
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1999
(UNAUDITED)
Jaco does expect to achieve operating efficiencies from the acquisition. It is
anticipated that cost savings will result principally from such areas as
warehousing, administration and operations. Such anticipated cost savings have
not been reflected in the accompanying unaudited pro forma consolidated
statement of operations.
A - Jaco did not acquire the Systems Division of Interface. This adjustment
is eliminating the sales and direct costs.
B - Adjustment to reflect the net increase in interest expense:
<TABLE>
<CAPTION>
Year Ended
June 30, 1999
-----------------------
<S> <C>
Interest on additional borrowings of $18,705,547
less cash received at closing of $2,609,218
and assuming an interest rate of 7.0% 1,127,000
Elimination of interest expense on Interface debt and interest income
on officers' loans which were repaid at the closing and the
elimination of other
miscellaneous interest (67,204)
-----------------------
Net increase in interest expense 1,059,796
=======================
</TABLE>
C - Adjustment to reflect the amortization of goodwill determined on a
straight-line basis over 20 years.
D - Adjustment to reflect the amortization of the franchise agreement
determined on a straight-line basis over 15 years.
E - Adjustment to reflect the amortization of the employment agreement and
covenant not to compete determined on a straight-line basis over 5 years.
F - Adjustment to reflect the income tax benefit, assuming an effective tax
rate of 26.5% for the Year Ended June 30, 1999, applied to the deductible
(the amortization of goodwill and the franchise agreement in Note C & D
is not tax benefited) pro forma adjustments to the consolidated statement
of operations stated above and the Historical Loss of Interface.
F-57
<PAGE> 104
No dealer, salesperson or other person is authorized to give any information or
to represent anything not contained in this prospectus. You must not rely on any
unauthorized information or representations. This prospectus is an offer to sell
only the shares offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The information contained in this
prospectus is current only as of its date.
1,600,000 Shares
JACO ELECTRONICS, INC.
Common Stock
<PAGE> 105
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by Jaco Electronics, Inc. in
connection with the sale of common stock being registered. All amounts are
estimates except the SEC registration fee, the NASD fee and the Nasdaq National
Market Listing fee.
<TABLE>
<CAPTION>
AMOUNT TO BE PAID
-----------------
<S> <C>
SEC Registration Fee........................................... $ 8,288
NASD Fee....................................................... $ 3,640
Nasdaq National Market Listing Fee............................. $ 17,500
Printing and Engraving......................................... $ 100,000
Legal Fees and Expenses........................................ $ 190,000
Accounting Fees and Expenses................................... $ 75,000
Miscellaneous.................................................. $ 5,572
------------
TOTAL $ 400,000
============
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 402 of the Business Corporation Law of the State of New York
(the "BCL") provides that a corporation may indemnify its officers and directors
(or persons who have served, at the corporation's request, as officers or
directors of another corporation) against the reasonable expenses, including
attorneys' fees, actually and reasonably incurred by them in connection with the
defense of any action by reason of being or having been directors or officers,
if such person shall have acted in good faith and in a manner he or she
reasonably believed to be in, or not opposed to, the best interests of the
corporation, except that if such action shall be in the right of the
corporation, no such indemnification shall be provided as to any claim, issue or
matter as to which such person shall have been judged to have been liable to the
corporation unless and to the extent that the Supreme Court of the State of New
York, or any other court in which the suit may be brought, shall determine upon
application that, in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnification. Our Restated Certificate of
Incorporation (the "Charter"), and our Restated By-Laws (the "By-Laws") provide
for the elimination of the personal liability of a director to us and to our
stockholders for monetary damages for breach of a fiduciary duty as a director.
II-1
<PAGE> 106
However, the Charter and By-Laws have not (and are not permitted by statute to
have) eliminated the liability of a director for (i) any breach of a director's
duty of loyalty to the registrant and its stockholders; (ii) any acts or
omissions not undertaken in good faith or which involve intentional misconduct
or a knowing violation of law; (iii) any action under Section 719 of the BCL,
including paying a dividend or approving an illegal dividend; or (iv) any
transaction from which the director derived an improper personal benefit. The
Charter and By-Laws also provide that expenses incurred by an officer or
director may be paid in advance of the final disposition of such action, suit or
proceeding by us upon the receipt of an undertaking by or on behalf of the
director or officer to repay the said amount advanced if a specific
determination is made that the officer or director is not entitled to the
indemnification. In addition, the By-Laws provide that we may maintain insurance
to protect our self and our officers and directors against any liability, cost,
payment or expense associated with such indemnification.
ITEM 16 EXHIBITS
*1.1 Form of underwriting agreement.
4.1 Form of Common Stock Certificate, incorporated by reference to the
Company's Registration Statement on Form S-1, Commission File No.
2-91547, filed June 9, 1984, Exhibit 4.1.
*5.1 Opinion of Morrison Cohen Singer & Weinstein, LLP.
10.1 Sale and leaseback with Bemar Realty Company (as assignee of
Hi-Tech Realty Company), incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended June 30,
1983, Exhibit 10(1), pages 48-312.
II-2
<PAGE> 107
10.2 Amendment No. 1 to Lease between the Company and Bemar Realty
Company (as assignee of Hi-Tech Realty Company), incorporated by
reference to the Company's Registration Statement on Form S-1,
Commission File No. 2-91547, filed June 9, 1984, Exhibit 10.2.
10.2.2 Lease between the Company and Bemar Realty Company, dated
January 1, 1996, incorporated by reference to the Company's 1996
10-K, Exhibit 10.2.2.
10.6 1993 Non-Qualified Stock Option Plan, incorporated by reference to
the Company's 1993 10-K, Exhibit 10.6.
10.6.1 1993 Non-Qualified Stock Option Plan, as amended (filed as Exhibit
A to the Company's Definitive Proxy Statement, dated November 3,
1997 for the Annual Meeting of Shareholders held on December 9,
1997.
10.6.2 1993 Non-Qualified Stock Option Plan, as amended (filed as Exhibit
A to the Company's Definitive Proxy Statement, dated November 2,
1998 for the Annual Meeting of Shareholders held on December 7,
1998.
10.7 Stock Purchase Agreement, dated as of February 8, 1994 by and
among the Company and Reilrop, B.V. and Guaranteed by Cray
Electronics Holdings PLC, incorporated by reference to the
Company's Current Report on Form 8-K, dated March 11, 1994.
10.8 1993 Stock Option Plan for Outside Directors, incorporated by
reference to the Company's Annual Report on Form 10-K for the year
ended June 30, 1994, Exhibit 10.8.
10.10 Authorized Electronic Industrial Distributor Agreement, dated as
of August 24, 1970 by and between AVX and the Company,
incorporated by reference to the Company's Annual Report on Form
10-K for the year ended June 30, 1995, Exhibit 10.10.
10.11 Electronics Corporation Distributor Agreement, dated November 15,
1974, by and between Kemet and the Company, incorporated by
reference to the Company's Annual Report on Form 10-K for the year
ended June 30, 1995, Exhibit 10.11.
10.12 Restricted Stock Plan (filed as Exhibit B to the Company's
Definitive Proxy Statement, dated November 3, 1997 for the Annual
Meeting of Shareholders held on December 9, 1997).
10.12.1 Form of Escrow Agreement under the Restricted Stock Plan,
incorporated by reference to the Company's Registration Statement
on Form S-8/S-3, Commission File No. 333 - 49877, filed April 10,
1998 Exhibit 4.2.
II-3
<PAGE> 108
10.12.2 Form of Stock Purchase Agreement under the Restricted Stock Plan,
incorporated by reference to the Company's Registration Statement
on Form S-8/S-3, Commission File No. 333 - 49877, filed
April 10, 1998 Exhibit 4.3.
10.12.3 Form of Stock Option Agreement, incorporated by reference to the
Company's Registration Statement on Form S-8/S-3, Commission File
No. 333 -49877, filed April 10, 1998 Exhibit 4.4.
10.12.4 Restricted Stock Plan (filed as Exhibit B to the Company's
Definitive Proxy Statement, dated November 2, 1998 for the Annual
Meeting of Shareholders held on December 7, 1998).
10.13 Employment agreement between Joel Girsky and the Company,
incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998, Exhibit 10.13.
10.13.1 Amendment No. 1 to Employment Agreement between Joel Girsky and
the Company, incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended June 30, 2000 (the
"Company's 2000 10-K").
10.14 Employment agreement between Charles Girsky and the Company,
incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998, Exhibit 10.14.
10.15 Employment agreement between Jeffrey D. Gash and the Company,
incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998, Exhibit 10.15.
10.16 Employment Agreement, dated June 6, 2000, between the Company and
Joseph Oliveri, incorporated by reference to the Company's Current
Report on Form 8-K, filed June 12, 2000, Exhibit 10.16.
10.17 Stock Purchase Agreement by and among Jaco Electronics, Inc. and
all of the Stockholders of Interface Electronics Corp. as of May
4, 2000, incorporated by reference to the Company's Current Report
on Form 8-K, filed May 15, 2000, Exhibit 2.1.
10.17.1 Amendment No. 1 to the Stock Purchase Agreement by and among Jaco
Electronics, Inc. and all of the Stockholders of Interface
Electronics Corp. as of May 4, 2000, dated June 6,
II-4
<PAGE> 109
2000, incorporated by reference to the Company's Current Report on
Form 8-K, filed June 9, 2000, Exhibit 2.2.
10.18 Agreement between the Company and Gary Giordano, incorporated by
reference to the Company's 2000 10-K, Exhibit 10.18.
+23.1 Consent of Grant Thornton LLP.
*23.2 Consent of Independent Certified Public Accountants.
+23.3 Consent of Wald & Ingle, P.C.
*23.4 Consent of Morrison Cohen Singer & Weinstein, LLP (included as
part of Exhibit 5.1)
99.1 General Loan and Security Agreement dated January 20, 1989,
between the Company as borrower and The Bank of New York
Commercial Corporation ("BNYCC") as secured party, incorporated by
reference to the Company's Current Report on Form 8-K, filed
January 31, 1989, Exhibit 28(1).
99.2 Loan and Security Agreement - Accounts Receivable and Inventory,
dated January 20, 1989, between the Company and BNYCC,
incorporated by reference to the Company's Current Report on Form
8-K filed January 31, 1989, Exhibit 28(2).
99.3 Letter of Credit and Security Agreement, dated January 20, 1989,
between the Company and BNYCC, incorporated by reference to the
Company's Current Report on Form 8-K filed January 31, 1989,
Exhibit 28(3).
99.4 Amendment to Term Loan Notes (the "Term Notes") executed by the
Company in favor of BNYCC dated January 13, 1992, together with
Letters from R.C. Components, Inc., Quality Components, Inc.,
Micatron, Inc. and Distel, Inc., each a subsidiary of the
II-5
<PAGE> 110
Company and a guarantor of the obligations evidenced by the Term
Notes, to BNYCC acknowledging the amendment to the Term Notes for
the extension of the maturity date of each such note, incorporated
by reference to the Company's 1992 10-K, Exhibit 28.4.
99.5 Amendment Nos. 1 through 4 to Loan and Security Agreement between
the Company and BNYCC, incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended June 30, 1994.
Exhibit 99.5.
99.6 $1,500,000 Additional Term Loan Note, executed by the Company in
favor of BNYCC, dated March 11, 1994, incorporated by reference to
the Company's Annual Report on Form 10-K for the year ended June
30, 1994, Exhibit 99.6.
99.7 Restated and Amended Loan and Security Agreement, dated April 25,
1995, among the Company, Nexus and BNYCC, together with an
Amendment to Term Loan Note executed by the Company in favor of
BNYCC and Letter executed by R.C. Components, Inc., Quality
Components, Inc., Micatron, Inc., Distel, Inc. and Jaco Overseas,
Inc., incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended June 30, 1995, Exhibit 99.7.
99.8 Second Restated and Amended Loan and Security Agreement dated
September 13, 1995 among the Company, Nexus Custom Electronics,
Inc., BNYCC and NatWest Bank, N.A. ("Second Restated and Amended
Loan and Security Agreement"), incorporated by reference to the
Company's Registration Statement on Form S-2, Commission File No.
33- 62559, filed October 13, 1995, Exhibit 99.8.
99.8.1 Amendment to the Second Restated and Amended Loan and Security
Agreement, dated as of April 10, 1996, incorporated by reference
to the Company's 1996 10-K, Exhibit 99.8.1.
99.8.2 Amendment to the Second Restated and Amended Loan and Security
Agreement, dated as of August 1, 1997, incorporated by reference
to the Company's Annual Report on Form 10-K for the year ended
June 30, 1998, Exhibit 99.8.2.
99.8.3 Amendment to Second Restated and Amended Loan and Security
Agreement dated July 1, 1998, incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998, Exhibit 99.8.3.
II-6
<PAGE> 111
99.8.4 Amendment to Second Restated and Amended Loan and Security
Agreement dated September 21, 1998 incorporated by reference to
the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998, Exhibit 99.8.4.
99.8.5 Amendment to Second Restated and Amended Loan and Security
Agreement dated October 26, 1999, incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999, Exhibit 99.8.5.
99.8.6 Amendment to Second Restated and Amended Loan and Security
Agreement dated December 31, 1999, incorporated by reference to
the Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1999, Exhibit 99.8.6.
99.8.7 Amendment to Second Restated and Amended Loan and Security
Agreement dated June 6, 2000, incorporated by reference to the
Company's 2000 10-K, Exhibit 99.8.5.
---------------------------------------
* To be filed by amendment.
+ Filed herewith.
II-7
<PAGE> 112
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the
Underwriter at the closing specified in the underwriting agreement, certificates
in such denominations and registered in such names as required by the
Underwriter to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933, and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer, or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
The undersigned Registrant hereby undertakes that:
1. For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of prospectus
filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act of 1933 shall be deemed to be
part of this registration statement as of the time it was
declared effective.
2. For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-8
<PAGE> 113
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Hauppauge, New York,
on the 20th day of September, 2000.
JACO ELECTRONICS, INC.
/s/ JEFFREY D. GASH
By: ________________________________
Name: Jeffrey D. Gash
Title: Vice President-Finance and Secretary
<PAGE> 114
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints each of
Joel H. Girsky and Jeffrey D. Gash his true and lawful attorney-in-fact and
agent, each acting alone, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to the Registration
Statement, and to sign any registration statement filed under Rule 462 under the
Securities Act of 1933 including post-effective amendments thereto, and to file
the same, with all exhibits thereto, and all documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agent, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, each acting alone, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, the
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Joel H. Girsky Chairman of the Board, September 18, 2000
--------------------------- President and Treasurer
Joel H. Girsky (Principal Executive Officer)
/s/ Jeffrey D. Gash Vice President-Finance and September 18, 2000
--------------------------- Secretary (Principal Financial
Jeffrey D. Gash and Accounting Officer)
/s/ Joseph F. Oliveri Vice Chairman of the Board September 18, 2000
--------------------------- and Executive Vice President
Joseph F. Oliveri
/s/ Charles B. Girsky Executive Vice President and September 18, 2000
--------------------------- Director
Charles B. Girsky
/s/ Stephen A. Cohen Director September 18, 2000
---------------------------
Stephen A. Cohen
/s/ Edward M. Frankel Director September 18, 2000
---------------------------
Edward M. Frankel
/s/ Joseph F. Hickey, Jr. Director September 18, 2000
---------------------------
Joseph F. Hickey, Jr.
</TABLE>
II-9
<PAGE> 115
EXHIBIT INDEX
*1.1 Form of underwriting agreement.
3.1 Restated Certificate of Incorporation adopted November, 1987,
incorporated by reference to the Company's definitive proxy
statement distributed in connection with the Company's annual
meeting of shareholders held in November, 1987, filed with the SEC
on November 3, 1986, as set forth in Appendix A to the aforesaid
proxy statement.
3.1.1 Certificate of Amendment of the Certificate of Incorporation,
adopted December, 1995, incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended June 30, 1996 ("the
Company's 1996 10-K"), Exhibit 3.1.1.
3.2 Restated By-Laws adopted June 18, 1987, incorporated by reference
to the Company's Annual Report on Form 10-K for the year ended
June 30, 1987 ("the Company's 1987 10- K"), Exhibit 3.2.
4.1 Form of Common Stock Certificate, incorporated by reference to the
Company's Registration Statement on Form S-1, Commission File No.
2-91547, filed June 9, 1984, Exhibit 4.1.
*5.1 Opinion of Morrison Cohen Singer & Weinstein, LLP.
10.1 Sale and leaseback with Bemar Realty Company (as assignee of
Hi-Tech Realty Company), incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended June 30,
1983, Exhibit 10(1), pages 48-312.
<PAGE> 116
10.2 Amendment No. 1 to Lease between the Company and Bemar Realty
Company (as assignee of Hi-Tech Realty Company), incorporated by
reference to the Company's Registration Statement on Form S-1,
Commission File No. 2-91547, filed June 9, 1984, Exhibit 10.2.
10.2.2 Lease between the Company and Bemar Realty Company, dated
January 1, 1996, incorporated by reference to the Company's 1996
10-K, Exhibit 10.2.2.
10.6 1993 Non-Qualified Stock Option Plan, incorporated by reference to
the Company's 1993 10-K, Exhibit 10.6.
10.6.1 1993 Non-Qualified Stock Option Plan, as amended (filed as Exhibit
A to the Company's Definitive Proxy Statement, dated November 3,
1997 for the Annual Meeting of Shareholders held on December 9,
1997.
10.6.2 1993 Non-Qualified Stock Option Plan, as amended (filed as Exhibit
A to the Company's Definitive Proxy Statement, dated November 2,
1998 for the Annual Meeting of Shareholders held on December 7,
1998.
10.7 Stock Purchase Agreement, dated as of February 8, 1994 by and
among the Company and Reilrop, B.V. and Guaranteed by Cray
Electronics Holdings PLC, incorporated by reference to the
Company's Current Report on Form 8-K, dated March 11, 1994.
10.8 1993 Stock Option Plan for Outside Directors, incorporated by
reference to the Company's Annual Report on Form 10-K for the year
ended June 30, 1994, Exhibit 10.8.
10.10 Authorized Electronic Industrial Distributor Agreement, dated as
of August 24, 1970 by and between AVX and the Company,
incorporated by reference to the Company's Annual Report on Form
10-K for the year ended June 30, 1995, Exhibit 10.10.
10.11 Electronics Corporation Distributor Agreement, dated November 15,
1974, by and between Kemet and the Company, incorporated by
reference to the Company's Annual Report on Form 10-K for the year
ended June 30, 1995, Exhibit 10.11.
10.12 Restricted Stock Plan (filed as Exhibit B to the Company's
Definitive Proxy Statement, dated November 3, 1997 for the Annual
Meeting of Shareholders held on December 9, 1997).
10.12.1 Form of Escrow Agreement under the Restricted Stock Plan,
incorporated by reference to the Company's Registration Statement
on Form S-8/S-3, Commission File No. 333 - 49877, filed April 10,
1998 Exhibit 4.2.
<PAGE> 117
10.12.2 Form of Stock Purchase Agreement under the Restricted Stock Plan,
incorporated by reference to the Company's Registration Statement
on Form S-8/S-3, Commission File No. 333 - 49877, filed
April 10, 1998 Exhibit 4.3.
10.12.3 Form of Stock Option Agreement, incorporated by reference to the
Company's Registration Statement on Form S-8/S-3, Commission File
No. 333 -49877, filed April 10, 1998 Exhibit 4.4.
10.12.4 Restricted Stock Plan (filed as Exhibit B to the Company's
Definitive Proxy Statement, dated November 2, 1998 for the Annual
Meeting of Shareholders held on December 7, 1998).
10.13 Employment agreement between Joel Girsky and the Company,
incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998, Exhibit 10.13.
10.13.1 Amendment No. 1 to Employment Agreement between Joel Girsky and
the Company, incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended June 30, 2000 (the
"Company's 2000 10-K").
10.14 Employment agreement between Charles Girsky and the Company,
incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998, Exhibit 10.14.
10.15 Employment agreement between Jeffrey D. Gash and the Company,
incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998, Exhibit 10.15.
10.16 Employment Agreement, dated June 6, 2000, between the Company and
Joseph Oliveri , incorporated by reference to the Company's
Current Report on Form 8-K, filed June 12, 2000, Exhibit 10.16.
10.17 Stock Purchase Agreement by and among Jaco Electronics, Inc. and
all of the Stockholders of Interface Electronics Corp. as of May
4, 2000, incorporated by reference to the Company's Current Report
on Form 8-K, filed May 15, 2000, Exhibit 2.1.
10.17.1 Amendment No. 1 to the Stock Purchase Agreement by and among Jaco
Electronics, Inc. and all of the Stockholders of Interface
Electronics Corp. as of May 4, 2000, dated June 6,
<PAGE> 118
2000, incorporated by reference to the Company's Current Report on
Form 8-K, filed June 9, 2000, Exhibit 2.2.
10.18 Agreement between the Company and Gary Giordano, incorporated by
reference to the Company's 2000 10-K, Exhibit 10.18.
+23.1 Consent of Grant Thornton LLP.
*23.2 Consent of Independent Certified Public Accountants.
+23.3 Consent of Wald & Ingle, P.C.
*23.4 Consent of Morrison Cohen Singer & Weinstein, LLP (included as
part of Exhibit 5.1)
99.1 General Loan and Security Agreement dated January 20, 1989,
between the Company as borrower and The Bank of New York
Commercial Corporation ("BNYCC") as secured party, incorporated by
reference to the Company's Current Report on Form 8-K, filed
January 31, 1989, Exhibit 28(1).
99.2 Loan and Security Agreement - Accounts Receivable and Inventory,
dated January 20, 1989, between the Company and BNYCC,
incorporated by reference to the Company's Current Report on Form
8-K filed January 31, 1989, Exhibit 28(2).
99.3 Letter of Credit and Security Agreement, dated January 20, 1989,
between the Company and BNYCC, incorporated by reference to the
Company's Current Report on Form 8-K filed January 31, 1989,
Exhibit 28(3).
99.4 Amendment to Term Loan Notes (the "Term Notes") executed by the
Company in favor of BNYCC dated January 13, 1992, together with
Letters from R.C. Components, Inc., Quality Components, Inc.,
Micatron, Inc. and Distel, Inc., each a subsidiary of the
<PAGE> 119
Company and a guarantor of the obligations evidenced by the Term
Notes, to BNYCC acknowledging the amendment to the Term Notes for
the extension of the maturity date of each such note, incorporated
by reference to the Company's 1992 10-K, Exhibit 28.4.
99.5 Amendment Nos. 1 through 4 to Loan and Security Agreement between
the Company and BNYCC, incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended June 30, 1994.
Exhibit 99.5.
99.6 $1,500,000 Additional Term Loan Note, executed by the Company in
favor of BNYCC, dated March 11, 1994, incorporated by reference to
the Company's Annual Report on Form 10-K for the year ended June
30, 1994, Exhibit 99.5.
99.7 Restated and Amended Loan and Security Agreement, dated April 25,
1995, among the Company, Nexus and BNYCC, together with an
Amendment to Term Loan Note executed by the Company in favor of
BNYCC and Letter executed by R.C. Components, Inc., Quality
Components, Inc., Micatron, Inc., Distel, Inc. and Jaco Overseas,
Inc., incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended June 30, 1995, Exhibit 99.7.
99.8 Second Restated and Amended Loan and Security Agreement dated
September 13, 1995 among the Company, Nexus Custom Electronics,
Inc., BNYCC and NatWest Bank, N.A. ("Second Restated and Amended
Loan and Security Agreement"), incorporated by reference to the
Company's Registration Statement on Form S-2, Commission File No.
33- 62559, filed October 13, 1995, Exhibit 99.8.
99.8.1 Amendment to the Second Restated and Amended Loan and Security
Agreement, dated as of April 10, 1996, incorporated by reference
to the Company's 1996 10-K, Exhibit 99.8.1.
99.8.2 Amendment to the Second Restated and Amended Loan and Security
Agreement, dated as of August 1, 1997, incorporated by reference
to the Company's Annual Report on Form 10-K for the year ended
June 30, 1998, Exhibit 99.8.2.
99.8.3 Amendment to Second Restated and Amended Loan and Security
Agreement dated July 1, 1998, incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998, Exhibit 99.8.3.
<PAGE> 120
99.8.4 Amendment to Second Restated and Amended Loan and Security
Agreement dated September 21, 1998 incorporated by reference to
the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998, Exhibit 99.8.4.
99.8.5 Amendment to Second Restated and Amended Loan and Security
Agreement dated October 26, 1999, incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999, Exhibit 99.8.5.
99.8.6 Amendment to Second Restated and Amended Loan and Security
Agreement dated December 31, 1999, incorporated by reference to
the Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1999, Exhibit 99.8.6.
99.8.7 Amendment to Second Restated and Amended Loan and Security
Agreement dated June 6, 2000, incorporated by reference to the
Company's 2000 10-K, Exhibit 99.8.5.
---------------------------------------
* To be filed by amendment.
+ Filed herewith.
