UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
F O R M 8 - K/A
A M E N D M E N T NO. 1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) June 6, 2000
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Jaco Electronics, Inc.
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(Exact name of Registrant as Specified in Charter)
New York 000-05896 11-1978958
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(State or Other Jurisdiction (Commission) (IRS Employer
of Incorporation) File Number) Identification No.)
145 Oser Avenue, Hauppauge, New York 11788
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (631) 273-5500
-----------------
N/A
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(Former name or former address, if changed since last report)
<PAGE>
Item 2. Acquisition or Disposition of Assets.
This Form 8-K/A, Amendment No. 1 is filed to amend and restate the
Current Report on Form 8-K, which was filed on June 12, 2000 and to provide the
financial information required under items 7(a) and 7(b).
On June 6, 2000, Jaco Electronics, Inc. ("Jaco" or the "Company")
acquired all of the issued and outstanding shares of Common Stock, no par value
(the "Shares"), of Interface Electronics Corp., a Massachusetts corporation
("Interface")(the "Transaction"), from Joseph F. Oliveri and Brendan J. Perry
(the "Sellers"), pursuant to the terms of the Stock Purchase Agreement, by and
among Jaco and the Sellers, dated as of May 4, 2000, as amended on June 6, 2000
(the "Stock Purchase Agreement").
In consideration of the acquisition of the Shares, the Company paid
$15,400,000 in cash at the closing (subject to a post closing net worth
adjustment), assumed approximately $3,300,000 in bank debt, plus a deferred
payment of up to $3,960,000 (subject to adjustment), approximately one (1) year
from the anniversary of the closing (June 6, 2000) (or earlier under certain
circumstances), and a deferred payment of up to $2,640,000 (subject to
adjustment), approximately two (2) years from the anniversary of the closing (or
earlier under certain circumstances). A portion of the purchase price is held in
escrow pending the satisfaction of certain conditions and a portion was paid as
directed by Sellers to satisfy certain Sellers' obligations.
The Stock Purchase Agreement contains certain representations,
warranties, covenants (including noncompetition and nonsolicitation provisions
agreed to by the Sellers), conditions and indemnification provisions which
survive the closing.
In connection with the Transaction, Mr. Oliveri entered into an
employment agreement with Jaco for a three (3) year term, pursuant to which
he will serve as Vice Chairman of the Board of Directors and Executive Vice
President of Jaco Electronics, Inc. The employment agreement provides Mr.
Oliveri with a base salary of $300,000 per annum, certain employee benefits and
an incentive bonus based upon the gross profits realized by Interface from
certain sales during each twelve (12) month period during the term of his
employment.
To finance the consideration for the Transaction, the Company increased
its credit facility with its commercial banks from $30,000,000 to $50,000,000,
based principally on eligible accounts receivable and inventories of the
Company. Borrowings under the credit facility are collateralized by
substantially all of the assets of the Company.
The foregoing is merely a summary of the Transaction. A copy of the
Stock Purchase Agreement is attached as an Exhibit to the Current Report on Form
8-K, which was filed on May 15, 2000 and Amendment No. 1 to the Stock Purchase
Agreement is attached as an Exhibit to the Current Report on Form 8-K, which was
filed on June 12, 2000.
2
<PAGE>
<TABLE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a). Financial Statements of Interface Electronics Corp.
PAGE
<S> <C>
Independent Auditors Report. 5
Balance Sheet at December 31, 1999. 6
Statement of Operations and Accumulated Deficit for the year ended
December 31, 1999. 8
Statement of Cash Flows for the year ended December 31, 1999. 9
Notes to Financial Statements for the year ended December 31, 1999. 11
Independent Auditors Report. 15
Consolidated Balance Sheets at December 31, 1998 and 1997. 16
Consolidated Statements of Operations for the years ended
December 31, 1998 and 1997. 18
Statements of Retained Earnings for the years ended December 31, 1998 and 1997. 18
Consolidated Statements of Cash Flows for the years ended December 31, 1998 and
1997. 19
Consolidated Supplementary Information for the years ended December 31, 1998 and
1997. 20
Notes to Financial Statements for the years ended December 31, 1998. 21
Condensed Balance Sheets at March 31, 2000 and December 31, 1999. 24
Condensed Income Statements for the three months ended March 31, 2000 and 1999. 25
Condensed Statements of Cash Flows for the three months ended March 31, 2000 and
1999. 26
Notes to Condensed Financial Statements for the three months ended March 31,
2000. 27
(b) Pro Forma Financial Information.
Introduction. 28
ProForma Condensed Consolidated Balance Sheet at March 31, 2000. 29
Notes to Pro Forma Condensed Consolidated Balance Sheet at March 31, 2000. 31
ProForma Condensed Consolidated Statement of Operations for the nine months
ended March 31, 2000. 32
ProForma Condensed Consolidated Statement of Operations for the year ended June
30, 1999. 34
Notes to Pro Forma Condensed Consolidated Statements of Operations for the nine
months ended March 31, 2000 and the year ended June 30, 1999. 36
</TABLE>
3
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(continued)
(c) Exhibits
Exhibit
Number Description
2.1 Stock Purchase Agreement by and among Jaco
Electronics, Inc. and All of the Shareholders of
Interface Electronics Corp. as of May 4, 2000.
Incorporated by reference from the Current Report on
Form 8-K, SEC File No. 000-05896, filed by Jaco
Electronics, Inc. on May 15, 2000.
2.2 Amendment No. 1 to the Stock Purchase Agreement
by and among Jaco Electronics, Inc. and All of the
Shareholders of Interface Electronics Corp. as of May
4, 2000, dated June 6, 2000. Incorporated by reference
from the Current Report on Form 8-K, SEC File No.
000-05896, filed by Jaco Electronics, Inc. on June 12,
2000.
10.16 Employment Agreement dated June 6, 2000, between
the Registrant and Joseph Oliveri. Incorporated by
reference from the Current Report on Form 8-K, SEC
File No. 000-05896, filed by Jaco Electronics, Inc. on
June 12, 2000.
99.9 Press Release dated May 9, 2000. Incorporated by
reference from the Current Report on Form 8-K, SEC
File No. 000-05896, filed by Jaco Electronics, Inc. on
May 15, 2000.
99.10 Press Release dated June 8, 2000. Incorporated by
reference from the Current Report on Form 8-K, SEC
File No. 000-05896, filed by Jaco Electronics, Inc. on
June 12, 2000.
4
<PAGE>
To the Board of Directors
Interface Electronics Corp.
Franklin, MA
Independent Auditors' Report
We have audited the accompanying balance sheet of Interface Electronics Corp. as
of December 31, 1999, and the related statements of operations and accumulated
deficit, and cash flows for the year then ended. These financial statements are
the responsibility of management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the accompanying financial statements referred to in the first
paragraph presents fairly, in all material respects, the financial position of
Interface Electronics Corporation as of December 31, 1999, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 11 to the
financial statements, the Company had a significant operating loss in 1999 and
has a working capital deficiency. These conditions raise substantial doubt about
its ability to continue as a going concern. Management's plan regarding those
matters are also described in Note 11. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
February 24, 2000 Freely & Driscoll, P.C.
5
<PAGE>
<TABLE>
INTERFACE ELECTRONICS CORP.
Balance Sheet
December 31, 1999
Assets
Current assets:
<S> <C>
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
Depostis ................................................... 57,954
Investments ................................................ 50,747
Cash surrender value of officers' life insurance ........... 96,923
-----------
1,235,819
-----------
$10,428,506
===========
See accompanying notes.
</TABLE>
6
<PAGE>
<TABLE>
INTERFACE ELECTRONICS CORP.
Balance Sheet - continued
December 31, 1999
Liabilities and Stockholders' Deficit
Current liabilities:
<S> <C>
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 share authorized;
10,000 shares issued and outstanding ................... 85,000
Additional paid-in capital ................................ 312,843
Accumulated deficit ....................................... (1,543,031)
------------
Total shareholders' deficit ............................ (1,145,188)
------------
$ 10,428,506
============
See accompanying notes.
</TABLE>
7
<PAGE>
<TABLE>
INTERFACE ELECTRONICS CORP.
Statement of Operations and Accumulated Deficit
For the year ended December 31, 1999
<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
------------
Distribution to stockholders ........................... 71,000
------------
Accumulated deficit at December 31, 1999 ............... $ (1,543,031)
============
See accompanying notes
</TABLE>
8
<PAGE>
INTERFACE ELECTRONICS CORPORATION
Statement of Cash Flows
For the year ended December 31, 1999
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
===========
See accompanying notes.
9
<PAGE>
INTERFACE ELECTRONICS CORP.
Statement of Cash Flows - continued
For the year ended December 31, 1999
Supplemental disclosures of cash flow information:
Cash paid during the year for -
Interest ................................................... $162,780
========
See accompanying notes.
10
<PAGE>
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 electronics 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 account, 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:
Assets Life in Years
Equipment 5 - 7
Furniture & fixtures 5 - 7
Software 3 - 5
Motor vehicles 5 - 7
Leasehold improvements 10 - 29
Vending machines 5
11
<PAGE>
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 Corporation 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:
Inventory in transit ..................................... $ 404,701
Merchandise held for resale .............................. 2,205,345
----------
$2,610,046
==========
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.
12
<PAGE>
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.
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:
2000 $327,616
2001 319,552
2002 305,546
2003 294,881
2004 and thereafter (leases through 2007)
------------
$ 1,247,595
=============
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.
13
<PAGE>
Note 8 - Major Customers
During the year ended December 31, 1999, the Company made sales to thee
(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.
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 judgment 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.
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.
14
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Interface Electronics Corp.
Franklin, MA
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
15
<PAGE>
<TABLE>
INTERFACE ELECTRONICS CORP.
Consolidated Balance Sheets
December 31, 1998 and 1997
Assets
1998 1997
Current Assets:
<S> <C> <C>
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
======================== ========================
See accompanying notes to financial statements
and independent auditors' report
</TABLE>
16
<PAGE>
<TABLE>
INTERFACE ELECTRONICS CORP.
Consolidated Balance Sheets
December 31, 1998 and 1997
Liabilities and Stockholders' Equity
1998 1997
Current liabilities:
<S> <C> <C> <C>
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.
17
<PAGE>
<TABLE>
INTERFACE ELECTRONICS CORP.
Consolidated Statements of Operations
Years ended December 31, 1998 and 1997
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
=========== ===========
Statements of Retained Earnings
December 31, 1998 and 1997
Retained earnings, begininning of year ........... $361,416 $177,764
Net income ....................................... 446,473 183,652
-------- --------
Retained earnings, end of year ................... $807,889 $361,416
======== ========
See accompanying notes to financial statements
and independent auditors' report
</TABLE>
18
<PAGE>
INTERFACE ELECTRONICS CORP.
Consolidated Statements of Cash Flows
Years ended December 31, 1998 and 1997
1998 1997
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
=========== ===========
See accompanying notes to financial statements
and independent auditors' report
19
<PAGE>
INTERFACE ELECTRONICS CORP.
Consolidated Supplementary Information
Years ended December 31, 1998 and 1997
1998 1997
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 expenses ....................... 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
========== ==========
See accompanying notes to financial statements
and independent auditors' report
20
<PAGE>
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 presentation 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.
21
<PAGE>
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:
Depreciation Lives
Furniture 5 - 7 years
Lease improvements 10 - 39 years
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.
22
<PAGE>
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:
Real Estate Motor Vehicles
1999 315,266 22,425
2000 314,636 12,980
2001 319,032 520
2002 305,546
2003 294,881
(b) The Company is a defendant in a lawsuit filed by a vendor under a
theory of goods sold and delivered. The ultimate out come 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.
23
<PAGE>
<TABLE>
INTERFACE ELECTRONICS CORP.
CONDENSED BALANCE SHEET
(UNAUDITED)
MARCH 31, DECEMBER 31,
2000 1999
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash ........................................... $ 625,629 $ 307,518
Accounts receivable - net ...................... 6,391,535 5,503,123
Inventories .................................... 3,296,387 2,610,046
Loans receivable, other ........................ 72,745 160,054
Prepaid expenses and other current assets ...... 93,427 65,927
------------ ------------
Total current assets ........................... 10,479,723 8,646,668
Property and equipment - net ................... 528,733 546,019
Other assets:
Loans receivable, officers ..................... 715,027 714,657
Due from related party ......................... 403,058 315,538
Deposits ....................................... 57,954 57,954
Investments .................................... 50,747 50,747
Cash surrender value of officers' life insurance 96,923 96,923
------------ ------------
TOTAL ASSETS ................................... $ 12,332,165 $ 10,428,506
============ ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Note payable, line of credit ................... $ 3,305,547 $ 3,305,547
Accounts payable, trade ........................ 8,491,410 6,912,839
Due to related party ........................... 42,104 42,104
Accrued liabilities:
Payroll and payroll taxes ...................... 33,859 182,144
Litigation costs ............................... 1,050,000 1,000,000
Other .......................................... 78,543 131,060
------------ ------------
Total current liabilities ...................... 13,001,463 11,573,694
SHAREHOLDERS' DEFICIT:
Common stock ................................... 85,000 85,000
Additional paid-in capital ..................... 312,843 312,843
Accumulated deficit ............................ (1,067,141) (1,543,031)
------------ ------------
Total shareholders' deficit .................... (669,298) (1,145,188)
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT .... $ 12,332,165 $ 10,428,506
============ ============
See accompanying notes to condensed financial statements.
</TABLE>
24
<PAGE>
INTERFACE ELECTRONICS CORP.
CONDENSED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
2000 1999
NET SALES .................................. $ 15,489,190 $ 8,821,822
COST AND EXPENSES:
Cost of goods sold ......................... 13,024,968 7,336,785
------------ ------------
Gross profit ............................ 2,464,222 1,485,037
Selling, general and administrative expenses 1,848,247 1,275,841
------------ ------------
Operating profit ........................ 615,975 209,196
Other (expense) income:
Interest expense - net .................. (78,358) (15,308)
Litigation costs ........................ (50,000)
Other income ............................ 11,273 1,698
------------ ------------
Earnings before income taxes ............ 498,890 195,586
Income tax provision ....................... 23,000 9,000
------------ ------------
NET EARNINGS ............................ $ 475,890 $ 186,586
============ ============
See accompanying notes to condensed financial statements.
25
<PAGE>
<TABLE>
INTERFACE ELECTRONICS CORP.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
2000 1999
Cash flows from operating activities:
<S> <C> <C>
Net earnings ............................................. $ 475,890 $ 186,586
Adjustments to reconcile net earrings to net cash
provided by (used in) operating activities
Depreciation and amortization ..................... 30,000 30,000
Changes in operating assets and liabilities
Increase in operating assets - net ............. (1,514,944) (1,083,620)
Increase in operating liabilities - net ........ 1,427,769 793,125
----------- -----------
Net cash provided by (used in) operating activities 418,715 (73,909)
----------- -----------
Cash flows from investing activities
Capital expenditures ..................................... (12,714) (84,831)
Purchase of long-term investment ......................... (747)
Increase in loans receivable, officers ................... (370) (62,306)
----------- -----------
Net cash used in investing activities .................... (13,084) (147,884)
----------- -----------
Cash flows from financing activities
Increase in due from related parties ..................... (87,520)
Principal payment under note payable ..................... (82,050)
----------- -----------
Net cash used in financing activities .................... (87,520) (82,050)
----------- -----------
Net increase (decrease) in cash ............................. 318,111 (303,843)
Cash at beginning of period ................................. 307,518 561,085
----------- -----------
Cash at end of period ....................................... $ 625,629 $ 257,242
=========== ===========
See accompanying notes to condensed financial statements.
</TABLE>
26
<PAGE>
INTERFACE ELECTRONICS CORP.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
1) 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, which appear in Item 7 (a).
2) Interface Electronics Corp., through its shareholders, 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 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.
Interface Electronics Corp. 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.
3) Interface Electronics Corp. has a line of credit with a bank, in which
advances are limited 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 on 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 March 31, 2000.
The line of credit is subject to certain other terms and covenants.
Interface Electronics Corp. was not in compliance with the loan covenants
as of March 31, 2000. Interface Electronics Corp. has been notified that
the line of credit has been frozen.
27
<PAGE>
JACO ELECTRONICS, INC. AND SUBSIDIARIES AND INTERFACE ELECTRONICS CORP.
INTRODUCTION
(UNAUDITED)
The unaudited pro forma condensed consolidated financial statements have been
prepared to illustrate the effect of the Stock Purchase Agreement dated May 4,
2000, as amended on June 6, 2000, between Jaco Electronics, Inc. and the
shareholders of Interface Electronics Corporation.
The unaudited pro forma condensed consolidated balance sheet at March 31, 2000
is based on the historical consolidated balance sheet of Jaco Electronics, Inc.
("Jaco") as of March 31, 2000 and the historical balance sheet of Interface
Electronics Corporation ("Interface") as of March 31, 2000 and assumes that the
Stock Purchase Agreement occurred on March 31, 2000. The purchase price
consisted of a payment of $15,400,000 at closing (subject to a post closing net
worth adjustment), plus the assumption of bank debt, plus a deferred payment of
up to $3,960,000 (subject to adjustment), approximately one (1) year from the
anniversary of the closing (June 6, 2000) (or earlier under certain
circumstances), and a deferred payment of up to $2,640,000 (subject to
adjustment), approximately two (2) years from the anniversary of the closing (or
earlier under certain circumstances). The deferred payments are based upon
Interface's Contract Manufacturing Division obtaining minimum sales and gross
profit levels. At March 31, 2000, no amount has been provided for since the
deferred payments, if any, are not presently determinable. To finance the
Transaction, the Company increased its credit facility from $30,000,000 to
$50,000,000.
The unaudited pro forma condensed consolidated statements of operations for the
nine months ended March 31, 2000 and the year ended June 30, 1999 are based on
the historical consolidated statements of operations of Jaco Electronics, Inc.
and the historical statements of operations of Interface Electronics Corporation
for the nine months ended March 31, 2000 and the twelve months ended June 30,
1999 and combines their results as if the acquisition had occurred on July 1,
1999 and July 1, 1998, respectively.
The pro forma adjustments are based on preliminary assumptions of the allocation
of the purchase price and are subject to revision upon final settlement of all
purchase price adjustments and the completion of evaluations made on the fair
value of the assets acquired and liabilities assumed. As a result, the final
allocation of the fair value of assets and liabilities assumed in connection
with the acquisition may differ from that presented herein. The pro forma
adjustments do not include any potential benefits that might result form the
elimination of duplicate costs.
The unaudited pro forma condensed consolidated financial statements are not
necessarily indicative of the actual results that would have been reported if
the acquisition occurred on the dates indicated nor do they purport to be
indicative of the results which may be obtained in the future. In the opinion of
management all adjustments necessary to present fairly such pro forma condensed
consolidated financial statements have been made.
The pro forma condensed consolidated financial statements should be read in
conjunction with Jaco Electronics, Inc.'s Form 10-K for the fiscal year ended
June 30, 1999.
28
<PAGE>
<TABLE>
JACO ELECTRONICS, INC. AND SUBSIDIARIES AND INTERFACE ELECTRONICS CORP.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 2000
(UNAUDITED)
Historical
--------------------------------------
Jaco Interface
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash $ 427,287 $ 625,629
Marketable securities 903,868
Accounts receivable - net 29,799,762 6,391,535
Inventories 43,210,928 3,296,387
Loans receivable, other 72,745
Prepaid expenses and other 653,926 93,427
Deferred income taxes 1,008,000
----------------- -----------------
Total current assets 76,003,771 10,479,723
Property, plant and equipment - net 6,426,398 528,733
Deferred income taxes 394,000
Excess of cost over net assets acquired - net 3,655,418
Loans receivable, officers 715,027
Due from related party 403,058
Other assets 1,722,155 205,624
----------------- -----------------
TOTAL ASSETS $ 88,201,742 $ 12,332,165
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 25,159,115 $ 8,603,812
Current maturities of long-term debt and capitalized
lease obligations 859,324
Note payable, line of credit 3,305,547
Due to related party 42,104
Litigation costs 1,050,000
Income taxes payable 1,130,136
----------------- -----------------
Total current liabilities 27,148,575 13,001,463
Long-term debt and capitalized lease obligations 22,373,398
Deferred compensation 787,500
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock 408,072 85,000
Additional paid-in capital - net 22,721,645 312,843
Retained earnings (Accumulated deficit) 16,784,584 (1,067,141)
Accumulated other comprehensive income 182,483
Treasury stock (2,204,515)
----------------- -----------------
Total shareholders' equity (deficit) 37,892,269 (669,298)
----------------- -----------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY (DEFICIT) $ 88,201,742 $ 12,332,165
================= =================
See accompanying notes to condensed financial statements.
</TABLE>
29
<PAGE>
<TABLE>
JACO ELECTRONICS, INC. AND SUBSIDIARIES AND INTERFACE ELECTRONICS CORP.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 2000
(UNAUDITED)
Pro Forma
---------------------------------------------
Adjustments Consolidated
ASSETS
CURRENT ASSETS:
<S> <C>
Cash $ 1,052,916
Marketable securities 903,868
Accounts receivable - net 36,191,297
Inventories $ (213,054) (E) 46,294,261
Loans receivable, other 72,745
Prepaid expenses and other 747,353
Deferred income taxes 1,008,000
----------------- --------------------
Total current assets (213,054) 86,270,440
Property, plant and equipment - net (128,892) (E) 6,826,239
Deferred income taxes 394,000
Excess of cost over net assets acquired - net 12,894,298 (B) 16,549,716
Loans receivable, officers 1,050,000 (A)
(1,765,027) (D)
Due from related party (403,058) (D)
Other assets 1,235,000 (B) 3,112,779
(50,000) (D)
----------------- --------------------
TOTAL ASSETS $ 12,619,267 $113,153,174
================= ====================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 160,000 (B) $ 33,922,927
Current maturities of long-term debt and capitalized
lease obligations 859,324
Note payable, line of credit (3,305,547) (C)
Due to related party 42,104
Litigation costs (1,050,000) (B)
Income taxes payable 1,130,136
----------------- --------------------
Total current liabilities (4,195,547) 35,954,491
Long-term debt and capitalized lease obligations 15,400,000 (B) 38,518,914
3,305,547 (C)
(2,218,085) (D)
(341,946) (E)
Deferred compensation 787,500
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock (85,000) (B) 408,072
Additional paid-in capital - net 1,050,000 (A) 22,721,645
(1,362,843) (B)
Retained earnings (Accumulated deficit) 1,067,141 (B) 16,784,584
Accumulated other comprehensive income 182,483
Treasury stock (2,204,515)
----------------- --------------------
Total shareholders' equity (deficit) 669,298 37,892,269
----------------- --------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY (DEFICIT) $ 12,619,267 $113,153,174
================= ====================
See accompanying notes to condensed financial statements.
</TABLE>
30
<PAGE>
<TABLE>
JACO ELECTRONICS, INC. AND SUBSIDIARIES AND INTERFACE ELECTRONICS CORP.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 2000
(UNAUDITED)
A - To record an additional investment into Interface Electronics Corp. by
the Sellers for liabilites not assumed by the Company.
B - The purchase price, exclusive of related fees and expenses, of $15.4
million is based on the terms and conditions of the Stock Purchase
Agreement. To finance the consideration for the Transaction, the Company
increased its credit facility with its commercial banks from $30,000,000
to $50,000,000, based on eligible accounts receivable and inventories of
the Company. Borrowings under the credit facility are collateralized by
substantially all of the assets of the Company.
The purchase price has initially been allocated as follows:
<S> <C>
Purchase price paid by cash $ 15,400,000
Less: Operating assets acquired (13,382,165)
Identifiable intangibles:
Franchise agreement (550,000)
Employment agreement (685,000)
Plus: Liabilities assumed 11,951,463
Estimated transaction costs 160,000
-------------------
Goodwill $ 12,894,298
===================
C - In connection with the acquisition of Interface, the Company assumed
Interface's outstanding bank debt. Immediately after the closing of the
transaction, the Company paid off the assumed outstanding bank debt using
the Company's credit facility.
D - Immediately after the closing of the transaction, pursuant to the stock
purchase agreement, the Sellers paid to the Company the following items:
Officers' loans due to Interface $ 1,765,027
Related party loan due to Interface 403,058
Miscellaneous receivable due to Interface 50,000
-------------------
$ 2,218,085
===================
Proceeds received were used to repay outstanding bank debt.
E - Immediately after the closing of the transaction, pursuant to the stock
purchase agreement, the Sellers purchased the following items which
pertained to the Systems Division of Interface Electronics Corporation:
Inventory $ 213,054
Fixed assets 128,892
-------------------
$ 341,946
===================
Proceeds received were used to repay outstanding bank debt.
</TABLE>
31
<PAGE>
<TABLE>
JACO ELECTRONICS, INC. AND SUBSIDIARIES AND INTERFACE ELECTRONICS CORP.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
Historical
-------------------------------------------
Jaco Interface
<S> <C> <C>
NET SALES $ 138,811,321 $ 36,364,438
COST AND EXPENSES:
Cost of goods sold 108,994,750 30,710,220
------------------- -------------------
Gross profit 29,816,571 5,654,218
Selling, general and administrative expenses 23,918,836 5,658,616
------------------- -------------------
Operating profit (loss) 5,897,735 (4,398)
Other expense (income):
Interest expense - net 1,002,958 186,217
Litigation costs 1,050,000
Other income (47,445)
------------------- -------------------
Earnings (Loss) before income taxes 4,894,777 (1,193,170)
Income tax provision (benefit) 2,031,000
------------------- -------------------
Net earnings (loss) $ 2,863,777 $ (1,193,170)
=================== ===================
Net earnings per common share:
Basic $ 0.52
===================
Diluted $ 0.51
===================
Weighted average common shares outstanding:
Basic 5,482,328
===================
Diluted 5,652,593
===================
</TABLE>
32
<PAGE>
<TABLE>
JACO ELECTRONICS, INC. AND SUBSIDIARIES AND INTERFACE ELECTRONICS CORP.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
Pro Forma
---------------------------------------------
Adjustments Consolidated
<S> <C> <C>
NET SALES $ (3,269,458)(A) $ 171,906,301
COST AND EXPENSES:
Cost of goods sold (2,244,298)(A) 137,460,672
------------------ -------------------
Gross profit (1,025,160) 34,445,629
Selling, general and administrative expenses (406,360)(A) 29,786,092
484,000 (C)
28,000 (D)
103,000 (E)
------------------ -------------------
Operating profit (loss) (1,233,800) 4,659,537
Other expense (income):
Interest expense - net 721,783 (B) 1,910,958
Litigation costs 1,050,000
Other income 902 (A) (46,543)
------------------ -------------------
Earnings (Loss) before income taxes (1,956,485) 1,745,122
Income tax provision (benefit) (1,081,000)(F) 950,000
------------------ -------------------
Net earnings (loss) $ (875,485) $ 795,122
================== ===================
Net earnings per common share:
Basic $ 0.15
===================
Diluted $ 0.14
===================
Weighted average common shares outstanding:
Basic 5,482,328
===================
Diluted 5,652,593
===================
See accompanying notes to condensed financial statements.
</TABLE>
33
<PAGE>
<TABLE>
JACO ELECTRONICS, INC. AND SUBSIDIARIES AND INTERFACE ELECTRONICS CORP.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1999
(UNAUDITED)
Historical
-------------------------------------------
Jaco Interface
<S> <C> <C>
NET SALES $ 140,710,825 $ 33,713,694
COST AND EXPENSES:
Cost of goods sold 113,334,627 27,650,192
------------------- -------------------
Gross profit 27,376,198 6,063,502
Selling, general and administrative expenses 27,642,724 6,587,979
------------------- -------------------
Operating loss (266,526) (524,477)
Other expense (income):
Interest expense - net 1,308,624 67,204
Other income (1,796)
------------------- -------------------
Loss before income taxes (1,575,150) (589,885)
Income tax benefit 418,000
------------------- -------------------
Net loss $ (1,157,150) $ (589,885)
=================== ===================
Net loss per common share:
Basic and diluted $ (0.21)
===================
Weighted average common shares outstanding:
Basic and diluted 5,547,405
===================
See accompanying notes to condensed financial statements.
</TABLE>
34
<PAGE>
<TABLE>
JACO ELECTRONICS, INC. AND SUBSIDIARIES AND INTERFACE ELECTRONICS CORP.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1999
(UNAUDITED)
Pro Forma
---------------------------------------------
Adjustments Consolidated
<S> <C> <C>
NET SALES $ (2,293,328)(A) $ 172,131,191
COST AND EXPENSES:
Cost of goods sold (1,523,711)(A) 139,461,108
------------------ -------------------
Gross profit (769,617) 32,670,083
Selling, general and administrative expenses (256,501)(A) 34,793,202
645,000 (C)
37,000 (D)
137,000 (E)
------------------ -------------------
Operating loss (1,332,116) (2,123,119)
Other expense (income):
Interest expense - net 1,062,796 (B) 2,438,624
Other income (1,796)
------------------ -------------------
Loss before income taxes (2,394,912) (4,559,947)
Income tax benefit 610,000 (F) 1,028,000
------------------ -------------------
Net loss $ (1,784,912) $ (3,531,947)
================== ===================
Net loss per common share:
Basic and diluted $ (0.64)
===================
Weighted average common shares outstanding:
Basic and diluted 5,547,405
===================
See accompanying notes to condensed financial statements.
</TABLE>
35
<PAGE>
<TABLE>
JACO ELECTRONICS, INC. AND SUBSIDIARIES AND INTERFACE ELECTRONICS CORP.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED MARCH 31, 2000 AND THE 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 condensed
consolidated statements 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:
Nine Months Ended Year Ended
March 31, 2000 June 30, 1999
---------------------- -----------------------
Interest on additional borrowings of $18,705,547 less cash received at
closing of $2,560,031 and assuming an interest rate of 7.5% and
<S> <C> <C> <C>
7.0%, respectively $ 908,000 $ 1,130,000
Elimination of interest expense on Interface debt and interest income
on officers' loans which are assumed repaid and the elimination of
other
miscellaneous interest (186,217) (67,204)
---------------------- -----------------------
Net increase in interest expense $ 721,783 $ 1,062,796
====================== =======================
C - Adjustment to reflect the amortization of estimated 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 41% and 26.5% for the nine months ended March 31, 2000 and the
year ended June 30, 1999, respectively, 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 condensed consolidated
statements of operations stated above and the Historical Loss of Interface
</TABLE>
36
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
JACO ELECTRONICS, INC.
By: /s/ Jeffrey Gash
Jeffrey Gash,
Vice President-Finance
Date: August 18, 2000
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
2.1 Stock Purchase Agreement by and among Jaco
Electronics, Inc. and All of the Shareholders of
Interface Electronics Corp. as of May 4, 2000.
Incorporated by reference from the Current Report on
Form 8-K, SEC File No. 000-05896, filed by Jaco
Electronics, Inc. on May 15, 2000.
2.2 Amendment No. 1 to the Stock Purchase Agreement
by and among Jaco Electronics, Inc. and All of the
Shareholders of Interface Electronics Corp. as of May
4, 2000, dated June 6, 2000. Incorporated by reference
from the Current Report on Form 8-K, SEC File No.
000-05896, filed by Jaco Electronics, Inc. on June 12,
2000.
10.16 Employment Agreement dated June 6, 2000, between
the Registrant and Joseph Oliveri. Incorporated by
reference from the Current Report on Form 8-K, SEC
File No. 000-05896, filed by Jaco Electronics, Inc. on
June 12, 2000.
99.9 Press Release dated May 9, 2000. Incorporated by
reference from the Current Report on Form 8-K, SEC
File No. 000-05896, filed by Jaco Electronics, Inc. on
May 15, 2000.
99.10 Press Release dated June 8, 2000. Incorporated by
reference from the Current Report on Form 8-K, SEC
File No. 000-05896, filed by Jaco Electronics, Inc. on
June 12, 2000.
