SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
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 30, 1999
------------------------------
Questron Technology, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-13324 23-2257354
- --------------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
6400 Congress Avenue, Suite 200A, Boca Raton, Florida 33487
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (561) 241-5251
------------------------------
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of
1934, Questron Technology, Inc., a Delaware corporation (the "Registrant")
hereby amends the following items, financial statements, exhibits or other
portions of its Current Report on Form 8-K, dated June 30, 1999 and filed on
July 15, 1999 (the "Form 8-K"), as set forth in the pages attached hereto.
Item 7. Financial Statements and Exhibits.
(a) and (b). The financial statements and pro forma financial
information required as part of this item are being filed in this amendment to
the Form 8-K. This amendment is being filed within 60 days of filing of the Form
8-K. The financial statements being filed with this amendment are as follows:
<PAGE>
Questron Technology, Inc.
Financial Statements
I. Pro Forma Financial Statements (Unaudited)
<TABLE>
<S> <C>
Pro Forma Financial Statements -- Introduction..........................................................F-1
Questron Technology, Inc. Pro Forma Balance Sheet as of March 31, 1999 and Notes thereto................F-2
Questron Technology, Inc. Pro Forma Statement of Operations
for the year ended December 31, 1998 and Notes thereto.............................................F-5
Questron Technology, Inc. Pro Forma Statement of Operations
for the three months ended March 31, 1999 and Notes thereto.......................................F-10
Questron Technology, Inc. Pro Forma Statement of Operations
for the three months ended March 31, 1998 and Notes thereto.......................................F-13
II. Financial Statements of Action Threaded Products, Inc.
Report of Independent Auditors.........................................................................F-17
Action Threaded Products, Inc. Balance Sheet as of December 31, 1998 (Audited).........................F-18
Action Threaded Products, Inc. Statement of Income and Retained Earnings for the
year ended December 31, 1998 (Audited)...........................................................F-19
Action Threaded Products, Inc. Statement of Cash Flows for the
year ended December 31, 1998 (Audited)...........................................................F-20
Notes to Audited Financial Statements..................................................................F-21
Action Threaded Products, Inc. Balance Sheet as of March 31, 1999 (Unaudited)..........................F-25
Action Threaded Products, Inc. Statement of Income and Retained Earnings (Unaudited)...................F-26
Action Threaded Products, Inc. Statement of Cash Flows (Unaudited).....................................F-27
Note to Unaudited Financial Statements ................................................................F-28
</TABLE>
(c) Exhibits.
The exhibits required by Item 601 of Regulation S-K are hereby
incorporated by reference to the Form 8-K.
<PAGE>
The following pro forma balance sheet and combined statements of
operations, respectively, of the Registrant for the period ended March 31, 1999
and for the fiscal year ended December 31, 1998 and for the three month periods
ended March 31, 1999 and March 31, 1998, give effect to the acquisitions by the
Registrant of Action Threaded Products, Inc., an Illinois corporation
("Action"), Capital Fasteners, Inc., a North Carolina corporation ("Capital"),
the net operating assets of Metro Form Corporation, an Ohio corporation d.b.a.
Olympic Fasteners & Electronic Hardware ("Olympic"), Fortune Industries, Inc., a
Texas corporation ("Fortune"), Fas-Tronics, Inc., a Texas corporation
("Fas-Tronics") and the net operating assets of AFCOM, Inc., a Florida
corporation ("AFCOM"). For purposes of these pro forma financial statements, the
acquisition by the Registrant of Fortune, Fas-Tronics and AFCOM are collectively
referred to herein as the "Recent Acquisitions" and the acquisition by the
Registrant of Action, Capital and Olympic are collectively referred to herein as
the "Pending Acquisitions." A description of the acquisition of the Pending
Acquisitions is included in Item 2 of the Form 8-K.
F-1
<PAGE>
QUESTRON TECHNOLOGY, INC.
UNAUDITED PRO FORMA BALANCE SHEET DATA
March 31, 1999
<TABLE>
<CAPTION>
Pro Forma
Pending Pro Forma As
Actual Acquisitions (1) Adjustments (2) Adjusted
----------------- ----------------------- ------------------------ -----------------
Assets
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 1,231,586 559,106 (559,106) $ 1,231,586
Accounts receivable 12,245,381 3,890,974 (240,265) 15,896,090
Inventories 23,212,218 7,228,128 30,440,346
Prepaid items/other 525,199 14,074 539,273
-------------- --------------- ----------------
Total current assets 37,214,384 11,692,282 48,107,295
Property and equipment--net 1,994,860 534,127 2,528,987
Cost in excess of net assets of businesses
acquired, net of amortization 37,705,021 - 27,423,108 65,128,129
Deferred income taxes 2,848,497 165,581 3,014,078
Other assets 2,687,774 92,061 4,112,982 6,892,817
-------------- --------------- ---------------
Total assets $ 82,450,536 $ 12,484,051 $ 125,671,306
============= ============== =============
Liabilities and Shareholders' Equity
Accounts payable $ 5,592,946 $ 2,396,794 $ 7,989,740
Accrued expenses 1,323,531 599,225 (575,000) 1,347,756
Income taxes 236,152 645,641 881,793
Current portion of long-term debt 1,685,000 3,397,569 (3,397,569) 1,685,000
------------- -------------- --------------
Total current liabilities 8,837,629 7,039,229 11,904,289
Long-term debt 44,477,790 1,433,804 34,250,306 80,161,900
Other non-current liabilities 310,353 - 310,353
Deferred income taxes 317,890 - 317,890
Common stock subject to put option 317,051 - 317,051
Shareholders' equity 28,189,823 4,011,018 458,982 32,659,823
------------- --------------- --------------
Total Liabilities and Shareholders' Equity $ 82,450,536 $ 12,484,051 $ 125,671,306
============= =============== =============
</TABLE>
F-2
<PAGE>
QUESTRON TECHNOLOGY, INC.
Notes To Unaudited Pro Forma Balance Sheet Data
March 31, 1999
1 To reflect historical balance sheet of Action, Capital and Olympic as of
March 31, 1999, as follows:
<TABLE>
<CAPTION>
Action Capital Olympic Total
------------- ------------ -------------- -------------
Assets
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 237,280 $ 260,974 $ 60,582 $ 559,106
Accounts receivable 1,695,870 1,000,606 1,194,498 3,890,974
Inventories 3,711,402 2,197,551 1,319,175 7,228,128
Prepaid items/other 11,274 2,800 - 14,074
------------- ------------ -------------- -------------
Total current assets 5,655,826 3,461,931 2,574,525 11,692,282
Property and equipment-- net 205,111 180,572 148,444 534,127
Deferred income taxes - 165,581 - 165,581
Other assets - 70,966 21,095 92,061
------------- ------------ -------------- -------------
Total assets $ 5,860,937 $ 3,879,050 $ 2,744,064 $ 12,484,051
============= ============ ============== =============
Liabilities and Shareholders' Equity
Accounts payable $ 831,812 $ 880,326 $ 684,656 $ 2,396,794
Accrued expenses 383,318 20,403 195,504 599,225
Income taxes 75,468 570,173 - 645,641
Current portion of long-term debt 2,300,000 141,329 956,240 3,397,569
-------------- ------------- --------------- ---------------
Total current liabilities 3,590,598 1,612,231 1,836,400 7,039,229
Long-term debt - 1,368,457 65,347 1,433,804
Shareholders' equity 2,270,339 898,362 842,317 4,011,018
-------------- ------------- ------------ ---------------
Total Liabilities and Shareholder's
Equity $ 5,860,937 $ 3,879,050 $ 2,744,064 $ 12,484,051
============= ============ ============== =============
</TABLE>
F-3
<PAGE>
QUESTRON TECHNOLOGY, INC.
Notes To Unaudited Pro Forma Balance Sheet Data (continued)
March 31, 1999
2 Adjustments to assets, liabilities and shareholder's equity in the pro
forma balance sheet relating to the Pending Acquisitions are comprised of
the following:
<TABLE>
<CAPTION>
Action Capital Olympic
--------------- ------------- ---------------
Cash:
<S> <C> <C> <C>
To eliminate assets not required $ (237,280) $ (260,974) $ (60,852)
=============== ============= ===============
Accounts receivable:
To eliminate receivable not acquired $ - $ - $ (240,265)
=============== ============= ===============
Cost in excess of net assets of businesses
acquired:
To reflect excess purchase price relating to
pending acquisitions $ 10,013,718 $ 9,348,535 $ 8,060,855
=============== ============= ===============
Other assets:
To reflect deferred acquisition costs relating to
pending acquisitions $ - $ - $ -
=============== ============= ===============
Accrued expenses:
To reflect costs relating to acquisitions not paid
at closing $ 191,667 $ 191,667 $ 191,666
=============== ============= ===============
Short term portfolio of long term debt:
To eliminate debt not acquired $ (2,300,000) $ (141,329) $ (956,240)
=============== ============= ===============
Long term debt:
To reflect long term debt assumed to fund
purchases of pending acquisitions $ - $ - $ -
To eliminate debt not acquired - (1,368,457) (65,347)
--------------- ------------- ---------------
$ - $ (1,368,457) $ (65,347)
=============== ============= ===============
Shareholders' equity
To record stock issued as a portion of purchase
price $ 1,800,000 $ 650,000 $ 1,000,000
To record stock issued to subordinated debt
holders
To eliminate equity of pending acquisitions (2,270,339) (898,362) (842,317)
--------------- ------------- ---------------
$ (470,339) $ (248,362) $ 157,683
=============== ============= ===============
<CAPTION>
Questron Total
-------------- --------------
Cash:
<S> <C> <C>
To eliminate assets not required $ - $ (559,106)
============== ==============
Accounts receivable:
To eliminate receivable not acquired $ - $ (240,265)
============== ==============
Cost in excess of net assets of businesses
acquired:
To reflect excess purchase price relating to
pending acquisitions $ - $ 27,423,108
============== =============
Other assets:
To reflect deferred acquisition costs relating to
pending acquisitions $ 4,112,982 $ 4,112,982
============== =============
Accrued expenses:
To reflect costs relating to acquisitions not paid
at closing $ - $ 575,000
============== =============
Short term portfolio of long term debt:
To eliminate debt not acquired $ - $ (3,397,569)
============== =============
Long term debt:
To reflect long term debt assumed to fund
purchases of pending acquisitions $ 35,684,110 $ 35,684,110
To eliminate debt not acquired - (1,433,804)
-------------- -------------
$ 35,684,110 $ 34,250,306
============== =============
Shareholders' equity
To record stock issued as a portion of purchase
price $ - $ 3,450,000
To record stock issued to subordinated debt
holders 1,020,000 1,020,000
To eliminate equity of pending acquisitions - (4,011,018)
-------------- -------------
$ 1,020,000 $ 452,982
============== =============
</TABLE>
F-4
<PAGE>
QUESTRON TECHNOLOGY, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS DATA
Year ended December 31, 1998
<TABLE>
<CAPTION>
Pro forma
Adjustments--
Recent Recent Pending
Actual Acquisitions(1) Acquisitions(2) Subtotal Acquisitions(3)
------------ --------------- -------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Revenues $ 56,968,007 $ 17,417,581 $ 74,385,588 $ 36,290,847
Costs of products and services
sold 34,319,326 10,129,125 44,448,451 21,335,126
---------- ---------- ---------- ----------
Gross profit 22,648,681 7,288,456 29,937,137 14,955,721
Selling, general and
administrative expenses 13,385,018 4,904,691 (730,638) 17,559,071 13,109,739
Depreciation and amortization 984,185 51,989 316,000 1,352,174 173,290
----------- ----------- ---------- -----------
Operating income 8,279,478 2,331,776 11,025,892 1,672,692
Interest expense 2,709,979 132,239 1,690,091 4,532,309 410,733
Other (income) expense, net - (38,556) (38,556) (56,547)
---------- ---------- ---------- ----------
Income before income taxes 5,569,499 2,238,093 6,532,139 1,318,506
Income taxes 2,283,495 - 394,163 2,677,658 432,068
---------- ---------- ---------- ----------
Net income $ 3,286,004 $ 2,238,093 $ 3,854,481 $ 886,438
========== ========== ========== ==========
</TABLE>
Pro forma
Adjustments-- Pro Forma
Pending As
Acquisitions(4) Adjusted
-------------- ----------------
Revenues $ 110,676,435
Costs of products and services
sold 65,783,577
-----------
Gross profit 44,892,858
Selling, general and
administrative expenses (3,289,021) 27,379,789
Depreciation and amortization 685,577 2,211,041
-----------
Operating income 15,302,028
Interest expense 4,952,213 9,895,255
Other (income) expense, net (95,103)
------------
Income before income taxes 5,501,876
Income taxes (677,861) 2,431,865
-----------
Net income $ 3,070,011
===========
F-5
<PAGE>
QUESTRON TECHNOLOGY, INC.
NOTES UNAUDITED PRO FORMA STATEMENT OF OPERATIONS DATA
Year ended December 31, 1998
1 The pro forma statement of operations reflects the following historical
financial data of (a) Fortune for the period from January 1, 1998 through
June 30, 1998, (b) Fas-Tronics for the period from January 1, 1998 through
June 30, 1998, and (c) AFCOM for the period from January 1, 1998 through
November 30, 1998 (collectively, the "Recent Acquisitions"):
<TABLE>
<CAPTION>
Fortune Fas-Tronics AFCOM
------------------------- ------------------------ ------------------------
<S> <C> <C> <C>
Revenues $ 6,212,295 $ 4,948,166 $ 6,257,120
Cost of goods sold 3,546,775 2,986,670 3,595,680
------------------------- ------------------------ ------------------------
Gross profit 2,665,520 1,961,496 2,661,440
Selling, general and administrative
expenses 1,784,041 983,975 2,136,675
Depreciation and amortization 16,067 6,972 28,950
------------------------- ------------------------ ------------------------
Operating income 865,412 970,549 495,815
Interest expense 10,777 69,877 51,585
Other (income) expense, net (29,476) - (9,080)
------------------------- ------------------------ ------------------------
Income before income taxes 884,111 900,672 453,310
Income taxes - - -
------------------------- ------------------------ ------------------------
Net income $ 884,111 $ 900,672 $ 453,310
========================= ======================== ========================
Total
-----------------------
Revenues $ 17,417,581
Cost of goods sold 10,129,125
-----------------------
Gross profit 7,288,456
Selling, general and administrative
expenses 4,904,691
Depreciation and amortization 51,989
-----------------------
Operating income 2,331,776
Interest expense 132,239
Other (income) expense, net (38,556)
-----------------------
Income before income taxes 2,238,093
Income taxes -
-----------------------
Net income $ 2,238,093
=======================
2 Adjustments to costs and expenses in the pro forma statement of operations
relating to the Recent Acquisitions are comprised of the following:
<CAPTION>
Fortune Fas-Tronics AFCOM Total
------------ --------------- ----------- --------------
<S> <C> <C> <C> <C>
Selling, general and
administrative:
To adjust salaries, bonuses and
benefit amounts to reflect those
established in contractual
agreements between the
Company and certain owners
and key employees acquired in
the Recent Acquisitions $ (80,508) $ - $ (409,646) $ (490,154)
To eliminate expense related to
non-compete agreements
terminated concurrently with
the Recent Acquisitions (118,770) (64,186) - (182,956)
</TABLE>
F-6
<PAGE>
QUESTRON TECHNOLOGY, INC.
NOTES UNAUDITED PRO FORMA STATEMENT OF OPERATIONS DATA (Continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
Fortune Fas-Tronics AFCOM
------------------------- --------------------------- --------------------------
<S> <C> <C> <C>
To eliminate expenses incurred
by acquired companies directly
related to their acquisition by
the Company (28,278) (29,250) -
------------------------- --------------------------- --------------------------
$ (277,556) $ (93,436) $ (409,646)
========================= =========================== ==========================
Depreciation and amortization:
To reflect amortization of
purchase cost in excess of net
assets acquired, using a 40-
year amortization period $ 115,000 $ 85,000 $ 116,000
========================= =========================== ==========================
Interest expense:
To reflect increase in interest
expense and amortization of
debt issuance costs attributable
to obligations incurred to
complete the Recent
Acquisitions
Income taxes:
To reflect provision for federal
and state income taxes at the
effective tax rate for the
Company
</TABLE>
Total
--------------------
To eliminate expenses incurred
by acquired companies directly
related to their acquisition by
the Company (57,528)
-------------------
$ (730,638)
===================
Depreciation and amortization:
To reflect amortization of
purchase cost in excess of net
assets acquired, using a 40-
year amortization period $ 316,000
===================
Interest expense:
To reflect increase in interest
expense and amortization of
debt issuance costs attributable
to obligations incurred to
complete the Recent
Acquisitions $ 1,690,091
===================
Income taxes: $ 394,163
To reflect provision for federal ===================
and state income taxes at the
effective tax rate for the
Company
<TABLE>
3 The pro forma statement of operations include the following financial data of the Pending Acquisitions for the year ended
December 31, 1998:
<CAPTION>
Action Capital Olympic Total
--------------------- ------------------- -------------------- ---------------
<S> <C> <C> <C> <C>
Revenues $ 16,319,305 $ 9,495,531 $ 10,476,011 $ 36,290,847
Cost of goods sold 10,205,870 5,003,854 6,125,402 21,335,126
--------------------- ------------------- -------------------- ---------------
Gross profit 6,113,435 4,491,677 4,350,609 14,955,721
Selling, general and administrative
expenses 5,816,257 3,349,584 3,943,898 13,109,739
Depreciation and amortization 47,597 72,722 52,971 173,290
--------------------- ------------------- -------------------- ---------------
Operating income 249,581 1,069,371 353,740 1,672,692
Interest expense 167,575 142,430 100,728 410,733
</TABLE>
F-7
<PAGE>
QUESTRON TECHNOLOGY, INC.
NOTES UNAUDITED PRO FORMA STATEMENT OF OPERATIONS DATA (Continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
Action Capital Olympic Total
--------------------- ----------------------- -------------------- ---------------
<S> <C> <C> <C> <C>
Other (income) expense, net (24,918) (2,134) (29,495) (56,547)
--------------------- ----------------------- -------------------- ---------------
Income before income taxes 106,924 929,075 282,507 1,318,506
Income taxes 60,000 372,068 - 432,068
--------------------- ----------------------- -------------------- ---------------
Net income $ 46,924 $ 557,007 $ 282,507 $ 886,438
===================== ======================= ==================== ===============
</TABLE>
<TABLE>
4 Adjustments to costs and expense in the pro forma statement of operations relating to Pending Acquisitions are comprised
of the following:
<CAPTION>
Action Capital Olympic Questron
----------------- ---------------- ------------------ ----------------
<S> <C> <C> <C> <C>
Selling, general and administrative expenses:
To adjust salaries, bonuses and benefit
amounts to reflect contractual agreements
between the Company and certain owners
and key employees acquired in the Pending
Acquisitions $ (1,813,095) $ (385,394) $ (959,000) $ -
To eliminate expenses incurred by acquired
companies directly related to their
acquisition by the Company (8,250) (37,282) (56,000) -
To adjust lease expense to reflect contractual
agreements between the Company and
certain owners acquired in the Pending
Acquisitions - - (30,000) -
----------------- ---------------- ------------------ ----------------
$ (1,821,345) $ (422,676) $ (1,045,000)$ -
================= ================ ================== ================
Depreciation and amortization:
To reflect amortization of purchase cost in
excess of net assets acquired, using a 40-
year amortization period $ 250,343 $ 233,713 $ 201,521 $ -
================= ================ ================== ================
Interest expense:
To reflect increase in interest expense and
amortization of debt issuance costs
attributable to obligations incurred to
complete the Pending Acquisitions $ - $ - $ - $ 4,194,644
</TABLE>
Total
-------------
Selling, general and administrative expenses:
To adjust salaries, bonuses and benefit
amounts to reflect contractual agreements
between the Company and certain owners
and key employees acquired in the Pending
Acquisitions $ (3,157,489)
To eliminate expenses incurred by acquired
companies directly related to their
acquisition by the Company (101,532)
To adjust lease expense to reflect contractual
agreements between the Company and
certain owners acquired in the Pending
Acquisitions (30,000)
-------------
$ (3,289,021)
=============
Depreciation and amortization:
To reflect amortization of purchase cost in
excess of net assets acquired, using a 40-
year amortization period $ 685,577
=============
Interest expense:
To reflect increase in interest expense and
amortization of debt issuance costs
attributable to obligations incurred to
complete the Pending Acquisitions $ 4,194,644
F-8
<PAGE>
QUESTRON TECHNOLOGY, INC.
NOTES UNAUDITED PRO FORMA STATEMENT OF OPERATIONS DATA (Continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
Action Capital Olympic Questron
----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
To reflect amortization of discount on debt - - - 170,000
To reflect amortization of debt issuance
costs attributable to obligations incurred to
complete Pending Acquisitions - - - 587,569
----------------- ---------------- ------------------ ----------------
$ - $ - $ - $ 4,952,213
================= ================ ================== ================
Income taxes:
To reflect provision for federal and state
income taxes at the effective tax rate for the
Company $ 807,721 $ 236,220 $ 506,694 $ (2,228,496)
================= ================ ================== =================
</TABLE>
Total
----------------
To reflect amortization of discount on debt 170,000
To reflect amortization of debt issuance
costs attributable to obligations incurred to
complete Pending Acquisitions 587,569
-------------
$ 4,952,213
=============
Income taxes:
To reflect provision for federal and state
income taxes at the effective tax rate for the
Company $ (677,861)
=============
F-9
<PAGE>
QUESTRON TECHNOLOGY, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS DATA
For the three months ended March 31, 1999
<TABLE>
<CAPTION>
Pending
Actual Acquisitions(1)
------------------- ------------------------
<S> <C> <C>
Revenues $19,304,486 $9,259,293
Costs of products and services sold 11,815,652 5,540,207
------------------- ------------------------
Gross profit 7,488,834 3,719,086
Selling, general and administrative expenses 4,676,636 3,071,599
Depreciation and amortization 368,948 41,769
------------------- ------------------------
Operating income 2,443,250 605,718
Interest expense 1,251,952 70,199
Other (income) expense, net - (3,274)
------------------- ------------------------
Income before income taxes 1,191,298 538,793
Income taxes 488,432 153,941
------------------- ------------------------
Net Income $ 702,866 $ 384,852
=================== ========================
<CAPTION>
Pro Forma
Adjustments-- Pro Forma
Pending As
Acquisitions(2) Adjusted
------------------- -------------------------
<S> <C> <C>
Revenues $28,563,779
Costs of products and services sold 17,355,859
-------------------------
Gross profit 11,207,920
Selling, general and administrative expenses (611,698) 7,136,537
Depreciation and amortization 171,394 582,111
-------------------------
Operating income 3,489,272
Interest expense 1,221,861 2,544,012
Other (income) expense, net (3,274)
-------------------------
Income before income taxes 948,534
Income taxes (208,729) 433,644
-------------------------
Net Income $ 514,890
==========
</TABLE>
F-10
<PAGE>
QUESTRON TECHNOLOGY, INC.
Notes to Unaudited Pro Forma Statement of Operations Data
For the three months ended March 31, 1999
<TABLE>
1 The pro forma statement of operations include the following financial data of the Pending Acquisitions for the three months ended
March 31, 1999:
<CAPTION>
Action Capital
----------------------- -----------------------
<S> <C> <C>
Revenues $4,133,586 $2,498,707
Cost of goods sold 2,498,917 1,449,290
----------------------- -----------------------
Gross profit 1,634,669 1,049,417
Selling, general and admin. expenses 1,464,838 756,761
Depreciation and amortization 33,369 8,400
----------------------- -----------------------
Operating income 136,462 284,256
Interest expense 23,360 25,839
Other (income) expense, net 19,212 (11,486)
----------------------- -----------------------
Income before income taxes 93,890 269,903
Income taxes 53,000 100,941
----------------------- -----------------------
Net Income $ 40,890 $ 168,962
======================= =======================
<CAPTION>
Olympic Total
--------------------- --------------------
<S> <C> <C>
Revenues $2,627,000 $9,259,293
Cost of goods sold 1,592,000 5,540,207
--------------------- --------------------
Gross profit 1,035,000 3,719,086
Selling, general and admin. expenses 850,000 3,071,599
Depreciation and amortization - 41,769
--------------------- --------------------
Operating income 185,000 605,718
Interest expense 21,000 70,199
Other (income) expense, net (11,000) (3,274)
--------------------- --------------------
Income before income taxes 175,000 538,793
Income taxes - 153,941
--------------------- --------------------
Net Income $ 175,000 $ 384,852
===================== ====================
</TABLE>
<TABLE>
2 Adjustments to costs and expenses in the pro forma statement of operations relating to the Pending Acquisitions are comprised of
the following:
<CAPTION>
Action Capital Olympic
---------------- ---------------- ------------------
<S> <C> <C> <C>
Selling, general and administrative expenses:
To adjust salaries, bonuses and benefit
amounts to reflect contractual agreements
between the Company and certain owners and
key employees acquired in the Pending
Acquisitions $ (439,975) $ (45,629) $ (18,094)
To eliminate expenses incurred by acquired
companies directly related to their acquisition
by the Company - - (100,000)
To adjust lease expense to reflect contractual
agreements between the Company and certain
owners acquired in the Pending Acquisitions - - (8,000)
---------------- ---------------- ------------------
$ (439,975) $ (45,629) $(126,094)
================ ================ ==================
Depreciation and amortization:
To reflect amortization of purchase cost in
excess of net assets acquired, using a 40-year
amortization period $ 62,586 $ 58,428 $ 50,380
================ ================ ==================
Interest expense:
To reflect increase in interest expense and
amortization of debt issuance costs attributable
to obligations incurred to complete the Pending
Acquisitions $ - $ - $ -
<CAPTION>
Questron Total
---------------- -------------------
<S> <C> <C>
Selling, general and administrative expenses:
To adjust salaries, bonuses and benefit
amounts to reflect contractual agreements
between the Company and certain owners and
key employees acquired in the Pending
Acquisitions $ - $ (503,698)
To eliminate expenses incurred by acquired
companies directly related to their acquisition
by the Company - (100,000)
To adjust lease expense to reflect contractual
agreements between the Company and certain
owners acquired in the Pending Acquisitions - (8,000)
---------------- -------------------
$ - $ (611,698)
================ ===================
Depreciation and amortization:
To reflect amortization of purchase cost in
excess of net assets acquired, using a 40-year
amortization period $ - $ 171,394
================ ===================
Interest expense:
To reflect increase in interest expense and
amortization of debt issuance costs attributable
to obligations incurred to complete the Pending
Acquisitions $ 1,032,469 $1,032,469
</TABLE>
F-11
<PAGE>
QUESTRON TECHNOLOGY, INC.
Notes to Unaudited Pro Forma Statement of Operations Data (continued)
For the three months ended March 31, 1999
<TABLE>
<CAPTION>
Action Capital Olympic
--------------------- ----------------- ----------------
<S> <C> <C> <C>
To reflect amortization of discount on debt - - -
To reflect amortization of debt issuance costs
attributable to obligations incurred to complete
the Pending Acquisitions - - -
---------------- ---------------- ------------------
$ - $ - $ -
================ ================ ==================
Income taxes:
To reflect provision for federal and state
income taxes at the effective tax rate for the
Company $ 187,239 $ 41,048 $ 112,821
================ ================ ==================
<CAPTION>
Questron Total
------------------ ----------------------
<S> <C> <C>
To reflect amortization of discount on debt 42,500 42,500
To reflect amortization of debt issuance costs
attributable to obligations incurred to complete
the Pending Acquisitions 146,892 146,892
---------------- -------------------
$1,221,861 $1,221,861
================ ===================
Income taxes:
To reflect provision for federal and state
income taxes at the effective tax rate for the
Company $ (549,837) $ (208,729)
================ ===================
</TABLE>
F-12
<PAGE>
QUESTRON TECHNOLOGY, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS DATA
For the three months ended March 31, 1998
<TABLE>
<CAPTION>
Pro forma
Adjustments-
Recent Recent Pending
Actual Acquisitions(1) Acquisitions(2) Subtotal Acquisitions(3)
----------------- ---------------- ---------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Revenues $ 10,400,966 $ 7,424,468 $ 17,825,434 $ 9,199,761
Costs of products and
services sold 6,181,350 4,315,427 10,496,777 5,494,938
--------- --------- ---------- ---------
Gross profit 4,219,616 3,109,041 7,328,657 3,704,823
Selling, general and
administrative expenses 2,490,567 1,910,094 (221,281) 4,179,380 2,884,469
Depreciation and
amortization 163,600 22,086 131,636 317,322 42,026
------------------- ----------- --------------- ------------- ------------
Operating income 1,565,449 1,176,861 2,831,955 778,328
Interest expense 281,375 - 758,574 1,039,949 102,556
Other (income) expense, net - - - (23,752)
------------------- ------------ --------------- ------------ -------------
Income before income taxes 1,284,074 1,176,861 1,792,006 699,524
Income taxes 526,470 - 208,252 734,722 230,431
------------------- ------------ --------------- ------------ -------------
Net income $ 757,604 $ 1,176,861 $ 1,057,284 $ 469,093
=============== ============= ============== ===============
</TABLE>
Pro forma
Adjustments- Pro Forma
Pending As
Acquisitions(4) Adjusted
--------------- ----------------
Revenues $ 27,025,195
Costs of products and
services sold 15,991,715
------------------
Gross profit 11,033,480
Selling, general and
administrative expenses (456,098) 6,607,751
Depreciation and
amortization 171,394 530,742
----------- ------------------
Operating income 3,894,987
Interest expense 1,433,864 2,576,369
Other (income) expense, net (23,752)
----------- ------------------
Income before income taxes 1,342,370
Income taxes (378,310) 586,843
----------- ------------------
Net income $ 755,527
===============
F-13
<PAGE>
QUESTRON TECHNOLOGY, INC.
Notes to Unaudited Pro Forma Statement of Operations Data
For the three months ended March 31, 1998
<TABLE>
1 The pro forma statement of operations reflect the following historical financial data of Fortune, Fas-Tronics and AFCOM for
the period from January 1, 1998 through March 31, 1998:
<CAPTION>
Fortune Fas-Tronics AFCOM
------------------ ----------------- ----------------
<S> <C> <C> <C>
Revenues $ 3,275,762 $ 2,384,680 $ 1,764,026
Cost of goods sold 1,853,337 1,443,289 1,018,801
Gross profit 1,422,425 941,391 745,225
Selling, general and administrative expenses 891,943 463,344 554,807
Depreciation and amortization 8,033 3,486 10,567
Operating income 522,449 474,561 179,851
Interest expense - - -
Other (income) expense, net - - -
----------- ----------- ----------
Income before income taxes 522,449 474,561 179,851
Income taxes - - -
----------- ----------- ----------
Net income $ 522,449 $ 474,561 $ 179,851
=========== =========== ==========
</TABLE>
Total
----------------
Revenues $ 7,424,468
Cost of goods sold 4,315,427
Gross profit 3,109,041
Selling, general and administrative expenses 1,910,094
Depreciation and amortization 22,086
Operating income 1,176,861
Interest expense -
Other (income) expense, net -
------------
Income before income taxes 1,176,861
Income taxes -
------------
Net income $ 1,176,861
============
<TABLE>
2 Adjustments to costs and expenses in the pro forma statement of operations relating to the Recent Acquisitions are comprised
of the following:
<CAPTION>
Fortune Fas-Tronics AFCOM
------------------ ----------------- ----------------
<S> <C> <C> <C>
Selling, general and administrative:
To adjust salaries, bonuses and benefit amounts to
reflect those established in contractual agreements
between the Company and certain owners and key
employees acquired in the Recent Acquisitions $ (79,308) $ - $ (83,238)
To eliminate expense related to non-compete
agreements terminated concurrently with the Recent
Acquisitions (13,965) (44,770)
------------- -------------- ------------
$ (93,273) $ (44,770) $ (83,238)
=========== =========== ===========
Depreciation and amortization:
To reflect amortization of purchase cost in excess of
net assets acquired, using a 40-year amortization
period
Interest expense:
</TABLE>
Total
--------------
Selling, general and administrative:
To adjust salaries, bonuses and benefit amounts to
reflect those established in contractual agreements
between the Company and certain owners and key
employees acquired in the Recent Acquisitions $ (162,546)
To eliminate expense related to non-compete
agreements terminated concurrently with the Recent
Acquisitions (58,735)
$ (221,281)
Depreciation and amortization:
To reflect amortization of purchase cost in excess of
net assets acquired, using a 40-year amortization
period $ 131,636
===========
Interest expense:
F-14
<PAGE>
QUESTRON TECHNOLOGY, INC.
Notes to Unaudited Pro Forma Statement of Operations Data (continued)
For the three months ended March 31, 1998
<TABLE>
<CAPTION>
Fortune Fas-Tronics AFCOM
-------------- ---------------- -------------
<S> <C> <C> <C>
To reflect increase in interest expense and
amortization of debt issuance costs attributable to
obligations incurred to complete the Recent
Acquisitions
Income taxes:
To reflect provision for federal and state income
taxes at the effective tax rate for the Company
Total
--------------
To reflect increase in interest expense and
amortization of debt issuance costs attributable to
obligations incurred to complete the Recent
Acquisitions $ 758,574
===========
Income taxes:
To reflect provision for federal and state income
taxes at the effective tax rate for the Company $ 208,252
===========
3 The pro forma statement of operations include the following financial data of the Pending Acquisitions for the three months ended
March 31, 1998:
<CAPTION>
Action Capital Olympic
------------- ------------ ------------
<S> <C> <C> <C>
Revenues $ 4,331,421 $ 2,365,340 $ 2,503,000
Cost of goods sold 2,765,162 1,232,776 1,497,000
------------ ------------ ------------
Gross profit 1,556,259 1,132,564 1,006,000
Selling, general and administrative expenses 1,405,341 697,128 782,000
Depreciation and amortization 26,071 15,955 -
------------ ------------ ------------
Operating income 134,847 419,481 224,000
Interest expense 46,022 35,534 21,000
Other (income) expense, net (20,356) (3,396) -
------------ ------------ ------------
Income before income taxes 109,181 387,343 203,000
Income taxes 61,000 169,431 -
------------ ------------ ------------
Net income $ 48,181 $ 217,912 $ 203,000
========== =========== ==========
Total
------------
Revenues $ 9,199,761
Cost of goods sold 5,494,938
------------
Gross profit 3,704,823
Selling, general and administrative expenses 2,884,469
Depreciation and amortization 42,026
------------
Operating income 778,328
Interest expense 102,556
Other (income) expense, net (23,752)
------------
Income before income taxes 699,524
Income taxes 230,431
------------
Net income $ 469,093
==========
4 Adjustments to costs and expenses in the pro forma statement of operations relating to the Pending Acquisitions are comprised
of the following:
<CAPTION>
Action Capital Olympic
------------- ------------ -----------
<S> <C> <C> <C>
Selling, general and administrative expenses:
To adjust salaries, bonuses and benefit
amounts to reflect contractual agreements
between the Company and certain owners
and key employees acquired in the Pending
Acquisitions $ (388,627) $ (35,947) $ (24,024)
To adjust lease expense to reflect
contractual agreements between the
Company and certain owners acquired - - (7,500)
---------------- -------------- --------------
$ (388,627) $ (35,947) $ (31,524)
============= ============ ============
<CAPTION>
Questron Total
--------------- ----------------
<S> <C> <C>
Selling, general and administrative expenses:
To adjust salaries, bonuses and benefit
amounts to reflect contractual agreements
between the Company and certain owners
and key employees acquired in the Pending
Acquisitions $ - $ (448,598)
To adjust lease expense to reflect
contractual agreements between the
Company and certain owners acquired (7,500)
--------------- ----------------
$ - $ (456,098)
=============== ================
</TABLE>
F-15
<PAGE>
QUESTRON TECHNOLOGY, INC.
Notes to Unaudited Pro Forma Statement of Operations Data (continued)
For the three months ended March 31, 1998
<TABLE>
<CAPTION>
Action Capital Olympic
----------------- ---------------- ---------------
<S> <C> <C> <C>
Depreciation and amortization:
To reflect amortization of purchase cost in
excess of net assets acquired, using a 40-
year amortization period $ 62,586 $ 58,428 $ 50,530
============= ========= =========
Interest expense:
To reflect increase in interest expense and
amortization of debt issuance costs
attributable to obligations incurred to
complete the Pending Acquisitions $ - $ - $ -
To reflect amortization of discount on debt - - -
To reflect amortization of debt issuance
costs attributable to obligations incurred to
complete the Pending Acquisitions - - -
------------- --------- ---------
$ - $ - $ -
============= ========= =========
Income taxes:
To reflect provision for federal and state
income taxes at the effective tax rate for the
Company $ 163,014 $ 21,050 $ 82,865
============= ========= =========
<CAPTION>
Questron Total
--------------- ----------------
<S> <C> <C>
Depreciation and amortization:
To reflect amortization of purchase cost in
excess of net assets acquired, using a 40-
year amortization period $ - $ 171,544
============== ================
Interest expense:
To reflect increase in interest expense and
amortization of debt issuance costs
attributable to obligations incurred to
complete the Pending Acquisitions $ 1,244,472 $ 1,244,472
To reflect amortization of discount on debt 42,500 42,500
To reflect amortization of debt issuance
costs attributable to obligations incurred to
complete the Pending Acquisitions 146,892 146,892
------------- --------------
$ 1,433,864 $ 1,433,864
============== ================
Income taxes:
To reflect provision for federal and state
income taxes at the effective tax rate for the
Company $ (645,239) $ (378,310)
============== ================
</TABLE>
F-16
<PAGE>
Report of Independent Auditors
Board of Directors
Action Threaded Products, Inc.
We have audited the accompanying balance sheet of Action Threaded Products, Inc.
(the "Company") as of December 31, 1998, and the related statements of income
and retained earnings and cash flows for the year 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 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 financial statements referred to above present fairly, in
all material respects, the financial position of Action Threaded Products, Inc.
at December 31, 1998, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
April 9, 1999
Except for Note 6, as to which the date is May 7, 1999
F-17
<PAGE>
Action Threaded Products, Inc.
Balance Sheet
December 31, 1998
<TABLE>
<S> <C>
Assets
Current assets:
Cash $ 112,477
Accounts receivable, net of allowance for doubtful accounts of $32,500 1,191,034
Inventory 3,859,017
Other current assets 35,121
-------------------
Total current assets 5,197,649
Property and equipment, net 212,057
-------------------
Total assets $ 5,409,706
===================
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and accrued expenses $ 1,880,257
Notes payable to bank 900,000
Notes payable to officers 400,000
-------------------
Total current liabilities 3,180,257
Shareholders' equity:
Common stock, $10 par value, 3,000 shares authorized, 2,622 shares
issued, 2,576 shares outstanding 25,760
Additional paid-in-capital 115,457
Retained earnings 2,106,232
-------------------
2,247,449
Less 46 shares held in treasury, at cost (18,000)
-------------------
2,229,449
-------------------
Total liabilities and shareholders' equity $ 5,409,706
===================
</TABLE>
See accompanying notes
F-18
<PAGE>
Action Threaded Products, Inc.
Statement of Income and
Retained Earnings
Year ended December 31, 1998
<TABLE>
<S> <C>
Sales $ 16,319,305
Cost of Sales 10,205,870
----------------------
Gross Profit 6,113,435
Operating expenses:
Depreciation 47,597
Selling, general and administrative expenses 5,816,257
----------------------
5,863,854
----------------------
Income from operations 249,581
Other income and (expense):
Interest expense (167,575)
Interest and other income 24,918
----------------------
Income before provision for taxes 106,924
Provision for taxes 60,000
----------------------
Net income 46,924
Retained earnings at beginning of year 2,059,308
----------------------
Retained earnings at end of year $ 2,106,232
======================
</TABLE>
See accompanying notes
F-19
<PAGE>
Action Threaded Products, Inc.
Statement of Income and
Retained Earnings
Year ended December 31, 1998
<TABLE>
<S> <C>
Operating activities
Net Income $ 46,924
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 47,596
Gain on cash surrender value of officers' life insurance (34,717)
Change in operating assets and liabilities:
Increase in accounts receivable (121,768)
Increase in inventory (17,108)
Decrease in other current assets 16,325
Increase in accounts payable and accrued expenses 336,454
----------------------
Net cash provided by operating activities 273,706
Investing activities
Acquisition of property and equipment (20,777)
Proceeds from sale of officers' life insurance 325,996
----------------------
Net cash provided by investing activities 305,219
Financing activities
Proceeds from issuance of notes payable to officers 400,000
Net repayment of note payable to bank (875,000)
----------------------
Net cash used in financing activities (475,000)
----------------------
Net increase in cash 103,925
Cash at beginning of year 8,552
----------------------
Cash at end of year $ 112,477
======================
</TABLE>
Supplemental Information
The Company paid $167,575 in interest and $37,600 in taxes during the year ended
December 31, 1998.
During 1998, the Company disposed of fully-depreciated equipment with an
original cost of $34,668.
See accompanying notes.
F-20
<PAGE>
ACTION THREADED PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
1. Organization and Summary of Significant Accounting Policies
Organization
Action Threaded Products, Inc., an Illinois corporation (the "Company"), is a
distributor of industrial fasteners and other small parts (commonly referred to
as "C" inventory items) sold to original equipment manufacturers ("OEM's").
Cash Equivalents
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
Inventory
Inventories, which consist of finished goods, are stated at the lower of cost or
market. Cost is determined using the first-in, first-out (FIFO) method.
Property, Equipment and Depreciation
Property and equipment is stated at cost and depreciated using the straight-line
method over estimated useful lives of the assets ranging from five to seven
years. Leasehold improvements are amortized over the remaining lives of the
leases.
Property and equipment consists of the following at December 31, 1998:
Machinery and equipment $ 753,258
Transportation and equipment 17,298
Furniture and fixtures 149,594
Leasehold improvements 137,207
---------------
1,057,357
(845,300)
---------------
Less accumulated depreciation $ 212,057
===============
Long-lived assets are evaluated for impairment where events or circumstances
indicate that their carrying amounts may not be recoverable. The Company makes
an assessment of recoverability by estimating the future undiscounted cash flows
excluding interest charges expected to result from the use of the property and
its eventual disposition. If the carrying amount exceeds the aggregate future
cash flows, an impairment loss is recognized to the extent that the carrying
amount exceeds the fair value of the property.
F-21
<PAGE>
ACTION THREADED PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
Concentrations of Credit Risk
The Company places its cash and cash equivalents with federally insured
financial institutions. From time to time, cash balances in bank accounts may
exceed the $100,000 federally insured limit. The Company believes that it is not
exposed to any significant concentration of credit risk with respect to cash and
cash equivalents.
The Company extends credit to its customers which results in accounts receivable
arising from its normal business activities. The Company does not require
collateral from its customers, but routinely assesses the financial strength of
its customers. Due to the large number of customers comprising the Company's
customer base and their dispersion across different industries, management
believes that its receivable credit risk exposure is limited.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
2. Notes Payable
On August 28, 1995 the Company entered into a revolving credit agreement for up
to $2,500,000 at an interest rate of prime plus 1%. On July 14, 1998, a new
revolving credit agreement was executed that allowed the Company to borrow up to
$2,750,000 (the "Revolver"). The Revolver accrues interest at the prime rate
(7.75% at December 31, 1998) and is secured by the assets of the Company. The
outstanding balance at December 31, 1998, was $900,000.
On May 29, 1998, the Company borrowed $400,000 from two of the officers of the
Company. These loans bear interest at 6% and are payable on demand. During 1998,
interest expense paid to officers amounted to approximately $14,000.
3. Income Taxes
The Company accounts for income taxes under the liability method as required by
Financial Accounting Standards Board Statement No. 109, Accounting for Income
Taxes. Deferred income taxes at December 31, 1998 and for the year then ended
were not material.
The provision for income taxes consists of the following:
F-22
<PAGE>
ACTION THREADED PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
Current:
Federal $38,000
State 22,000
---------
$60,000
=========
4. Pension Plans
The Company has a defined contribution plan for eligible employees established
pursuant to the provisions of Section 401(k) of the Internal Revenue Code (the
"401(k) Plan"). The 401(k) Plan covers eligible employees who qualify as to age
and length of service. Eligible employees may make contributions up to 10% of
their salaries, subject to maximum contributory limits imposed by the Internal
Revenue Service. The Company does not contribute to this plan.
The Company maintains a profit sharing plan and trust (the "Profit Sharing
Plan") for its eligible employees. The Company's annual contributions are
discretionary and are allocated based on an employee's first $150,000 of
compensation, in proportion to total compensation for all employees.
Contributions under the Profit Sharing Plan aggregated approximately $171,000
for the year ended December 31, 1998 and are included in selling, general and
administrative expense.
5. Lease Commitments
The Company leases certain office and warehouse space under non-cancelable
operating leases. Rental expense for all non-cancelable operating leases
amounted to approximately $372,000 for the year ended December 31, 1998.
Aggregate minimum lease commitments are as follows:
Year ending December 31
1999 $ 317,000
2000 297,000
2001 228,000
2002 141,000
-------------
$ 983,000
=============
The Company leases a facility that is owned by certain shareholders of the
Company. Rent expense and other related costs of $134,000 associated with this
facility is included in general and administrative expenses for the year ended
December 31, 1998.
F-23
<PAGE>
ACTION THREADED PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
6. Subsequent Event
On May 7, 1999, the shareholders of the Company agreed to sell all of the
outstanding shares of the Company's common stock that are issued and outstanding
or held in treasury to a third party for total consideration of approximately
$13,800,000, subject to adjustment based on the future earnings of the Company.
The transaction is expected to close in June 1999.
7. Impact of Year 2000 (Unaudited)
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including among
other things, a temporary inability to process transactions, send invoices, or
engage in normal business activities.
Management believes that the Company has completed modifications to its software
and that its computer system will function properly with respect to dates in the
year 2000 and thereafter. Management also believes that the risk associated with
its information systems is not significant and, accordingly, management does not
anticipate that the Year 2000 Issue will have a significant impact on its
information system or result in a significant commitment of resources to resolve
the potential problems associated with this event.
Additionally, the Company continues to assess its exposure to the Year 2000
Issue with respect to its major clients and vendors. The Company's key vendors
have confirmed that either they are Year 2000 compliant or they will be Year
2000 compliant before the end of fiscal 1999.
F-24
<PAGE>
Action Threaded Products, Inc.
Balance Sheet (Unaudited)
March 31, 1999
<TABLE>
<S> <C>
Assets
Current assets:
Cash $ 237,280
Accounts receivable, net of allowance for doubtful accounts of $12,500
1,695,870
Inventory 3,711,402
Other current assets 11,274
------------------
Total current assets 5,655,826
Property and equipment, net 205,111
Other assets -
-------------------
Total assets $ 5,860,937
===================
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and accrued expenses $ 1,290,598
Note payable to bank 2,300,000
------------------
Total current liabilities 3,590,598
-------------------
Shareholders' equity:
Common stock, $10 par value, 3,000 shares authorized, 2,622 shares issued,
2,576 shares outstanding 25,760
Additional paid-in capital 115,457
Retained earnings 2,147,122
-------------------
2,288,339
Less 46 shares held in treasury, at cost (18,000)
-------------------
2,270,339
------------------
Total liabilities and shareholders' equity $ 5,860,937
===================
</TABLE>
See accompanying note.
F-25
<PAGE>
Action Threaded Products, Inc.
Statements of Income and Retained Earnings (Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
Three months ended March 31,
1998 1999
------------------------- ------------------------
Sales $ 4,331,421 $ 4,133,586
Cost of sales 2,765,162 2,498,917
------------------------- ------------------------
Gross profit 1,566,259 1,634,669
Operating expenses:
Depreciation 26,071 33,369
Selling, general and administrative expenses 1,405,341 1,464,838
------------------------- ------------------------
1,431,412 1,498,207
------------------------- ------------------------
Income from operations 134,847 136,462
Other income and (expense):
Interest expense (46,022) (23,360)
Interest and other income (expense) 20,356 (19,212)
------------------------- ------------------------
Income before provision for taxes 109,181 93,890
Provision for taxes 61,000 53,000
------------------------- ------------------------
Net income 48,181 40,890
Retained earnings at beginning of period 2,059,308 2,106,232
------------------------- ------------------------
Retained earnings at end of period $ 2,107,489 $ 2,147,122
========================= ========================
</TABLE>
See accompanying note.
F-26
<PAGE>
Action Threaded Products, Inc.
Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
Three months ended March 31,
1998 1999
---------------------- -----------------------
Operating activities
Net income $ 48,181 $ 40,890
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 26,071 33,369
Recovery of accounts previously written off - (20,000)
Gain on cash surrender value of officers' life insurance (22,012) -
Changes in operating assets and liabilities:
Increase in accounts receivable (404,613) (484,836)
(Increase) decrease in inventory (391,771) 147,615
Decrease in other current assets 40,991 23,847
Increase (decrease) in accounts payable and
accrued expenses 339,747 (589,659)
Decrease in other assets 112 -
---------------------- -----------------------
Net cash used in operating activities (363,294) (848,774)
Investing activities
Acquisition of property and equipment - (26,423)
---------------------- -----------------------
Net cash used in investing activities - (26,423)
Financing activities
Repayments of notes payable to officers - (400,000)
Net proceeds of note payable to bank 375,000 1,400,000
---------------------- -----------------------
Net cash provided by financing activities 375,000 1,000,000
---------------------- -----------------------
Net increase in cash 11,706 124,803
Cash at beginning of period 8,552 112,477
---------------------- -----------------------
Cash at end of period $ 20,258 $ 237,280
====================== =======================
</TABLE>
Supplemental Information
The Company paid $46,021 and $23,359 in interest and $0 and $1,525 in taxes
during the three months ended March 31, 1998 and 1999, respectively.
During the three months ended March 31, 1998, the Company disposed of
fully-depreciated equipment with an original cost of $33,179.
See accompanying note.
F-27
<PAGE>
Action Threaded Products, Inc.
Note to Financial Statements
March 31, 1999
1. Interim Financial Information
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles from interim financial information
and should be read in conjunction with Action Threaded Products, Inc.'s audited
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. Such adjustments are of a
normal recurring nature. Operating results for the three months ended March 31,
1998 and 1999 are not necessarily indicative of the results that may be expected
for any other period or for a full fiscal year.
F-28
<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.
QUESTRON TECHNOLOGY, INC.
Date: August 13, 1999 By: /s/ Dominic A. Polimeni
------------------------
Name: Dominic A. Polimeni
Title: Chairman and Chief Executive Officer
<PAGE>
