10-Q 1 0001.txt QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000. |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO___________. Commission File No. 0-27302 LABTEC INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Massachusetts 04-3116697 ------------------------------- -------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1499 S.E. Tech Center Place, Suite 350, Vancouver, WA 98683 ----------------------------------------------------------------- (Address of principal executive offices) Zip Code Registrant's telephone number, including area code: (360) 896-2000 -------------- Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| There were 4,014,728 shares of Common Stock outstanding at October 6, 2000. LABTEC INC. INDEX PART I - FINANCIAL INFORMATION ----------------------------------- Item 1. Financial Statements Consolidated Balance Sheets as of September 30, 2000 (unaudited)and March 31, 2000 ................................. 4 Consolidated Statements of Operations (unaudited) for the three and six month periods ended September 30, 2000...... 5 Consolidated Statements of Cash Flows (unaudited) for the three and six month periods ended September 30, 2000 ........... 6 Notes to Financial Statements................................... 7 Item 2. Management's Discussion and Analysis of Financial Statements (unaudited)............................. 10 Item 3. Quantitative and Qualitative Disclosures About Market Risk...... 14 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K................................ 15 Signatures...................................................... 17 PART I. - FINANCIAL INFORMATION Item 1. Financial Statements
Labtec, Inc. Consolidated Balance Sheets (In thousands, except per share amounts) Assets September 30, 2000 March 31, 2000 ------ ------------------ -------------- (Unaudited) Current Assets: Cash.......................................................... $ 1,890 $ 1,373 Accounts receivable, net...................................... 21,760 22,120 Interest and other receivables................................ 25 16 Inventories................................................... 18,037 13,955 Prepaid expenses.............................................. 96 171 Current deferred income taxes................................. 1,984 1,854 ----- ----- Total current assets....................................... 43,792 39,489 Property and equipment, net...................................... 2,729 2,332 Noncurrent deferred income taxes................................. 1,953 1,953 Debt issuance costs.............................................. 2,067 2,277 Other noncurrent assets.......................................... 194 180 Goodwill, net.................................................... 16,439 17,038 ------ ------ $ 67,174 $ 63,269 ========= ======== Liabilities and Shareholders' Equity (Deficit) Current Liabilities: Line of credit................................................ $ 14,855 $ 10,761 Current portion of long-term debt............................. 2,736 2,900 Accounts payable.............................................. 10,408 9,411 Income taxes payable.......................................... 882 185 Accrued payroll and benefits.................................. 672 1,359 Accrued interest.............................................. 400 256 Other accrued expenses........................................ 2,500 1,539 ----- ----- Total current liabilities.................................. 32,453 26,411 Long-term debt................................................... 25,391 28,747 ------ ------ 57,844 55,158 ------ ------ Commitments and contingencies.................................... --- --- Shareholders' Equity (Deficit): Preferred stock, par value $.01, 1,000 share authorized and no shares outstanding at September 30, or March 31, 2000 --- --- Common stock, par value $.01, 25,000 shares authorized, 4,014 and 4,013 shares issued and outstanding at September 30, and March 31, 2000, respectively..................................... 40 40 Additional paid-in capital....................................... 23,830 23,806 Accumulated deficit.............................................. (14,493) (15,688) Accumulated other comprehensive income (loss): Cumulative foreign currency translation adjustment......... (47) (47) ---- ---- 9,330 8,111 ----- ----- $ 67,174 $ 63,269 ======== ========
The accompanying notes are an integral part of these financial statements 4
Labtec, Inc. Consolidated Statements of Operations and Comprehensive Income (Loss) (In thousands, except per share amounts) (Unaudited) Three Months Ended Six Months Ended September 30, September 30, September 30, September 30, ------------- ------------- -------------- ------------- 2000 1999 2000 1999 ---- ---- ---- ---- Net sales $ 24,179 $ 21,674 $ 48,267 $ 37,186 Cost of sales 14,266 13,101 28,708 22,276 ------------- ------------- ------------- ------------- Gross profit 9,913 8,573 19,559 14,910 ------------- ------------- ------------- ------------- Operating expenses: Selling and marketing 4,733 3,924 9,958 7,273 General and administrative 1,278 1,297 2,557 2,334 Research and development 525 575 1,124 1,073 Depreciation 403 413 780 759 Amortization of goodwill 299 1,112 598 1,929 ------------- ------------- ------------- ------------- 7,238 7,321 15,017 13,368 ------------- ------------- ------------- ------------- Income from operations 2,675 1,252 4,542 1,542 Interest expense, net 1,270 1,001 2,442 1,763 Other nonoperating expense 72 32 129 59 ------------- ------------- ------------- ------------- Total other expense 1,342 1,033 2,571 1,822 ------------- ------------- ------------- ------------- Income (loss) before income taxes 1,333 219 1,971 (280) Provision for income taxes 527 206 776 255 ------------- ------------- ------------- ------------- Net income (loss) before extraordinary items $ 806 $ 13 $ 1,195 $ (535) Extraordinary loss (1,016) (1,016) ------------- ------------- ------------- ------------- Net income (loss) $ 806 $(1,003) $ 1,195 $ (1,551) ============= ============= ============= ============= Weighted average shares outstanding Basic 4,013 3,526 4,013 3,489 Diluted 4,025 3,526 4,023 3,489 Net income (loss) per share Basic $ 0.20 $ (0.28) $ 0.30 $ (0.44) ============= ============= ============= ============= Diluted $ 0.20 $ (0.28) $ 0.30 $ (0.44) ============= ============= ============= ============= Comprehensive income (loss): Net income (loss) $ 806 $ (1,003) $ 1,195 $ (1,551) Change in cumulative translation (8) 21 -- (9) adjustment ------------- ------------- ------------- ------------- Comprehensive income (loss) $ 798 $ (982) $ 1,195 $ (1,560) ============= ============= ============= =============
The accompanying notes are an integral part of these financial statements 5
Labtec, Inc. Consolidated Statement of Cash Flows (In thousands, except per share amounts) (Unaudited) Six Months Ended September 30, ----------------------------------- 2000 1999 ---- ---- Cash flow from operating activities Net income (loss) $ 1,195 $ (1,551) Adjustments to reconcile net income (loss) to net cash provided by operating activities Depreciation 780 759 Amortization of goodwill 598 1,929 Amortization of debt issuance costs 219 214 Change in deferred income taxes (130) 27 Compensation expense on stock options 11 --- Write-off of debt issuance costs --- 1,693 Changes in current assets and liabilities: Accounts receivable 360 (1,315) Inventories (4,082) 1,097 Interest and other receivables (9) (20) Income taxes receivables --- 97 Prepaid expenses 75 101 Accounts payable 997 (2,053) Income taxes payable 697 (449) Accrued interest 144 277 Accrued payroll and other expenses 274 (567) ---------------- ---------------- Net cash provided by operating activities 1,129 239 ---------------- ---------------- Cash flow from investing activities Capital expenditures (1,159) (726) Other assets (31) 111 Costs associated with CRU purchase (11,640) ---------------- ---------------- Net cash used in investing activities (1,190) (12,255) ---------------- ---------------- Cash flow from financing activities Net increase (decrease) in short-term credit facility 4,095 5,520 Proceeds from issuance of long-term debt 28,500 Repayment of long-term debt (3,521) (20,732) Debt issuance costs (8) (2,419) Proceeds from exercise of stock options 12 27 Proceeds from issuance of common stock 1,000 Collection on stock subscription 9 ---------------- ---------------- Net cash provided by financing activities 578 11,905 ---------------- ---------------- Effect of foreign currency on cash --- (10) ---------------- ---------------- Net increase (decrease) in cash 517 (121) Cash at beginning of period 1,373 768 ---------------- ---------------- Cash at end of period $ 1,890 $ 647 ================ ================
The accompanying notes are an integral part of these financial statements 6 Labtec, Inc. Notes to Consolidated Financial Statements (In thousand, except per share amounts) (Unaudited) 1. Basis of Presentation The accompanying consolidated financial statements are unaudited and have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission and in the opinion of management include all adjustments, consisting only of normal recurring adjustments, necessary for the fair statement of results for the interim periods. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. These consolidated financial statements and notes should be read in conjunction with the audited financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended March 31, 2000. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. Reclassifications have been made to amounts in prior years to conform to the current year presentation. These changes had no impact on previously reported results of operations or shareholders' equity. 2. Accounts Receivable Accounts receivable are net of allowances for doubtful accounts and for sales returns of $1,299 and $1,290 at September 30 and March 31, 2000, respectively. At September 30 and March 31, 2000, 12% and 11%, respectively, of receivables were from one customer. 3. Inventories Inventories are manufactured by foreign factories subcontracted by the Company. Of total inventories, $241 and $450 was in transit at September 30, and March 31, 2000, respectively. 4. Property and Equipment Property and equipment consists of the following: September 30, 2000 March 31, 2000 ------------------ -------------- Leasehold improvements $ 127 $ 256 Tooling and molds 1,859 2,588 Furniture and equipment 2,741 2,473 Retail displays 1,581 2,145 ----- ----- 6,308 7,462 Less: accumulated depreciation (3,579) (5,130) ------- ------- $ 2,729 $ 2,332 ========== ========== 7 Labtec, Inc. Notes to Consolidated Financial Statements - Continued (In thousand, except per share amounts) 5. Stock On December 1, 1999 the Company completed a one-for-two reverse stock split of its common stock. Subsequent to the reverse stock split, one of the Company's subordinate debt holders converted $1,500 principal amount of its Senior Subordinated Note due October 1, 2005 for 262 shares of common stock. Also, the Company's majority shareholder converted $824 of the Unsecured Subordinated Promissory Note due February 17, 2005 and $28 of accrued interest for 149 shares of common stock. 6. Earnings Per Share Net income (loss) per share on a diluted basis is based on the weighted average number of shares of common stock and all potentially dilutive securities outstanding during the periods, computed using the treasury stock method for stock options. Given the Company's net loss for the three and six months ended September 30, 1999, the dilutive effect of stock options has been excluded from the computation of the weighted average shares outstanding. For the three and six months ended September 30, 2000, the dilutive impact of stock options are included in the computation of net income per share in accordance with FAS 128. On December 1, 1999 the Company had a one-for-two reverse stock split. The weighted average shares outstanding in 1999 have been adjusted to reflect the reverse split. Weighted average shares outstanding consist of the following:
For the Three Months Ended For the Six Months Ended September 30, September 30, -------------------------- ------------------------ 2000 1999 2000 1999 ---- ---- ---- ---- Weighted average shares outstanding (basic) 4,013 3,526 4,013 3,489 Effect of dilutive stock options 12 0 10 0 ----- ----- ----- ----- Weighted average shares outstanding (diluted) 4,025 3,526 4,023 3,489 ===== ===== ===== =====
7. Purchase of Connector Resources Unlimited, Inc. On August 20, 1999, Labtec, Inc. ("Labtec") completed the acquisition of Connector Resources Unlimited, Inc. ("CRU"). As a result, Labtec acquired all the outstanding shares of CRU for approximately $13,146 in cash and $1,500 in debt. Concurrent with the acquisition of CRU, Labtec entered into a $43,000 credit facility with a lender and also sold 156 shares of common stock for $1,000. The net proceeds from the credit facility and proceeds from the stock sale were used to retire outstanding debt and accrued interest totaling $23,400, to pay debt issuance costs and loan fees on the new credit facility, to pay for certain acquisition costs related to the purchase of CRU and to fund the purchase of CRU. CRU designs, develops and markets computer peripheral products principally in North America. The acquisition was accounted for as a purchase and therefore the operations of CRU have been included with those of the Company since August 20, 1999. 8 Labtec, Inc. Notes to Consolidated Financial Statements - Continued (In thousand, except per share amounts) The following sets forth the reconciliation of fair value of the assets acquired and the liabilities assumed. Purchase price $14,646 Fair value of tangible assets acquired (5,338) Liabilities assumed 2,098 Direct costs of acquisition 755 ------- Excess of purchase price over fair value of tangible assets $12,161 ======= The excess of the purchase price over fair value of tangible assets acquired is being amortized over an estimated useful life of twenty years. The following unaudited pro forma information presents the results of the Company's operations assuming the CRU acquisition occurred at the beginning of the respective three month periods, after giving effect to adjustments for amortization of goodwill, estimated increase in interest expense and the estimated impact on the income tax provision. Three Months Ended Six Months Ended September 30, September 30, ------------- ------------- 2000 1999 2000 1999 ---- ---- ---- ---- (unaudited) (unaudited) Net sales $ 24,179 $ 23,625 $ 48,267 $ 43,096 Net income (loss) 806 (612) 1,195 (1,651) Net income (loss) per share: Basic $ 0.20 $ (0.17) $ 0.30 $ (0.47) Diluted 0.20 (0.17) 0.30 (0.47) The unaudited pro forma financial information is not necessarily indicative of the operating results that would have occurred had the CRU acquisition been consummated as of the beginning of each period, nor is it necessarily indicative of future operating results. The unaudited pro forma information should be read in conjunction with the report of the Company on Form 8-K dated August 20, 1999 and the report of the Company on Form 8-K/A filed November 2, 1999. 8. Borrowings In conjunction with the purchase of CRU in August 1999, the Company repaid its $7,500 revolving line of credit and $19,250 long-term loan with funds obtained from a $27,000 long-term loan and a $16,000 revolving line of credit with other lenders. Also, a $1,500 seven and one-half year promissory note was issued to the prior shareholders of CRU. Fees related to the extinguished credit line are included in the extraordinary loss on extinguishment of debt. At September 30, 2000, the long-term loans and a portion of the revolving line of credit were accruing interest at LIBOR plus 3.00-3.50% and the remaining portion of the revolving line of credit was accruing interest at the prime rate plus 1.50%. In December 1999, the Company entered into an interest rate swap agreement with its primary lender in order to fix the interest rate on a portion of its long-term debt. At September 30, 2000, the amount of debt subject to the fixed rate was $12,100, for which the rate was 9.66%. The bank line of credit is secured by substantially all of the Company's assets. Loan fees paid to the banks and transaction fees relating to the term loan, revolving line of credit and promissory note were $2,419 and have been recorded in debt issuance costs. The current line of credit expires in September 2005 and the long-term debt expires June 30, 2005. 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results ----------------------------------------------------------------------- of Operations. -------------- Overview The following discussion and analysis should be read in conjunction with the financial statements and notes thereto appearing elsewhere herein. This Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve a number of risks and uncertainties. The following are among the factors that could cause actual results to differ materially from the forward-looking statements: business conditions and growth in the personal computer and workstation industries; general economies, both domestic and international; lower than expected customer orders or variations in customer order patterns; competitive factors, including increased competition, new product offerings by competitors and pricing pressures; the availability of parts and components; changes in product mix; resource constraints encountered in developing new products; and product shipment interruptions due to manufacturing difficulties. The forward-looking statements contained in the MD&A regarding industry trends, product development and liquidity and future business activities should be considered in light of these factors. Three and Six Months Ended September 30, 2000 and September 30, 1999 Net sales were $24,178,950 for the three months ended September 30, 2000 compared to $21,674,325 for the three months ended September 30, 1999 and $48,267,304 for the six months ended September 30, 2000 compared to $37,186,584 for the six months ended September 30, 1999. The increase in net sales over the periods was due primarily to the increase in sales for the Company's personal audio, PC Voice Access(TM) and 3D input device line of products, and the addition of sales from the data storage product line. Also, the Company's North American retail business increased substantially. The Company's largest customer represented 11.7% of sales for the six months ended September 30, 2000, as compared to 9.8% of sales for six months ended September 30, 1999.
Three Months Ended Six Months Ended September 30, September 30, --------------------------------- ------------------------------------- (in thousands, except %) (in thousands, except %) 2000 1999 % Change 2000 1999 % Change ---- ---- -------- ---- ---- -------- Net Sales $24,179 $21,674 12% $48,267 $37,186 30%
Cost of sales increased for the three and six months ended September 30, 2000 compared to the three and six months ended September 30, 1999 primarily as a result of higher net sales. Cost of sales as a percentage of net sales decreased for the three and six months ended September 30, 2000 compared to the three and six months ended September 30, 1999 primarily as a result of the change in product mix from a larger portion of higher cost products (speakers) to a larger portion of lower cost products (PC Voice Access(TM) and personal audio). 10
Three Months Ended Six Months Ended September 30, September 30, ---------------------------------- ------------------------------------- (in thousands, except %) (in thousands, except %) 2000 1999 % Change 2000 1999 % Change ---- ---- -------- ---- ---- -------- Cost of sales $14,266 $13,101 9% $28,708 $22,276 29% As a % of net sales 59.0% 60.4% 59.5% 59.9%
Selling and marketing expenses increased by $809 to $4,733 for the three months ended September 30, 2000 from $3,924 for the three months ended September 30, 1999. For the six months ended September 30, 2000 selling and marketing expenses increased by $2,685. As a percentage of net sales, selling and marketing expenses increased slightly to 20.6% for the six months ended September 30, 2000 from 19.6% for the six months ended September 30, 1999. The dollar increase is primarily a result of additional sales personnel, higher travel costs to support the increased sales volume, increased variable costs related to the increased sales volume, and increased marketing efforts in the North American retail portion of the business to maintain market share in this very competitive market.
Three Months Ended Six Months Ended September 30, September 30, ---------------------------------- ------------------------------------- (in thousands, except %) (in thousands, except %) 2000 1999 % Change 2000 1999 % Change ---- ---- -------- ---- ---- -------- Selling and marketing $4,733 $3,924 21% $9,958 $7,273 37% As a % of net sales 19.6% 18.1% 20.6% 19.6%
General and administrative expenses, which include the Company's corporate finance, legal, human resources, and administrative functions, decreased slightly for the three months ended September 30, 2000 as compared to the three months ended September 30, 1999. For the six months ended September 30, 2000 general and administrative expenses increased by $223 from the six months ended September 30, 1999. As a percentage of net sales, general and administrative expenses decreased to 5.3% for the six months ended September 30, 2000 from 6.3% for the prior period. The dollar increase is due primarily to additional labor costs related to the adding personnel after the CRU acquisition. As a percentage of net sales, general and administrative expenses decreased primarily due to increased net sales.
Three Months Ended Six Months Ended September 30, September 30, --------------------------------- ------------------------------------- (in thousands, except %) (in thousands, except %) 2000 1999 % Change 2000 1999 % Change ---- ---- -------- ---- ---- -------- General and administrative $1,278 $1,297 (1%) $2,557 $2,334 10% As a % of net sales 5.3% 6.0% 5.3% 6.3%
Research and development expenses increased by $51 for the six months ended September 30, 2000 as compared to the six months ended September 30, 1999, primarily due to the increased investment in the development of software drivers for the 3D motion control product line and the development of new speaker and PC Voice Access(TM) products. Also, the dollar increase reflects the increased hiring of employees working in research and development. As a percentage of net sales, research and development decreased primarily due to increased net sales. 11
Three Months Ended Six Months Ended September 30, September 30, --------------------------------- ------------------------------------- (in thousands, except %) (in thousands, except %) 2000 1999 % Change 2000 1999 % Change ---- ---- -------- ---- ---- -------- Research and development $525 $575 (9%) $1,124 $1,073 5% As a % of net sales 2.2% 2.7% 2.3% 2.9%
Depreciation dollar amounts increased for the six months ended September 30, 2000 compared to the six months ended September 30, 1999 as the result of increased capital expenditures for computer equipment and software and tooling/molds for new products being developed. Depreciation decreased as a percentage of net sales primarily due to the increase in net sales.
Three Months Ended Six Months Ended September 30, September 30, --------------------------------- ------------------------------------- (in thousands, except %) (in thousands, except %) 2000 1999 % Change 2000 1999 % Change ---- ---- -------- ---- ---- -------- Depreciation $403 $413 (2%) $780 $759 3% As a % of net sales 1.7% 1.9% 1.6% 2.0%
Amortization decreased in dollar amount in the three and six months ended September 30, 2000 compared to the three and six months ended September 30, 1999. As a percentage of net sales, amortization decreased for the three and six months ended September 30, 1999 compared to the same periods ended September 30, 1999. This decrease was the result of changing the Spacetec amortization of goodwill from three (3) years to ten (10) years. Goodwill (the purchase price paid for Spacetec and CRU in excess of the fair value of net tangible assets) is being amortized over ten (10) years for Spacetec and twenty (20) years for CRU.
Three Months Ended Six Months Ended September 30, September 30, --------------------------------- ------------------------------------- (in thousands, except %) (in thousands, except %) 2000 1999 % Change 2000 1999 % Change ---- ---- -------- ---- ---- -------- Amortization $299 $1,112 (73%) $598 $1,929 (69%) As a % of net sales 1.2% 5.1% 1.2% 5.2%
Interest expense increased both in dollar amount and as a percentage of net sales for the three and six months ended September 30, 2000 compared to the three and six months ended September 30, 1999. The increase was primarily the result of the Company's refinancing and increasing its debt in conjunction with the purchase of CRU in August 1999.
Three Months Ended Six Months Ended September 30, September 30, --------------------------------- ------------------------------------- (in thousands, except %) (in thousands, except %) 2000 1999 % Change 2000 1999 % Change ---- ---- -------- ---- ---- -------- Interest expense, net $1,270 $1,001 27% $2,442 $1,763 38% As a % of net sales 5.3% 4.6% 5.1% 4.7%
The provision for income taxes was $527 for the three months ended September 30, 2000, as compared to $206 for the same period in fiscal 2000. The provision for income taxes was $776 for the six months ended September 30, 2000, as compared to $255 for the same period in fiscal 2000. The primary reason for the increase was the increase in pre-tax income. 12 Liquidity and Capital Resources As of September 30, 2000, the Company had $1,890 in cash and cash equivalents and working capital of $9,339. The working capital balance decrease from March 31, 2000, was primarily due to the increase in borrowing on the line of credit and increases in accounts payable and other accrued expenses, which was partially offset by an increase in inventory. Net cash provided by operating activities was $1,129 for the six months ended September 30, 2000, compared to cash provided by operating activities of $239 for the same period in fiscal 2000. The increase in net cash provided by operating activities was primarily due to the increase in net income over the prior year net loss and the increase in accounts payable, incomes taxes payable and other accrued expenses, which was partially offset by an increase in inventory. Net cash used in investing activities was $1,190 for the six months ended September 30, 2000, compared to net cash used in investing activities of $12,255 in fiscal 2000. The decrease was primarily due to the purchase of CRU in the period during fiscal 2000. Financing activities provided net cash of $578 for the six months ended September 30, 2000, principally due to the increase in short-term borrowing, which was partially offset by the repayment of long-term debt. At September 30, 2000, the long-term loans were accruing interest at the LIBOR rate plus 3.00 - 3.50%, the subordinated note at 12%, the line of credit at the prime rate plus 1.50%, and the promissory notes at 10% and 6%, respectively. In December 1999, the Company entered into an interest rate swap agreement with its primary lender in order to fix the interest rate on a portion of its long-term debt. At September 30, 2000, the amount of debt subject to the fixed rate was $12,100, for which the rate was 9.66%. The Company believes that its existing cash and revolving line of credit, together with future funds from operations, will satisfy its need for working capital and other cash requirements for at least the next twelve-month period. Year 2000 Issues The Year 2000 issue is the result of date-sensitive devices, systems and computer programs that were deployed using two digits rather than four to define the applicable year. Any such technologies may recognize a year containing "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculation causing disruption of operations including, among other things, a temporary inability to process transactions or engage in similar normal business activities. The Company did not experience any significant malfunctions or errors in its information or business systems when the date changed from 1999 to 2000. Based on its operations since January 1, 2000, the Company does not expect any significant problems related to the Year 2000 issue. However, it is possible that the full impact of the date change has not been fully recognized. For example, it is possible that Year 2000 or similar issues, such as leap year related problems, may occur with financial closings. The Company believes that any such problems will be minor and easily corrected. In addition, the Company could still be negatively impacted if the Year 2000 or similar issues adversely affect its customers or suppliers. Currently, the Company is not aware of any significant Year 2000 or similar problems that have arisen with its customers or suppliers. 13 Disclosure Regarding Private Securities Litigation Reform Act of 1995 --------------------------------------------------------------------- From time to time, the Company, through its management, may make forward-looking public statements in press releases or other communications, such as statements concerning then expected future revenues or earnings or alliances, product development, and commercialization, as well as other estimates relating to future operations. Forward-looking statements may be in reports filed under the Securities Exchange Act of 1934, as amended, in press releases, or in oral statements made with the approval of an authorized executive officer. The words or phrases "believe," "will likely result," "are expected to," "will continue," "is anticipated," "estimate," or similar expressions are intended to identify "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933, as enacted by the Private Securities Litigation Reform Act of 1995. The Company wishes to caution readers not to place undue reliance on these forward-looking statements which speak only as of the date on which they are made. Various factors could affect the Company's financial or other performance, and could cause the Company's actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods or events in any current statement. These facts include, but are not limited to: business conditions and growth in the personal computer and workstation industries and general economies, both domestic and international; dependence on a limited number of retail customers; dependence on a limited number of source suppliers; lower than expected customer orders or variations in customer order patterns due to changes in demand for customers' products and customers' inventory levels; competitive factors, including increased competition, new product offerings by competitors and pricing pressures; changes in product mix; dependence on proprietary technology; assertion of intellectual property rights by third parties; technological difficulties and resource constraints encountered in developing new products; product shipment interruptions and other factors discussed herein and in the Company's other filings with the Securities and Exchange Commission. The Company will not undertake and specifically declines any obligation to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events which may cause management to reevaluate such forward-looking statements. Item 3. Quantitative and Qualitative Disclosures About Market Risk None. 14 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits:
Number Description of Exhibit Method of Filing ------ ---------------------- ---------------- 3.1 Restated Articles of Organization Incorporated by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1999 (the "1999 Form 10-K") 3.2 Articles of Amendment Incorporated by reference to Exhibit 3.2 to the 1999 Form 10-K 3.3 Articles of Amendment Incorporated by reference to Exhibit 3.3 to the Form 10-Q for the quarterly period ended September 30, 1999 3.4 Articles of Amendment Incorporated by reference to Exhibit 3.4 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter entded December 31, 1999 3.5 Amended and Restated By-Laws of the Company Incorporated by reference to Exhibit 3.3 to the 1999 Form 10-K 4.1 Specimen certificate for shares of common Incorporated by reference to Exhibit 4.1 to the stock of the Company 1999 Form 10-K 10.1 Labtec Inc. Amended and Restated 1997 Employee Incorporated by reference to Exhibit 10.1 to the Stock Option Plan 1999 Form 10-K 10.2 1997 Employee Stock Option Plan - Option Incorporated by reference to Exhibit 10.2 to the Certificate and Agreement 1999 Form 10-K 10.3 Amended and Restated 1997 Employee Stock Incorporated by reference to Exhibit 10.3 to the Option Plan - Option Certificate and Agreement 1999 Form 10-K 10.4 Amended and Restated Stock Option Plan Incorporated by reference to Exhibit 10.1 to the Company's Registration Statement on Form S-1 (Commission File No. 33-98064) (the "Registration Statement") 10.5 Amended and Restated 1995 Director Stock Incorporated by reference to Exhibit 10.2 to the Option Plan Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1997 10.6 1995 Employee Stock Purchase Plan Incorporated by reference to Exhibit 10.3 to the Registration Statement 10.7 Amended and Restated Agreement and Plan of Incorporated by reference to Exhibit 2.1 to the Merger among Spacetec IMC Corporation, SIMC Company's Current Report on Form 8-K dated Acquisition Corporation and Labtec Inc., dated October 21, 1998 (date of earliest event as of October 2, 1998, as amended and restated reported) filed with the Commission (File No. as of November 13, 1998 0-27302) on November 17, 1998 10.8 Spacetec IMC Corporation Unsecured Incorporated by reference to Exhibit 10.8 to the Subordinated Promissory Note for $1,065,000 1999 Form 10-K dated February 17, 1999 10.9 Stock Purchase Agreement, dated as of August Incorporated by reference to Exhibit 2.1 to the 4, 1999, among the Purchaser, the Company and Company's Current Report on Form 8-K dated each of the stockholders of Connector August 20, 1999 (date of earliest event Resources Unlimited, Inc. reported) filed with the Commission (File No. 0-27302) on September 2, 1999 (the "1999 Form 8-K") 15 Number Description of Exhibit Method of Filing ------ ---------------------- ---------------- 10.10 Promissory Note, dated as of August 20, 1999, Incorporated by reference to Exhibit 2.2 to the issued by the Company and payable to Carl 1999 Form 8-K Gromada, as collection agent for each of the stockholders of Connector Resources Unlimited, Inc. 10.11 Form of Credit Agreement, dated as of August Incorporated by reference to Exhibit 10.11 to 20, 1999, among the Company and certain the Form 10-Q for the quarterly period ended subsidiaries, various guarantors, various September 30, 1999 lending institutions and The Chase Manhattan Bank, as agent 10.12 Recapitalization Agreement and Plan of Merger Incorporated by reference to Exhibit 10.12 to between Speaker Acquisition Corp. and LEI the 1999 Form 10-K Holdings, Inc., dated as of August 26, 1997 10.13 Lease Agreement, dated April 24, 1997, between Incorporated by reference to Exhibit 10.13 to Pacific Realty Associates, L.P., and Labtec the 1999 Form 10-K Enterprises, Inc. 10.14 Lease Agreement, dated February 4, 1998, Incorporated by reference to Exhibit 10.14 to between Columbia Tech Center, L.L.C., and the 1999 Form 10-K Labtec Inc. 10.15 Labtec Enterprises, Inc. $6,000,000 Principal Incorporated by reference to Exhibit 10.16 to Amount of Senior Subordinated Notes and 50,000 the 1999 Form 10-K Shares of Common Stock Purchase Agreement, dated October 7, 1997 10.16 Amendment to Purchase Agreement, dated as of Incorporated by reference to Exhibit 10.17 to October 25, 1999 and effective as of August the Form 10-Q for the quarterly period ended 20, 1999, between Labtec Corporation and The September 30, 1999 KB Mezzanine Fund II, L.P. 10.17 Recognition, Non-Disturbance and Attorney Incorporated by reference to Exhibit 10.5 to the Agreement, dated December 26, 1995, between 1996 Form 10-K the Company and Historic Boott Mill Limited Partnership 10.18 Royalty Agreement, dated May 29, 1991, between Incorporated by reference to Exhibit 10.6 to the the Company and John A. Hilton Registration Statement 10.19 Resale Agreement, dated as of May 1, 1991, Incorporated by reference to Exhibit 10.8 to the between the Company and Electronic Data Registration Statement. See also footnote 1 Systems Corporation (as successors to below. McDonnell Douglas Corporation), as amended by Amendment No. 1 dated December 23, 1993, and Amendment No. 2 dated October 6, 1994 10.20 Distribution and Marketing Agreement, dated Incorporated by reference to Exhibit 10.9 to the April 28, 1994, between the Company and Registration Statement. See also footnote 1 Sumisho Electronic Devices Corporation below. 10.21 Form of Confidentiality and Inventions Incorporated by reference to Exhibit 10.11 to Agreement between the Company and its employees the Registration Statement. 10.22 Form of Non-Disclosure Agreement between the Incorporated by reference to Exhibit 10.12 to Company and its consultants the Registration Statement. 10.23 Severance Agreement, dated March 18, 1998, Incorporated by reference to Exhibit 10.15 to between the Company and Dennis T. Gain the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1998 10.24 Employment Agreement, dated June 1, 1998, Incorporated by reference to Exhibit 10.24 to between the Company and Gregory Jones the 1999 Form 10-K 27.1 Financial Data Schedule Filed herewith
-------- (1) Certain confidential material contained in the document has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended, and Rule 24b-2 of the Securities Exchange Act of 1934, as amended. (b) Reports on Form 8-K The Company has not filed any reports on Form 8-K during the quarterly period ended September 30, 2000. 16 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. LABTEC INC. Dated: November ___, 2000 By: /s/ Robert G. Wick ---------------------- Robert G. Wick President and Chief Executive Officer 17