-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FrdqRl40ml3mk/3flvlU4ivT5l0U+Dm2TR9fNuWR6Tf75tiNpchUeDDFq/3r37FU teLBGXynDMkVmfh7pwTYDw== 0000913906-97-000168.txt : 19971209 0000913906-97-000168.hdr.sgml : 19971209 ACCESSION NUMBER: 0000913906-97-000168 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19971205 ITEM INFORMATION: FILED AS OF DATE: 19971208 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: QUESTRON TECHNOLOGY INC CENTRAL INDEX KEY: 0000732152 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-LEGAL SERVICES [8111] IRS NUMBER: 232257354 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-13324 FILM NUMBER: 97733517 BUSINESS ADDRESS: STREET 1: 6400 CONGRESS AVENUE STREET 2: SUITE 200 CITY: BOCA RATON STATE: FL ZIP: 33487 BUSINESS PHONE: 4072415251 MAIL ADDRESS: STREET 1: 6400 CONGRESS AVENUE STREET 2: SUITE 200 CITY: BOCA RATON STATE: FL ZIP: 33487 FORMER COMPANY: FORMER CONFORMED NAME: JUDICATE INC DATE OF NAME CHANGE: 19920703 8-K/A 1 AMMENDED 8-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 FORM 8-K/A Amendment No. 1 to CURRENT REPORT Amending Item 7 Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): September 22, 1997 QUESTRON TECHNOLOGY, INC. (Exact name of registrant as specified in its charter) Delaware 0-13324 23-2257354 (State of incorporation(Commission File Number)(I.R.S. Employer or organization) 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 INFORMATION TO BE INCLUDED IN THE REPORT 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 initial report. This amendment is being filed within 60 days of the initial Report on Form 8-K. The financial statements being filed with this amendment are as follows: (1) Questron Technology, Inc. and Subsidiaries Pro Forma Combined Financial Statements for the nine months ended September 30, 1997 and the year ended December 31, 1996. (2) California Fasteners, Inc. balance sheets, related statements of operations, stockholders' equity and statements of cash flows for the eleven months ended July 31, 1997 and the year ended August 31, 1996. (c) Exhibits required by Item 601 of Regulation S-B. Exhibit No. Exhibit 2.0 Stock Purchase Agreement between Questron Technology, Inc. and the Shareholders of California Fasteners, Inc., dated August 29, 1997.* 2.1 Serial Put Agreement between Questron Technology, Inc. and Doug Zadow and Terry Bastian, dated September 22, 1997.* * Previously filed. 2 QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS I. Pro Forma Financial Statements (Unaudited) Pro Forma Combined Financial Statements - Introduction.......... F-1 Pro Forma Combined Statement of Operations for the nine months ended September 30, 1997........................................ F-2 Pro Forma Combined Statement of Operations for the year ended December 31, 1996............................................... F-3 Notes to Pro Forma Combined Financial Statements................ F-4 II. California Fasteners, Inc. Report of Independent Auditors ................................. F-5 Balance Sheet as of July 31, 1997............................... F-6 - F-7 Statements of Operations for the eleven months ended July 31, 1997 and for the year ended August 31, 1996........... F-8 Statement of Stockholders' Equity............................... F-9 Statements of Cash Flows for the eleven months ended July 31, 1997 and for the year ended August 31, 1996........... F-10 Notes to Financial Statements................................... F-11-F-14 . . . . . . . . 3 Item 7. Financial Statements, Pro Forma Financial Information QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES PRO FORMA COMBINED FINANCIAL STATEMENTS [UNAUDITED] The following pro forma combined statement of operations for the nine months ended September 30, 1997 and the year ended December 31, 1996, give effect to the acquisition of California Fasteners, Inc. ("Calfast"), as described in the following paragraphs. In September 1997, the Company acquired 100% of the issued and outstanding capital stock of Calfast, a privately-owned company. The purchase price of Calfast consisted of: (i) $6,594,441 in cash; (ii)the assumption of $1,058,712 in debt net of cash on hand; (iii475,106 shares of the Company's common stock, including 125,896 shares of the Company's common stock which sellers of Calfast may put to the Company, valued at $2,981,288; (iv)up to $795,559 in cash to be paid if Calfast attains certain earnings targets for the four month period ending December 31, 1997; and (v) up to $3,500,000 (50% in cash and 50% in shares of the Company's common stock) if Calfast attains certain earnings targets for the year ending December 31, 1998. The acquisition of Calfast was effected pursuant to a Stock Purchase Agreement dated as of August 29, 1997. The Company has accounted for such acquisition using the purchase method of accounting. In connection with this acquisition, the Company recorded $8,355,314 of cost in excess of net assets of the business acquired, which will be amortized over 40 years under the straight-line method. The historical balance sheet of Calfast as of September 30, 1997 is included in the historical balance sheet of Questron as of September 30, 1997, as filed under Form 10-QSB, giving effect to the transactions under the purchase method of accounting. Since the most recent fiscal year end of Calfast differs from Questron's most recent fiscal year end by more than 93 days, Calfast's statements of operations have been brought to within 93 days of Questron's time period by deducting and adding interim period results as follows: Pro forma combined statement of operations for the twelve months ended December 31, 1996: Deduct four months to December 31, 1995: Revenue $ (2,276,913) Net Income $ (362,016) Add four months to December 31, 1996: Revenue $ 3,396,295 Net Income $ 670,218 Questron's nine months ended September 30, 1997 historical statement of operations includes operations for one month of Calfast, including one month's amortization of goodwill on the acquisition of Calfast. The pro forma statements of operations give effect to these transactions as if they had occurred at the beginning of the fiscal year presented (i.e., January 1, 1995) and were carried forward through the interim period presented. The historical statement of operations will reflect the effects of these transactions from the date on which they occurred. The pro forma combined statements have been prepared by the Company's management based upon the historical financial statements of the Company and Calfast. These pro forma statements may not be indicative of the results that actually would have occurred if the combination had been in effect on the date indicated or which may be obtained in the future. The pro forma financial statements should be read in conjunction with the financial statements and notes of the Company and Calfast appearing elsewhere herein and as filed under Forms 10-KSB and 10-QSB. F-1 QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997. (UNAUDITED) Historicals Questron Calfast For the For the Nine months Twelve months ended ended September 30, August 31, Pro Forma Pro Forma 1 9 9 7 1 9 9 7 Adjustments Combined Total revenue $15,738,987 $11,947,540 $(3,396,295)[1] $24,290,232 Total operating costs and expenses 14,028,970 10,887,097 139,255 [4] 21,397,409 (931,175)[3] 4,000 [2] (2,730,738)[1] Operating income 1,710,017 1,060,443 122,363 2,892,823 Total other expense 206,532 59,233 4,661 [1] 870,426 600,000 [5] ---------- ---------- ---------- Income before income taxes 1,503,485 1,001,210 (482,298) 2,022,397 Provision for income taxes 137,700 472,544 (294,747)[6] 315,497 ---------- ---------- ---------- ---------- Net income $1,365,785 $ 528,666 $ (187,551) $1,706,900 ========== ========== ========== ========== Net income used in per common share calculation (reflecting deduction of preferred stock dividends) $1,299,659 $1,640,774 ========== ========== Net income per common share $ .45 $ .49 ========== ========== Average number of common shares and common share equivalents outstanding 2,869,330 3,329,103 ========== ==========
See Notes to the Unaudited Pro Forma Combined Financial Statements. F-2 QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996. (UNAUDITED) Historicals Questron Calfast For the For the Year ended Year ended December 31, August 31, Pro Forma Pro Forma 1 9 9 6 1 9 9 6 Adjustments Combined Total revenue $11,036,142 $7,532,634 $(2,276,913)[1] $19,688,158 3,396,295[2] Total operating costs and expenses 10,121,638 7,424,752 208,883 [5] 17,980,675 (656,982)[4] 50,000 [3] (1,898,354)[1] 2,730,738 [2] Operating income 914,504 107,882 685,097 1,707,483 Total other (expense) income (300,669) (30,930) (800,000)[6] (1,143,481) (16,543)[1] 4,661 [2] Income before income taxes 613,835 76,952 (126,785) 564,002 Provision for income taxes 64,383 30,119 40,065 [7] 134,567 ---------- --------- ---------- ---------- Net income $ 549,452 $ 46,833 $ (166,850)[2] $ 429,435 ========== ========= ========== ========== Net income per common share $ .36 $ .21 ========== ========== Average number of common shares and common share equivalents outstanding 1,539,048 2,014,154
See Notes to the Unaudited Pro Forma Combined Financial Statements. F-3 QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS [UNAUDITED] Adjustments to Statements of Operations: For the Nine Months ended September 30, 1997: [1] To deduct Calfast four months' operations and expenses to December 31, 1996. [2] To reflect an increase in salary expense related to employment contracts. [3] To reflect a reduction of commission expense for former owners. [4] To reflect amortization of goodwill on the acquisition for eight months. [5] To reflect interest expense on six year term loan in connection with the Calfast acquisition at prime plus 1 1/2% monthly, for nine months. [6] To properly reflect income tax expense on a pro forma basis. For the Year ended December 31, 1996: [1] To deduct Calfast four months' operations and expenses to December 31, 1995. [2] To add Calfast four months' operations and expenses to December 31, 1996. [3] To reflect an increase in salary expense related to employment contracts. [4] To reflect a reduction of commission expense for former owners. [5] To reflect amortization of goodwill on the acquisition for twelve months. [6] To reflect interest expense on six year term loan in connection with the Calfast acquisition at prime plus 1 1/2% monthly, for twelve months. [7] To properly reflect income tax expense on a pro forma basis. . . . . . . . . F-4 REPORT OF INDEPENDENT AUDITORS To The Board of Directors Questron Technology Inc. Boca Raton, Florida We have audited the accompanying balance sheets of California Fasteners, Inc. as of July 31, 1997, and the related statements of operations stockholders' equity, statements of and cash flows for the eleven months then ended and for the year ended August 31, 1996. 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 California Fasteners, Inc. as of July 31, 1997, and the results of its operations and its cash flows for the eleven months then ended and for the year ended August 31, 1996, in conformity with generally accepted accounting principles. MOORE STEPHENS, P. C. Certified Public Accountants. Cranford, New Jersey September 19, 1997 F-5 CALIFORNIA FASTENERS, INC. BALANCE SHEET AS OF JULY 31, 1997. Assets: Current assets: Cash and cash equivalents $ 79,364 Account receivable, less allowance for doubtful accounts 1,065,486 Inventory - less allowance 1,866,730 Other related party receivables 5,760 Deferred taxes 25,367 ----------- Total current assets 3,096,722 Property and equipment: Equipment 234,745 Furniture 81,739 Automobiles 171,806 Leasehold improvements 41,910 ----------- Totals - at cost 530,200 Less: Accumulated depreciation (205,878) Property and equipment - Net 324,322 ----------- Other assets: Other assets 1,037 Covenants not-to-compete, net of accumulated amortization 193,750 Total other assets 194,787 Total assets $ 3,615,831 ===========
See Notes to Financial Statements. F-6 CALIFORNIA FASTENERS, INC. BALANCE SHEET AS OF JULY 31, 1997. Liabilities and stockholders' equity: Current liabilities: Accounts payable and accrued expenses $ 858,289 Income taxes and sales tax payable 367,127 Line of credit 985,720 Current portion of long-term debt 22,994 ----------- Total current liabilities 2,234,130 Long-term liabilities: Notes payable 73,893 Deferred taxes 39,223 Total long-term liabilities 113,116 Stockholders' equity: Common stock, $10 par value, 7,500 shares authorized, 5,100 issued, of which 3,168 are in treasury 51,000 Retained earnings 1,318,798 Less: Treasury stock - at cost (101,213) ----------- Total stockholders' equity 1,268,585 Total liabilities and stockholders' equity $ 3,615,831 =========== See Notes to Financial Statements.
F-7 CALIFORNIA FASTENERS, INC. STATEMENTS OF OPERATIONS For the Eleven months For the ended Year ended July 31, August 31, 1 9 9 7 1 9 9 6 ------- ------- Sales $10,993,875 $ 7,532,634 ----------- ----------- Operating costs and expenses: Cost of products sold 7,002,920 5,054,129 Selling, general and administrative expenses 2,974,591 2,309,667 Depreciation and amortization 72,624 60,956 ---------- ----------- Total operating expenses 10,050,135 7,424,752 ---------- ----------- Operating income 943,740 107,882 ---------- ----------- Other income (expense): Miscellaneous income 4,503 4,118 Interest income 9,622 9,753 Interest expense (57,609) (44,801) ---------- ----------- Total other (expense) (43,484) (30,930) ---------- ----------- Income before income taxes 900,256 76,952 Provision for income taxes 400,742 30,119 ---------- ----------- Net income $ 499,514 $ 46,833 ========== ===========
See Notes to Financial Statements. F-8 CALIFORNIA FASTENERS, INC. STATEMENT OF STOCKHOLDERS' EQUITY Total Common Stock Retained Treasury Stockholders' Shares Amount Earnings Stock Equity Balance - September 1, 1995 5,100 $ 51,000 $ 772,451 $(101,213) $ 722,238 Net income of the year -- -- 46,833 -- 46,833 --------- --------- --------- --------- --------- Balance - August 31, 1996 5,100 51,000 819,284 (101,213) 769,071 Net income for the eleven months -- -- 499,514 -- 499,514 ------- --------- --------- --------- --------- Balance - July 31, 1997 5,100 $ 51,000 $1,318,798$(101,213) $1,268,585 ========= ========= =================== ==========
See Notes to Financial Statements. F-9 CALIFORNIA FASTENERS, INC. STATEMENTS OF CASH FLOWS For the Eleven months For the ended Year ended July 31, August 31, 1 9 9 7 1 9 9 6 ------- ------- Operating activities: Net income (loss) $ 499,513 $ 46,833 ---------- ----------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 72,624 60,956 Deferred taxes 9,031 (2,789) Changes in assets and liabilities: (Increase) decrease in: Accounts receivable (332,382) (423,043) Other receivables and prepaid expenses 6,671 25,671 Inventories (1,010,869) (192,793) Increase (decrease) in: Accounts payable and accrued expenses 72,196 296,266 Income taxes payable 367,127 -- ---------- ----------- Total adjustments (815,602) (235,732) ---------- ----------- Net cash - operating activities (316,089) (188,899) ---------- ----------- Investing activities: Acquisition of property and equipment (195,358) (36,898) ---------- ----------- Financing activities: Bank overdraft -- 45,070 Payment of notes payable -- (248,917) Notes payable 80,819 -- Line of credit 505,737 329,983 Note receivable - related party -- (46,446) ---------- ----------- Net cash - financing activities 586,556 79,690 ---------- ----------- Increase [decrease] in cash and cash equivalents 75,109 (146,107) Cash and cash equivalents - beginning of periods 4,255 150,362 ---------- ----------- Cash and cash equivalents - end of periods $ 79,364 $ 4,255 ========== =========== Supplemental disclosure of cash flow information: Cash paid during the periods for: Interest $ 50,786 $ 46,481 Income taxes $ 9,476 $ -- See Notes to Financial Statements.
F-10 CALIFORNIA FASTENERS, INC. NOTES TO FINANCIAL STATEMENTS (1) Nature of Operations California Fasteners, Inc. [the "Company"] is a value-added distributor of fasteners and related products principally sold to customers in the industrial equipment manufacturing industry, located primarily in the southwest United States. (2) Summary of Significant Accounting Policies Cash and Cash Equivalents - The Company considers certain highly liquid investments with original maturities of three months or less to be cash equivalents. Revenue Recognition - Revenue is recognized when products are shipped. Deposits from customers are carried as liabilities until delivery of the product. Inventory - The Company carries its inventory at lower of cost or market. Cost of goods sold is calculated using the first-in, first-out ("FIFO") method. Depreciation - Depreciation of furniture, vehicles and equipment is based on an estimated useful lives of five [5] and seven [7] years using accelerated methods. Depreciation expense was 49,707 and $35,956 for the periods ended July 31, 1997 and August 31, 1996, respectively. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make 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 those estimates. Concentration of Credit Risk - The Company extends credit to its customers which result 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 and, based upon factors surrounding the credit risk of its customers, believes that its receivable credit risk exposure is limited. Such estimate of the financial strength of such customers may be subject to change in the near term. Impairment - Long-term assets of the Company are reviewed at least annually as to whether their carrying value has become impaired, pursuant to guidance established in SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets." Management considers assets to be impaired if the carrying value exceeds the future projected cash flows from related operations (undiscounted and without interest charges). If impairment is deemed to exist, the assets will be written down to fair value or projected discounted cash flows from related operations. Management also re-evaluates the periods of amortization to determine whether subsequent events and circumstances warrant revised estimates of useful lives. As of July 31, 1997, management expects these assets to be fully recoverable. Advertising - Advertising costs are expensed when incurred. Fair Value of Financial Instruments - The fair value of financial instruments, which are comprised primarily of its cash, accounts receivable and notes payable, approximate their carrying values because of their short maturity. The fair value of long-term debt was determined based on current rates at which the Company could borrow funds with similar remaining maturities, which amount approximates. Accounts Receivable - The majority of the Company's accounts receivable are due withing thirty [30] days and do not bear interest. The allowance for bad debt is approximately $9,000 for the periods ended July 31, 1997 and August 31, 1996, respectively and is based on the Company's experience and economic conditions. F-11 CALIFORNIA FASTENERS, INC. NOTES TO FINANCIAL STATEMENTS, Sheet #2 (2) Summary of Significant Accounting Policies (Continued) Covenant-not-to-Compete - A former shareholder has agreed not to compete with the Company for a ten year period beginning May 1, 1995. The Company paid $250,000 in consideration for such agreement on that date. The asset is being amortized on a straight-line basis over ten years. Amortization expense amounted to $22,917 and $25,000 for the periods ended July 31, 1997 and August 31, 1996, respectively. (3) Commitments and Contingencies [A] Leases - The Company leases its facilities and certain vehicles under various long-term operating leases. The total rent expense for these leases totaled $167,929 for period ended July 31, 1997 and $166,487 for the period ended August 31, 1996, respectively. The following schedule shows future minimum lease payments per year required by the non-cancelable leases on the facilities and vehicles: Year ending August 31, 1998 $ 176,656 1999 154,521 2000 123,889 2001 96,000 Thereafter 205,800 ----------- Total $ 756,866 - ----- =========== [B] Litigation - On July 6, 1997, Unit Instruments, Inc., a California corporation ("Unit") filed a complaint against the Company and others, including the manufacturer of the products involved. The complaint alleges breach of contract, breach of various warranties and negligence. The action relates to certain screws allegedly purchased from the Company as a distributor, which Unit alleges malfunctioned thereby causing Unit to suffer damages. Unit has claimed damages in an amount to be proved at trial, but alleged damages of no less than $1,000,000. The Company has referred this litigation to its insurance carrier, which has assumed the defense of this case without acknowledging liability under the policy. The stockholders of the Company have provided the Company with certain indemnities in connection with liabilities arising out of this litigation. Management of the Company believes that this litigation will not have a material adverse effect on its business or financial condition. (4) Related Party Transactions Leases - The Company leases its Anaheim location from Z&B Associates, a partnership of current shareholders of California Fasteners, Inc. The current monthly rent is $8,000. Rent expense for the Anaheim location was $96,000 and $42,639 for the periods ended July 31, 1997 and August 31, 1996, respectively. Note Receivable - The Company on December 20, 1995, loaned Z&B Associates $75,000 for the above warehouse facility. The note is repayable to the Company at $1,485 monthly for five years at 7.00% interest. Commissions - The Company pays commissions based on sales generated by The Z Group, Inc. an S corporation owned solely by the major shareholder. Commissions expense on these sales were $722,473 for the period ending July 31, 1997 and $673,398 for the period ending August 31, 1996 (See Note 10). (5) Inventory Inventory consists primarily of finished goods. F-12 CALIFORNIA FASTENERS, INC. NOTES TO FINANCIAL STATEMENTS, Sheet #3 (6) Line of Credit The Company has a line of credit with a bank. The bank has agreed to make available a maximum amount of $1,250,000 to the Company under the terms of the accounts receivable prime line agreement. Advances under the line (subject to the maximum availability) are limited to 80% of eligible accounts receivable plus 40% of eligible inventory both terms as defined in the agreement. Advances under the line are collateralized by substantially all company assets. Interest on advances is charged at the banks prime rate (approximately 8 1/2% at July 31, 1997) plus 1.5%. All indebtedness of the Company to the bank is guaranteed by the majority shareholder, a former shareholder and other related parties. The additional amounts available under the line at July 31, 1997 was approximately $174,000. The original term of the line of credit will expire on January 10, 1998. On such date, unless the line has been renewed by the bank, no further advances will be available and the entire outstanding balance shall be due and payable in full. As a subfeature under the line, the bank has agreed to issue for the Company's account commercial and stand by letters of credit, subject to certain limitations. An aggregate of approximately $28,000 of such letters of credit was outstanding at July 31, 1997. (7) Long-Term Debt Long-term debt consists of the following notes: July 31, 1 9 9 7 Installment notes to bank with 10.25% interest due various dates through April 2002. These loans are collateralized by computer equipment, vehicles, and other equipment. $ 96,887 Less: Current Portion 31,032 Long-Term Debt $ 65,855 -------------- ========== Maturity of debt is as follows: Year ended August 31, 1998 $ 31,032 1999 31,032 2000 21,339 2001 10,536 Thereafter 2,948 ---------- Total $ 96,887 ----- ========== (8) Treasury Stock Treasury stock is stated at cost and consisted of 3,168 common shares for the period ended July 31, 1997. F-13 CALIFORNIA FASTENERS, INC. NOTES TO FINANCIAL STATEMENTS, Sheet #4 (9) Income Taxes Provision for income taxes consists of the following: Eleven months ended Year ended July 31, August 31, 1 9 9 7 1 9 9 6 ------- ------- Currently Payable: Federal $ 300,922 $ 22,330 State 90,789 10,578 ----------- ---------- 391,711 32,808 ----------- ---------- Deferred: Federal 8,564 (2,689) State 467 -- ----------- ---------- 9,031 (2,689) ----------- ---------- Totals $ 400,742 $ 30,119 ------ =========== ========== Reconciliation of the statutory federal income tax rate to the Company's effective income tax rate is as follows: Eleven months ended Year ended July 31, August 31, 1 9 9 7 1 9 9 6 ------- ------- U.S. Statutory Rate 34.0% 34.0 % State Taxes on Income - Net of Federal Benefit 6.6 9.1 Effect of graduated Federal Rates -- (8.0) Nondeductible Items: Travel and Entertainment and Officer's Life Insurance Premiums 3.9 4.0 ----- ---- Effective Income Tax Rate 44.5% 39.1 % ------------------------- ===== ==== (10) Subsequent Events (Unaudited) Subsequent to the Date of the Report of Independent Auditors On September 22, 1997, the stockholders of the Company sold their controlling interest in California Fasteners, Inc. to Questron Technology, Inc., a publicly-held company, in the same industry. The selling price consisted of cash, assumption of debt and shares of the acquiring company issued to the selling stockholders. The stockholders have entered into employment agreements with the acquiring company. In addition, the Company no longer pays commissions to the selling shareholders for sales generated by The Z Group, Inc. (See Note 4). . . . . . . . . . F-14 EXHIBIT INDEX Exhibit No. Exhibit 2.0 Stock Purchase Agreement between Questron Technology, Inc. and the Shareholders of California Fasteners, Inc. dated August 29, 1997.* 2.1 Serial Put Agreement between Questron Technology, Inc. and Doug Zadow and Terry Bastian, dated September 22, 1997.* * Previously filed. 4 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this amendment to this report to be signed on its behalf by the undersigned, hereunto duly authorized. QUESTRON TECHNOLOGY, INC. Date: December 5, 1997 By: /s/ Dominic A. Polimeni ------------------------ Dominic A. Polimeni Chairman, President and Chief Executive Officer 5 6 -----END PRIVACY-ENHANCED MESSAGE-----