SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------- FORM 8-K/A AMENDMENT NO. 1 Current Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 Date of Report (Date of earliest event reported):August 20, 1999 LABTEC INC. - -------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in Charter) Massachusetts 0-27302 04-3116697 ---------------------------- ----------- ------------- (State or Other Jurisdiction (Commission (IRS Employer of Incorporation) File No.) Identification No.) 1499 Southeast Tech Center Place, Suite 350, Vancouver, Washington 98683 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code (360) 896-2000 This Amendment No. 1 to the Current Report on Form 8-K is being filed by Labtec Inc. to provide the financial statements and financial information required by Item 7. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED. Provided herein on pages F-1 through F-13 are the financial statements of Connector Resources Unlimited, Inc., a California corporation ("CRU"). (b) PRO FORMA FINANCIAL INFORMATION. Pro Forma financial information relative to CRU is provided herein on pages F-14 through F-19. (c) EXHIBITS. Exhibit No. Description ------- ----------- 2.1* Stock Purchase Agreement, dated as of August 4, 1999, among the Purchaser, the Company and each of the stockholders of Connector Resources Unlimited, Inc. 2.2* Promissory Note, dated as of August 20, 1999, issued by the Company and payable to Carl W. Gromada, as collection agent for each of the stockholders of Connector Resources Unlimited, Inc. 23.1** Consent of Independent Accountants. - -------------- * Previously filed. ** Filed herewith. SIGNATURES Pursuant to the requirement 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 hereunto duly authorized. Dated: November 1, 1999 LABTEC INC. By: /s/ Marc J. Leder --------------------------------------- Name: Marc J. Leder Title: Senior Vice President, Finance, Chief Financial Officer and Treasurer EXHIBIT INDEX Exhibit No. Description ------- ----------- 2.1* Stock Purchase Agreement, dated as of August 4, 1999, among the Purchaser, the Company and each of the stockholders of Connector Resources Unlimited, Inc. 2.2* Promissory Note, dated as of August 20, 1999, issued by the Company and payable to Carl W. Gromada, as collection agent for each of the stockholders of Connector Resources Unlimited, Inc. 23.1** Consent of Independent Accountants. - -------------- * Previously filed. ** Filed herewith. REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Directors of Connector Resources Unlimited, Inc. In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, of cash flows and of changes in shareholders' equity present fairly, in all material respects, the financial position of Connector Resources Unlimited, Inc. and its wholly-owned subsidiary at March 31, 1999, and the results of their operations and their cash flows for the year then ended, in conformity with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing standards, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. As described in Note 11, on August 20, 1999, all of the Company's common stock was purchased by a subsidiary of Labtec Inc. The accompanying financial statements do not include any adjustments relative to this matter. /s/ PricewaterhouseCoopers LLP Portland, Oregon October 8, 1999 F-1 CONNECTOR RESOURCES UNLIMITED, INC. CONSOLIDATED BALANCE SHEET MARCH 31, 1999 AND JUNE 30, 1999 (UNAUDITED) MARCH 31, JUNE 30, ASSETS 1999 1999 ------ --------- -------- (Unaudited) Current assets: Cash and cash equivalents $ 112,255 $ 132,565 Accounts receivable, net 1,583,905 2,423,177 Inventories, net 2,023,548 1,786,137 Note receivable 50,000 50,000 Other current assets 2,500 3,375 Deferred income taxes 192,501 192,501 --------- --------- Total current assets 3,964,709 4,587,755 Furniture and equipment, net 157,755 163,220 Deferred income taxes 47,698 47,698 --------- --------- $4,170,162 $4,798,673 --------- --------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Line of credit $ 72,681 $ 21,000 Accounts payable 1,366,403 1,015,387 Accrued expenses 71,353 132,180 Income taxes payable 241,168 463,422 Current portion of notes payable 56,488 - --------- --------- Total current liabilities 1,808,093 1,631,989 Notes payable, less current portion 5,342 - --------- --------- 1,813,435 1,631,989 --------- --------- Commitments and contingencies (Notes 5, 6 and 10) - - Shareholders' equity: Common stock, no par value, 2,500,000 shares authorized, 889,307 shares issued and outstanding 471,880 471,880 Retained earnings 1,884,847 2,694,804 --------- --------- Total shareholders' equity 2,356,727 3,166,684 --------- --------- $4,170,162 $4,798,673 ========= ========= The accompanying notes are an integral part of these financial statements. F-2 CONNECTOR RESOURCES UNLIMITED, INC. CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1999 AND THREE MONTHS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED) YEAR ENDED THREE MONTHS ENDED MARCH 31, JUNE 30, 1999 1998 1999 ------------ ----------- ---------- (Unaudited) Sales $ 12,158,162 $ 3,093,543 $3,958,900 Cost of sales 7,382,551 2,146,293 2,025,163 ----------- ---------- --------- Gross profit 4,775,611 947,250 1,933,737 ----------- ---------- --------- Operating expenses: Selling and marketing 1,543,255 326,460 396,949 General and administrative 985,808 187,712 255,474 Depreciation 10,087 4,461 3,426 Amortization 8,397 3,156 - ----------- ---------- --------- 2,547,547 521,789 655,849 ----------- ---------- --------- Income from operations 2,228,064 425,461 1,277,888 Interest expense, net 41,916 16,965 1,970 Other non-operating expense 14,013 - - ----------- --------- --------- Income before income taxes 2,172,135 408,496 1,275,918 Provision for income taxes 834,948 176,395 465,961 ----------- --------- --------- Net income $ 1,337,187 $ 232,101 $ 809,957 =========== ========= ========= The accompanying notes are an integral part of these financial statements. F-3 CONNECTOR RESOURCES UNLIMITED, INC. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE YEAR ENDED MARCH 31, 1999 AND THREE MONTHS ENDED JUNE 30, 1999 (UNAUDITED) COMMON RETAINED SHARES STOCK EARNINGS TOTAL --------- --------- ----------- ---------- Balance, April 1, 1998 1,111,157 $ 561,250 $ 767,660 $ 1,328,910 Net income 1,337,187 1,337,187 Repurchase and retirement of common stock (236,410) (100,000) (220,000) (320,000) Exercise of stock options 14,560 10,630 - 10,630 --------- --------- --------- ---------- Balance, March 31, 1999 889,307 471,880 1,884,847 2,356,727 Net income (unaudited) 809,957 809,957 --------- --------- --------- --------- Balance, June 30, 1999 (unaudited) 889,307 $ 471,880 $2,694,804 $ 3,166,684 ========= ========= ========= ========== The accompanying notes are an integral part of these financial statements. F-4 CONNECTOR RESOURCES UNLIMITED, INC. CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED MARCH 31, 1999 AND THREE MONTHS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED) YEAR ENDED THREE MONTHS ENDED MARCH 31, JUNE 30, 1999 1998 1999 ---------- --------- --------- (Unaudited) Cash flows from operating activities: Net income $ 1,337,187 $ 232,101 $ 809,957 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization 111,266 25,921 13,926 Deferred income taxes (127,539) - - Loss on disposal of fixed assets 14,013 - - Changes in certain current assets and current liabilities: Accounts receivable (232,729) (415,345) (839,272) Inventories (545,878) 331,694 237,411 Other current assets 4,131 (4,036) (875) Accounts payable 417,884 (166,679) (351,016) Accrued expenses (69,065) (55,446) 60,827 Income taxes payable 67,740 263 222,254 ---------- -------- --------- Net cash provided by (used in) operating activities 977,010 (51,527) 153,212 ---------- -------- --------- Cash flows from investing activities: Issuance of note receivable (50,000) - - Purchases of property and equipment (146,169) (9,403) (19,391) ---------- -------- --------- Net cash used in investing activities (196,169) (9,403) (19,391) ---------- ------- --------- Cash flows from financing activities: Payments on line of credit (300,000) - (201,681) Borrowings on line of credit 72,681 - 150,000 Proceeds from issuance of notes payable 225,952 - - Principal payments on notes payable (517,316) (34,166) (61,830) Exercise of stock option 10,630 - - Repurchase of common stock (320,000) - - ---------- --------- --------- Net cash used in financing activities (828,053) (34,166) (113,511) ---------- --------- --------- Net (decrease) increase in cash and cash equivalents (47,212) (95,096) 20,310 Cash and cash equivalents at beginning of period 159,467 159,467 112,255 ---------- --------- ----------- Cash and cash equivalents at end of period $ 112,255 $ 64,371 $ 132,565 ========== ======== ========== The accompanying notes are an integral part of these financial statements. F-5 CONNECTOR RESOURCES UNLIMITED, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES COMPANY Connector Resources Unlimited, Inc. (the "Company"), a California corporation formed in 1986, designs, develops, and markets computer peripheral products principally in North America. REVENUE RECOGNITION Revenues are recognized upon shipment of the Company's products, net of an estimated allowance for sales returns. Gross revenues in fiscal 1999 from one customer were $2.9 million or 23.8% of total sales. FAIR VALUE OF FINANCIAL INSTRUMENTS The recorded amounts of cash, accounts receivable, accounts payable, notes payable, and accrued liabilities as presented in the financial statements approximate fair value because of the short-term maturity of these instruments. CONCENTRATION OF CREDIT RISK The Company is subject to credit risk primarily from its accounts receivable. The Company mitigates its credit risk on receivables by control procedures to monitor the credit worthiness of its customers and utilization of credit limits. The Company's customers are concentrated in the technology industry. Therefore, the Company's operations and collection of its accounts receivable are directly associated with the results of the technology industry. CASH AND CASH EQUIVALENTS The Company considers short-term investments which are highly liquid, readily convertible into cash and have original maturities of less than three months to be cash equivalents. INVENTORIES Inventories, net of reserves of $89,739 and $80,055 as of March 31, 1999 and June 30, 1999, respectively, are stated at the lower of cost or market with cost being determined on the first-in, first-out (FIFO) method. Inventories consist primarily of assemblies and purchased finished goods produced for the Company by foreign factories subcontracted by the Company. Of the total inventories, $476,120 was in transit at March 31, 1999. The Company takes title upon shipment from the foreign port. FURNITURE AND EQUIPMENT Furniture and equipment are stated at cost. Depreciation is provided on the straight-line method for financial reporting purposes and on an accelerated method for tax purposes over estimated useful lives ranging from three to seven years. Depreciation expense for the year ended March 31, 1999 was $102,870. Depreciation expense included in cost of sales for the year ended March 31, 1999 was $92,783. Repair and maintenance costs are expensed as incurred. F-6 CONNECTOR RESOURCES UNLIMITED, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) ADVERTISING The Company expenses advertising costs when incurred. Total advertising expenses were $378,501 for the year ended March 31, 1999. INCOME TAXES The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109 (FAS 109), ACCOUNTING FOR INCOME TAXES. FAS 109 requires the recognition of deferred tax assets and liabilities for the expected tax effects from differences between the financial reporting and tax bases of assets and liabilities. In estimating future tax effects, FAS 109 generally considers all expected future events other than enactments of changes in tax law or statutorily imposed rates. 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 and 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. Significant estimates and judgements made by the Company include items such as the collectibility of accounts receivable, the level of sales returns, realizability of inventories and realizability of deferred income tax assets. INTERIM FINANCIAL INFORMATION The accompanying balance sheet as of June 30, 1999 and the statements of operations and of cash flows for the three-month periods ended June 30, 1998 and 1999, are unaudited. In the opinion of management, these statements have been prepared on the same basis as the audited financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the results of the interim periods. The financial data and other information disclosed in these notes to the financial statements related to these periods are unaudited. The results for the three months ended June 30, 1999 are not necessarily indicative of the results to be expected for the fiscal year ending March 31, 2000. RESEARCH AND DEVELOPMENT COSTS Research and development costs are expensed as incurred. COMPREHENSIVE INCOME The Company has adopted Statement of Financial Accounting Standards No. 130 REPORTING COMPREHENSIVE INCOME as of April 1, 1998. Comprehensive income equals net income in all periods presented. F-7 CONNECTOR RESOURCES UNLIMITED, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) SEGMENT REPORTING The Company competes in one segment, computer peripherals, and sells its products mainly in the United States. Accordingly, no further segment disclosures are necessary. 2. ACCOUNTS RECEIVABLE Accounts receivable are net of allowances for doubtful accounts and for sales returns as follows: MARCH 31, JUNE 30, 1999 1999 ----------- ----------- (Unaudited) Accounts receivable $1,727,913 $ 2,486,020 Less: Allowance for bad debts (20,137) (20,137) Allowance for sales returns (123,871) (42,706) --------- --------- $1,583,905 $ 2,423,177 ========= ========= At March 31, 1999, 27.4% of accounts receivable were from one customer. 3. NOTE RECEIVABLE Note receivable consists of an unsecured note from the Company's primary shareholder. The note bears interest at a rate of 6% per annum. At March 31, 1999 and June 30, 1999, $50,000 was outstanding. The note was repaid in August 1999. 4. FURNITURE AND EQUIPMENT Furniture and equipment consist of: MARCH 31, JUNE 30, 1999 1999 --------- --------- (Unaudited) Leasehold improvements $ 44,655 $ 44,655 Tooling and molds 355,345 359,645 Furniture and equipment 173,584 188,675 ---------- --------- 573,584 592,975 Less accumulated depreciation (415,829) (429,755) --------- --------- $ 157,755 $ 163,220 ========= ========= F-8 CONNECTOR RESOURCES UNLIMITED, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 5. BORROWINGS Notes payable consist of a note payable to a bank. The note is collateralized by all of the Company's assets and is due in monthly installments of $4,707, plus interest at the prime rate plus 0.5% (8.25% at March 31, 1999) per annum. The note was repaid in full during May 1999. On December 15, 1998, the Company entered into a line of credit agreement with a bank. Borrowings under the agreement are collateralized by all assets of the Company, bear interest at the prime rate plus 0.5% (8.25% at March 31, 1999) and are limited to the lesser of $1,500,000 or 80% of eligible accounts receivable. At March 31, 1999 and June 30, 1999, $72,681 and $21,000, respectively, was outstanding on the Company's line of credit. The line of credit agreement requires the Company to comply with various financial covenants. At March 31, 1999, the Company was not in compliance with the quick ratio covenant under the line of credit. The Company obtained a waiver from the bank. The current line of credit expires in December 2002. Interest payments for the year ended March 31, 1999 and the three months ended June 30, 1998 and 1999 were $45,070, $16,965 and $2,931, respectively. Notes payable mature as follows: YEAR ENDING MARCH 31, 1999 -------------- 2000 $ 56,488 2001 5,342 -------- $ 61,830 6. EMPLOYEE BENEFIT PLAN The Company has implemented a 401 (k) Profit Sharing Plan (the "Plan") in which employees who have met certain service and eligibility requirements may participate. Each eligible employee may elect to contribute to the Plan, and the Company may make discretionary matching contributions of up to 8% of employees' compensation. Matching contributions of approximately $13,100, $4,613 and $4,357 were made during the year ended March 31, 1999 and the three months ended June 30, 1998 and 1999, respectively. F-9 CONNECTOR RESOURCES UNLIMITED, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 7. INCOME TAXES The provision of income taxes consists of the following: YEAR ENDED MARCH 31, 1999 ---------- Current Federal $ 761,109 State 201,378 -------- 962,487 -------- Deferred Federal (119,170) State (8,369) -------- (127,539) -------- $ 834,948 ======== Deferred taxes are due to timing differences in recognizing deductions, primarily related to depreciation, amortization and certain accrued expenses for income tax and financial reporting purposes. The income tax benefit differs from the amount computed by applying the statutory federal income tax rate to pretax income as a result of the following differences: YEAR ENDED MARCH 31, 1999 ---------- Statutory federal tax rate 34.0 % Increase (decrease) in rates esulting from: State taxes 8.9 Other (4.5) 38.4 % F-10 CONNECTOR RESOURCES UNLIMITED, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 7. INCOME TAXES (CONTINUED) The tax effects of temporary differences that give rise to significant portions of the deferred tax assets are presented below: MARCH 31, 1999 --------- State income tax $ 70,179 Allowance for doubtful accounts and returns 51,174 Allowance for obsolete inventory 35,723 Accrued expenses 9,460 Inventory adjustment, IRC Section 263(a) 25,965 ------- Current deferred tax asset $192,501 ======= Property and equipment $ 35,979 Other miscellaneous 11,719 ------- Long-term deferred tax asset $ 47,698 ======== Income taxes paid during the year ended March 31, 1999 and the three months ended June 30, 1998 and 1999 were $878,815, $176,132 and $243,708, respectively. 8. SHAREHOLDERS' EQUITY In January 1999, the Company entered into an agreement with a former minority shareholder to repurchase 236,410 shares of common stock for $320,000. The common stock was retired upon repurchase. The excess of the cost of the common stock repurchased, $320,000, less the stated value of the common stock repurchased, $100,000, was charged to retained earnings. 9. STOCK OPTIONS The Company provided a stock option plan (the Plan) which commenced in September 1993. Options under the Plan were granted at the discretion of the Board of Directors. The exercise price of these options generally was the fair market value of shares at the date of grant as determined by the Board of Directors. Such options were exercisable generally at the time the options were granted. The Plan allowed the granting of options to purchase up to an aggregate of 58,248 shares of the Company's common stock. Options granted under the Plan were either incentive stock options or nonqualified stock options as defined by the Internal Revenue Code. F-11 CONNECTOR RESOURCES UNLIMITED, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 9. STOCK OPTIONS (CONTINUED) The Company has elected to follow APB No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), and related interpretations in accounting for its employee stock options. Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of the grant, no compensation expense has been recognized. Pro forma information regarding net income per share is not required by SFAS No. 123, "Accounting for Stock- Based Compensation", as all stock options were granted and were fully vested as of October 1, 1993, which was before the release of SFAS 123. The following table summarizes the stock option transactions for the year ended March 31, 1999, under the plan described above. OPTIONS NUMBER PRICE OUTSTANDING PER SHARE ----------- --------- Balance, April 1, 1998 14,560 $ .73 Granted - - Exercised (14,560) .73 Terminated - - ------- Balance, March 31, 1999 - ======= 10. COMMITMENTS The Company leases its facilities under operating lease agreements which expire through May 2001. The leases require monthly payments of approximately $9,200. Rent expense paid under these leases was approximately $113,000 for the year ended March 31, 1999. The Company also leases equipment under operating lease agreements with monthly payments totaling approximately $900. The leases expire through October 2001. Rent expense under these leases was approximately $12,200 for the year ended March 31, 1999. Future minimum annual lease payments required under these agreements are as follows: YEAR ENDING MARCH 31 ----------- 2000 $ 99,674 2001 100,780 2002 19,008 -------- $219,462 ======== The Company becomes involved in litigation and other proceedings arising in the normal course of its business. In the opinion of management, the Company's liability, if any, under any pending litigation would not materially affect its financial condition or results of operations. F-12 CONNECTOR RESOURCES UNLIMITED, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 11. SUBSEQUENT EVENTS STOCK REPURCHASE On July 7, 1999, the Company entered into an agreement with a minority shareholder to repurchase 65,527 shares of the Company's common stock for $750,000. The excess of the original cost of the common stock repurchased, less the stated value of the common stock repurchased, $450,000, was charged to retained earnings. SALE OF THE COMPANY On August 20, 1999, the Company entered into a stock purchase agreement with CRU Acquisition Corporation, a wholly owned subsidiary of Labtec Inc., whereby all of the outstanding shares of the Company's common stock were sold to CRU Acquisition Corporation for $12,000,000 in cash and debt in the amount of $1,500,000. At that time the Company became a wholly owned subsidiary of Labtec Inc. F-13 LABTEC INC. INTRODUCTION TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA 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 $12 million in cash, and $1,500,000 in debt. Concurrent with the acquisition of CRU, Labtec entered into a $43 million credit facility with a bank and also sold 312,500 shares of common stock for $1 million. The net proceeds from the credit facility and proceeds from the stock sale were used to retire outstanding debt and accrued interest of $23.4 million; to pay issuance costs and loan fees on the new credit facility of $2.1 million; to pay $275,000 for certain acquisition costs related to the purchase of CRU; and to fund the purchase of CRU. The pro forma financial information has been prepared as if the acquisition of CRU had taken place at June 30, 1999 for the pro forma condensed balance sheet and at April 1, 1998 for the pro forma condensed statements of operations for the year ended March 31, 1999 and the three months ended June 30, 1999. The acquisition of CRU has been accounted for as a purchase, whereby the basis of accounting for the acquired assets and liabilities have been based upon their estimated fair market values at the date of the acquisition. Pro forma adjustments represent Labtec's preliminary determination of these values and are based upon estimates and certain assumptions considered reasonable by management under the circumstances. Any purchase price or fair market value adjustments will be made within ninety days from the acquisition date and are not expected to be material to the pro forma financial information taken as a whole. These pro forma financial statements are provided for illustrative purposes only and are not necessarily indicative of the results that would have occurred if the acquisition had occurred on the dates indicated or which may be obtained in the future. All information contained herein should be read in conjunction with the consolidated financial statements and the notes thereto included in Labtec's Annual Report on Form 10-K for the year ended March 31, 1999, the financial statements and notes thereto of CRU included in this Form 8- K/A and the notes to the unaudited pro forma condensed financial information. DETERMINATION AND ALLOCATION OF PURCHASE PRICE The following table sets forth the purchase price for Connection Resources Unlimited, Inc.: Cash $ 12,000,000 Debt payable to former owners of CRU 1,500,000 Transaction and other direct costs 1,030,034 ------------ Pro forma purchase price $ 14,530,034 ============ F-14 LABTEC INC. INTRODUCTION TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA (CONTINUED) The preliminary allocation of the pro forma purchase price (as of August 20, 1999) is as follows: Cash $ 360,455 Accounts receivable 2,345,405 Inventories 2,219,406 Fixed assets 193,603 Other current and noncurrent assets 218,843 Liabilities assumed (3,603,236) Goodwill and other identifiable intangibles 12,795,558 ----------- $ 14,530,034 =========== F-15 LABTEC INC. PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS JUNE 30, 1999 (UNAUDITED) HISTORICAL --------------------- JUNE 30, 1999 PRO FORMA LABTEC CRU ADJUSTMENTS COMBINED ------ --- ----------- -------- ASSETS Current assets: Cash and cash equivalents $ 450,348 $ 132,565 $ $ 582,913 Accounts receivable, net 14,953,159 2,423,177 17,376,336 Interest and other receivables 235,466 50,000 285,466 Income tax receivable 536,215 - 536,215 Inventories, net 10,344,085 1,786,137 12,130,222 Prepaid expenses and other current assets 132,568 3,375 135,943 Deferred income taxes 742,531 192,501 935,032 ---------- --------- ---------- ---------- Total current assets 27,394,372 4,587,755 31,982,127 Property and equipment, net 2,282,642 163,220 2,445,862 Deferred income taxes 1,892,850 47,698 672,476 (g) 2,613,024 Debt issuance costs 1,877,718 - 2,144,399 (e) 2,275,425 (1,746,692)(g) Other noncurrent assets 132,566 - 132,566 Goodwill, net 8,575,346 - 11,363,352 (a) 19,938,698 ---------- ---------- ---------- ---------- $42,155,494 $4,798,673 $12,433,535 $59,387,702 ========== ========= ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Lines of credit $ 3,200,000 $ 21,000 $ 5,901,774 (b) $ 9,122,774 Current portion of long-term debt - - 2,800,000 (b) 2,800,000 Accounts payable 5,441,842 1,015,387 6,457,229 Accrued payroll and benefits 1,265,586 132,180 419,586 (d) 1,817,352 Accrued interest 232,373 - (232,373)(b) - Other accrued expenses 1,786,789 463,422 335,448 (d) 2,585,659 ------------ ---------- ----------- ---------- Total current liabilities 11,926,590 1,631,989 9,224,435 22,783,014 Long-term debt 26,094,983 - 6,450,000 (b) 32,544,983 ---------- --------- ---------- ---------- Total liabilities 38,021,573 1,631,989 15,674,435 55,327,997 ---------- --------- ---------- ---------- Shareholders' equity Common stock 69,072 471,880 (471,880)(c) 72,197 3,125 (f) Additional paid-in capital 20,563,013 - 996,875 (f) 21,559,888 Stock subscription receivable (25,688) - (25,688) Retained (deficit) earnings (16,412,366) 2,694,804 (2,694,804)(c) (17,486,582) (1,074,216)(g) Accumulated other comprehensive income (loss): Cumulative foreign currency translation adjustment (60,110) - (60,110) ----------- --------- ---------- ---------- Total shareholders' equity 4,133,921 3,166,684 (3,240,900) 4,059,705 ----------- --------- ---------- ---------- $ 42,155,494 $4,798,673 $12,433,535 $59,387,702 ============ ========= ========== ========== F-16 LABTEC INC. PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT YEAR ENDED MARCH 31, 1999 (UNAUDITED) HISTORICAL YEAR ENDED MARCH 31, 1999 ------------------------- PRO FORMA LABTEC CRU ADJUSTMENTS COMBINED ----------- ------------ ------------ ---------- Net sales $ 64,273,410 $ 12,158,162 $ $76,431,572 Cost of sales 40,657,361 7,382,551 48,039,912 ----------- ----------- ---------- ---------- Gross profit 23,616,049 4,775,611 28,391,660 ----------- ----------- ---------- ---------- Operating expenses: Selling and marketing 14,993,624 1,543,255 16,536,879 General and administrative 5,457,227 985,808 6,443,035 Research and development 1,716,705 - 1,716,705 Depreciation 1,444,308 10,087 1,454,395 Amortization of goodwill 2,175,874 8,397 3,787,784 (h) 5,972,055 Amortization of noncompete agreement 361,800 - 361,800 ----------- ----------- ---------- ---------- 26,149,538 2,547,547 3,787,784 32,484,869 ----------- ----------- ---------- ---------- Income (loss) from operations (2,533,489) 2,228,064 (3,787,784) (4,093,209) Interest expense, net 3,516,553 41,916 1,771,650 (i) 5,330,119 Other nonoperating (income) expense (8,171) 14,013 5,842 ----------- ----------- ---------- ---------- Income (loss) before income taxes (6,041,871) 2,172,135 (5,559,434) (9,429,170) Provision for (benefit from) income taxes (1,370,471) 834,948 (682,085)(j) (1,217,608) ---------- ----------- ---------- ----------- Income (loss) before extraordinary loss $(4,671,400) $ 1,337,187 $(4,877,349) $(8,211,562) =========== =========== ========== ========== Net income (loss) per share before extraordinary loss: Basic $ (0.94) $ (1.55) =========== =========== Diluted $ (0.94) $ (1.55) =========== =========== Weighted average shares outstanding: Basic 4,987,000 312,500 (f) 5,299,500 Diluted 4,987,000 312,500 (f) 5,299,500 F-17 LABTEC INC. PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT THREE MONTHS ENDED JUNE 30, 1999 (UNAUDITED) HISTORICAL --------------------------- THREE MONTHS ENDED JUNE 30, 1999 PRO FORMA LABTEC CRU ADJUSTMENTS COMBINED ---------- ----------- ----------- ------------ Net sales $ 15,512,259 $ 3,958,900 $ $19,471,159 Cost of sales 9,175,194 2,025,163 11,200,357 ----------- ---------- ---------- ----------- Gross profit 6,337,065 1,933,737 8,270,802 ----------- ---------- ---------- ----------- Operating expenses: Selling and marketing 3,349,302 396,949 3,746,251 General and administrative 1,037,648 255,474 1,293,122 Research and development 497,799 - 497,799 Depreciation 345,765 3,426 349,191 Amortization of goodwill 816,698 - 946,946 (h) 1,763,644 ----------- ---------- ---------- ---------- 6,047,212 655,849 946,946 7,650,007 ----------- ---------- ---------- ----------- Income (loss) from operations 289,853 1,277,888 (946,946) 620,795 Interest expense, net 761,396 1,970 446,992 (i) 1,210,358 Other nonoperating (income) expense 27,360 - 27,360 ----------- ---------- ---------- ---------- Income (loss) before income taxes (498,903) 1,275,918 (1,393,938) (616,923) Provision for income taxes 49,297 465,961 (73,770)(j) 441,488 ----------- ---------- ---------- ---------- Income (loss) before extraordinary loss $ (548,200) $ 809,957 $(1,320,168) $(1,058,411) =========== ========== ========== ========== Net income (loss) per share before extraordinary loss: Basic $ (0.08) $ (0.15) =========== =========== Diluted $ (0.08) $ (0.15) =========== =========== Weighted average shares outstanding: Basic 6,905,110 312,500 (f) 7,217,610 Diluted 6,905,110 312,500 (f) 7,217,610 F-18 LABTEC INC. NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS PRO FORMA BALANCE SHEET ADJUSTMENTS (a) Records the pro forma purchase price allocations to goodwill and other identifiable intangibles. (b) Represents net incremental borrowings of $13,651,774 on the Company's credit facility and the issuance of a $1,500,000 promissory note payable to the previous shareholders of CRU as well as repayment of interest accrued on retired debt. (c) Represents elimination of the equity accounts of CRU. (d) Represents transaction costs and other costs relative to the acquisition of CRU. (e) Represents $2,144,399 of deferred financing costs incurred relative to the Company's credit facility used to finance the CRU acquisition. (f) Represents sale of 312,500 shares of common stock to a finance company for proceeds of $1,000,000 ($3.20 per share), the proceeds of which were used to repay debt. (g) Represents write-off of deferred loan fees incurred in conjunction with the debt retired by the proceeds of the new credit facility. Since non-recurring charges are required to be excluded from pro forma net income, the impact of the write-off of deferred loan fees has been excluded from the pro forma consolidated income statements. STATEMENT OF OPERATIONS PRO FORMA ADJUSTMENTS (h) Reflects the amortization of goodwill and other intangible assets associated with the purchase of CRU. Amortization is over the estimated useful life of three years. (i) Represents additional interest charges for interest incurred on Labtec's incremental borrowings and on Labtec's promissory note issued to the previous shareholders of CRU plus amortization of deferred financing fees relative to the new credit facility. The deferred financing fees are amortized over the six year term of the credit facility. Interest charges are calculated at the borrowing rate incurred on Labtec's new credit facility of prime plus 1.75% (10%) and the stated interest rate on the promissory note issued to the previous shareholders of CRU (6%). (j) Represents increase in income taxes as a result of the foregoing adjustments. Income taxes are calculated at the Company's blended statutory tax rate of approximately 38.5% Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-04991) of Labtec Inc. of our report dated October 8, 1999, with respect to the consolidated financial statements of Connector Resources Unlimited, Inc. included in this Form 8-K/A. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Portland, Oregon October 29, 1999 CONNECTOR RESOURCES UNLIMITED, INC. CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1999