UNITED STATES
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 March 31, 2005
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to ________________________
Commission File Number 0-5896
JACO ELECTRONICS, INC.
----------------------
(Exact name of registrant as specified in its charter)
NEW YORK 11-1978958
-------- -----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
145 OSER AVENUE, HAUPPAUGE, NEW YORK 11788
------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (631) 273-5500
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 __
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).
Yes __ No X
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Shares Outstanding at May 13, 2005
----- ----------------------------------
Common Stock, $0.10 Par Value 6,267,832 (excluding 659,900 shares
held as treasury stock)
FORM 10-Q March 31, 2005
Page 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
JACO ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, June 30,
2005 2004
---- ----
ASSETS
Current Assets
Cash $ 29,685 $ 552,655
Marketable securities --- 770,283
Accounts receivable - net 38,864,926 35,926,553
Inventories 44,753,641 37,017,390
Prepaid expenses and other 2,030,727 1,513,657
Deferred income taxes 2,913,000 2,725,000
Current assets of discontinued operations --- 12,910,801
---------- ----------
Total current assets 88,591,979 91,416,339
Property, plant and equipment - net 2,507,757 2,003,137
Deferred income taxes 1,485,000 416,000
Excess of cost over net assets acquired - net 25,416,087 25,416,087
Note receivable 2,750,000 ---
Other assets 2,321,315 2,530,269
--------- ---------
Total assets $123,072,138 $121,781,832
============ ============
See accompanying notes to condensed consolidated financial statements.
FORM 10-Q March 31, 2005
Page 3
JACO ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, June 30,
2005 2004
---- ----
LIABILITIES & SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 34,492,914 $ 34,068,132
Current maturities of long-term debt and
capitalized lease obligations 35,139,460 37,088,743
Unearned revenue 8,285,200 ---
Income taxes payable 70,150 ---
Current liabilities of discontinued operations --- 2,800,664
--------- ---------
Total current liabilities 77,987,724 73,957,539
Long-term debt and capitalized lease obligations 73,486 118,525
Deferred compensation 1,037,500 1,000,000
SHAREHOLDERS' EQUITY
Preferred stock - authorized, 100,000 shares,
$10 par value; none issued
Common stock - authorized, 20,000,000 shares,
$.10 par value; issued 6,927,732 and
6,855,232 shares, respectively,
and 6,267,832 and 6,195,332 shares
outstanding, respectively 692,773 685,523
Additional paid-in capital 26,908,545 26,735,295
Retained earnings 18,686,676 21,562,396
Accumulated other comprehensive income --- 37,120
Treasury stock - 659,900 shares at cost (2,314,566) (2,314,566)
--------- ---------
Total shareholders' equity 43,973,428 46,705,768
---------- ----------
Total liabilities and shareholders' equity $123,072,138 $121,781,832
============ ============
See accompanying notes to condensed consolidated financial statements.
FORM 10-Q March 31, 2005
Page 4
JACO ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
2005 2004
---- ----
Net sales $60,537,075 $63,119,859
Cost of goods sold 53,870,534 54,314,369
---------- ----------
Gross profit 6,666,541 8,805,490
Selling, general and administrative expenses 7,633,583 8,512,339
--------- ---------
Operating (loss) profit (967,042) 293,151
Interest expense 594,005 338,524
------- -------
Loss from continuing operations
before income taxes (1,561,047) (45,373)
Income tax benefit (468,200) (16,691)
-------- -------
Loss from continuing operations (1,092,847) (28,682)
Discontinued operations:
Earnings from discontinued operations,
net of income tax provision of $85,691 --- 157,403
------- -------
NET (LOSS) EARNINGS $(1,092,847) $ 128,721
=========== ============
PER SHARE INFORMATION
Basic and diluted (loss) earnings per common share:
Loss from continuing operations $(0.17) $(0.01)
Earnings from discontinued operations --- $ 0.03
------- -------
Net (loss) earnings $(0.17) $ 0.02
====== =======
Weighted-average common shares and common
equivalent shares outstanding:
Basic and Diluted 6,264,954 5,997,409
========= =========
See accompanying notes to condensed consolidated financial statements.
FORM 10-Q March 31, 2005
Page 5
JACO ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED MARCH 31,
(UNAUDITED)
2005 2004
---- ----
Net sales $172,741,189 $192,033,977
Cost of goods sold 151,892,264 166,256,000
----------- -----------
Gross profit 20,848,925 25,777,977
Selling, general and administrative expenses 24,620,289 26,343,527
---------- ----------
Operating loss (3,771,364) (565,550)
Interest expense 1,432,279 1,199,006
--------- ---------
Loss from continuing operations
before income taxes (5,203,643) (1,764,556)
Income tax benefit (1,561,000) (619,061)
---------- --------
Loss from continuing operations (3,642,643) (1,145,495)
Discontinued operations:
(Loss) earnings from discontinued operations,
net of income tax (benefit) provision of $(39,800) and
$225,060 in 2005 and 2004, respectively (63,652) 413,408
Gain on sale of net assets of subsidiary, net of income
tax provision of $518,500 830,575 ---
------- --------
Earnings from discontinued operations 766,923 413,408
------- -------
NET LOSS $(2,875,720) $(732,087)
=========== ===========
PER SHARE INFORMATION
Basic and diluted (loss) earnings per common share:
Loss from continuing operations $(0.58) $(0.19)
Earnings from discontinued operations $0.12 $ 0.07
----- -------
Net loss $(0.46) $(0.12)
====== ======
Weighted-average common shares and common
equivalent shares outstanding:
Basic and Diluted 6,243,575 5,905,567
========= =========
See accompanying notes to condensed consolidated financial statements.
FORM 10-Q March 31, 2005
Page 6
JACO ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED MARCH 31, 2005
(UNAUDITED)
Additional
Common stock paid-in Retained
Shares Amount capital earnings
--------------- -------------- ---------------- -------------------
Balance at July 1, 2004 6,855,232 $ 685,523 $ 26,735,295 $ 21,562,396
Net loss (2,875,720)
Unrealized gain on marketable
securities, net of deferred tax
expense of $19,254
Reclassification adjustment for
gains on marketable securities
recognized included
in net loss, net of deferred tax
expense of $42,005
Exercise of stock options 72,500 7,250 173,250
--------------- -------------- ---------------- -------------------
Balance at March 31, 2005 6,927,732 $ 692,773 $ 26,908,545 $ 18,686,676
=============== ============== ================ ===================
Accumulated
other Total
comprehensive Treasury shareholders'
income stock equity
--------------- ---------------- -----------------
Balance at July 1, 2004 $ 37,120 $ (2,314,566) $ 46,705,768
Net loss (2,875,720)
Unrealized gain on marketable
securities, net of deferred tax
expense of $19,254 31,415 31,415
Reclassification adjustment for
gains on marketable securities
recognized included
in net loss, net of deferred tax
expense of $42,005 (68,535) (68,535)
Exercise of stock options 180,500
--------------- ---------------- -----------------
Balance at March 31, 2005 $ - $ (2,314,566) $ 43,973,428
=============== ================ =================
See accompanying notes to condensed consolidated financial statements.
FORM 10-Q March 31, 2005
Page 7
JACO ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31,
(UNAUDITED)
2005 2004
-------------- --------------
Cash flows from operating activities
Net loss $ (2,875,720) $ (732,087)
Loss (earnings) from discontinued operations 63,652 (413,408)
Gain on sale of subsidiary (830,575) -
-------------- --------------
Loss from continuing operations (3,642,643) (1,145,495)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation and amortization 864,914 952,008
Deferred compensation 37,500 37,500
Deferred income tax benefit (1,234,249) (254,000)
Gain on sale of marketable securities (110,540) -
Gain on sale of equipment - (2,100)
Provision for doubtful accounts 385,650 588,250
Changes in operating assets and liabilities
Increase in operating assets - net (11,099,412) (9,329,005)
Increase in operating liabilities - net 7,945,657 4,856,702
-------------- --------------
Net cash used in continuing operations (6,853,123) (4,296,140)
Net cash (used in) provided by discontinuing operations (447,716) 83,286
-------------- --------------
Net cash used in operating activities (7,300,839) (4,212,854)
-------------- --------------
Cash flows from investing activities
Purchase of marketable securities (8,470) (7,010)
Proceeds from sale of marketable securities 829,422 -
Capital expenditures (1,138,513) (260,781)
Proceeds from sale of equipment - 2,100
Proceeds from sale of assets of a subsidiary,
net of transaction costs 9,070,000 -
-------------- --------------
Net cash provided by (used in) continuing operations 8,752,439 (265,691)
Net cash used in discontinuing operations (57,855) (140,370)
-------------- --------------
Net cash provided by (used in) investing activities 8,694,584 (406,061)
-------------- --------------
Cash flows from financing activities
Borrowings under line of credit 189,303,669 203,949,159
Repayments under line of credit (191,222,987) (200,520,551)
Release of compensating balance - 800,000
Principal payments under equipment financing
and term loans (75,004) (196,487)
Proceeds from exercise of stock options 180,500 936,008
-------------- --------------
Net cash (used in) provided by continuing operations (1,813,822) 4,968,129
Net cash used in discontinuing operations (102,893) (325,581)
-------------- --------------
Net cash (used in) provided by financing activities (1,916,715) 4,642,548
-------------- --------------
NET (DECREASE) INCREASE IN CASH (522,970) 23,633
-------------- --------------
Cash at beginning of period 552,655 157,467
-------------- --------------
Cash at end of period $ 29,685 $ 181,100
============== ==============
Supplemental schedule of non-cash financing and
investing activities:
Note receivable, received in conjunction with the $ 2,750,000
sale of assets of a subsidiary
See accompanying notes to condensed consolidated financial statements.
FORM 10-Q March 31, 2005
Page 8
JACO ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1) The accompanying condensed consolidated financial statements reflect all
adjustments, consisting only of normal recurring accrual adjustments, which are,
in the opinion of management, necessary for a fair presentation of the
consolidated financial position and the results of operations of Jaco
Electronics, Inc. and its subsidiaries ("Jaco" or the "Company") at the end of
and for all the periods presented. Such financial statements do not include all
the information or footnotes necessary for a complete presentation. Therefore,
they should be read in conjunction with the Company's audited consolidated
financial statements for the fiscal year ended June 30, 2004 and the notes
thereto included in the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 2004. The results of operations for the interim periods are not
necessarily indicative of the results for the entire year.
2) At March 31, 2005, the Company had cash of approximately $30,000 and working
capital of approximately $10,604,000 as compared to cash of $553,000 and working
capital of $17,459,000 at June 30, 2004. As described in Note 4, the Company's
credit agreement requires its cash generated from operations to be applied
directly to the repayment of indebtedness under its credit facility. The
Company's working capital at June 30, 2004 included approximately $10,110,000
from discontinued operations. The Company incurred a loss of approximately
$2,876,000 during the nine months ended March 31, 2005. The Company utilized
approximately $7,301,000 of cash in operations during the nine months ended
March 31, 2005.
As discussed further in Note 4, the Company maintains a secured
revolving line of credit, which provides the Company with bank financing based
upon eligible accounts receivable and inventory, as defined. At March 31, 2005,
the Company was in violation of certain financial covenants contained in the
credit agreement. On May 10, 2005, the Company received a waiver of these
covenants from its lenders for the quarter ended March 31, 2005.
Management believes that cost containment, improved operating controls,
paring back of unprofitable product lines, and a focused sales and marketing
effort should improve results from operations and cash flows in the near term.
Achievement of these goals, however, will be dependent upon the Company's
ability to generate sufficient revenues, improve operating costs and trade
support levels consistent with management's plans, and remain in compliance with
its bank covenants. Such operating performance will be subject to financial,
economic and other factors beyond the Company's control, and there can be no
assurance that the Company will be able to achieve these goals. If these goals
are not achieved, it would have a material adverse effect upon the Company.
3) On September 20, 2004, the Company completed the sale of substantially all of
the assets of its contract manufacturing subsidiary, Nexus Custom Electronics,
Inc. ("Nexus"), to Sagamore Holdings, Inc. for consideration of up to
$13,000,000, subject to closing adjustments, and the assumption of certain
liabilities. The divestiture of Nexus allows the Company to focus its resources
on its core electronics distribution business. Under the terms of the purchase
agreement relating to this transaction, the Company received $9,250,000 of the
purchase consideration in cash on the closing date. Such cash consideration was
used to repay a portion of the outstanding borrowings under the Company's line
of credit (See Note 4). The balance of the fixed portion of the purchase
consideration was satisfied through the delivery of a $2,750,000 subordinated
note issued by the purchaser. This note has a maturity date of September 1, 2009
and bears interest at the lower of the prime rate or 7%. The note is payable by
the purchaser in quarterly cash installments ranging from $156,250 to $500,000
commencing September 2006 and continuing for each quarter thereafter until
maturity. Prepayment of the principal of and accrued interest on the note is
permitted. Additionally, the Company is entitled to receive additional
consideration in the form of a six-year earn-out based on 5% of the annual net
sales of Nexus after the closing date, up to $1,000,000 in the aggregate.
Pursuant to the purchase agreement, the purchaser has also entered into
a contract that designates the Company as a key supplier of electronic
components to Nexus for a period of five years following the
FORM 10-Q March 31, 2005
Page 9
closing date. The gain on the sale of net assets of Nexus, net of transaction
costs and applicable taxes was approximately $831,000.
As a result of the sale of Nexus, the Company is no longer engaged in
contract manufacturing. In accordance with the provisions of SFAS No, 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No.
144"), the Company has accounted for the results of operations of Nexus as
discontinued in the accompanying consolidated statements of operations. The
Company has also classified the assets sold and liabilities assumed of Nexus
(the disposal group) as part of assets and liabilities of discontinued
operations in the June 30, 2004 balance sheet. A summary of the assets and
liabilities included in the disposal group as of June 30, 2004 is as follows:
Accounts receivable, net $ 2,407,527
Inventories 7,923,578
Prepaid expenses and other 75,429
Property, plant and equipment, net 2,504,267
---------
Total assets 12,910,801
----------
Accounts payable 2,240,314
Accrued compensation 218,209
Accrued expenses 27,942
Long-term debt and capitalized lease obligations 314,199
-------
Total liabilities 2,800,664
---------
Net assets $10,110,137
===========
A summary of operating results of Nexus for the three and nine months ended
March 31, 2005 and 2004 were as follows:
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------------ ------------------------------
2005 2004 2005 2004
------------ -------------- ------------- ---------------
Net sales --- $5,766,516 $5,208,184 $15,937,315
Earnings (loss) before income taxes --- $ 243,094 $(103,452) $ 638,469
4) To provide additional liquidity and flexibility in funding its operations,
the Company borrows amounts under credit facilities and other external sources
of financing. On December 22, 2003, the Company entered into a Third Restated
and Amended Loan and Security Agreement with GMAC Commercial Finance LLC and PNC
Bank, National Association providing for a $50,000,000 revolving secured line of
credit. This credit facility has a maturity date of December 31, 2006.
Borrowings under the credit facility are based principally on eligible accounts
receivable and inventories of the Company, as defined in the credit agreement,
and are collateralized by substantially all of the assets of the Company.
FORM 10-Q March 31, 2005
Page 10
At March 31, 2005, the outstanding balance on this revolving line of
credit facility was $35.1 million, with an additional $4.1 million available.
The interest rate on the outstanding borrowings at March 31, 2005 was
approximately 6.6%. The credit agreement contains certain financial covenants,
including, among others, provisions for maintenance of specified levels of
EBITDA and Minimum Net Worth. The credit agreement also includes a subjective
acceleration clause and requires the deposit of customer receipts to be directed
to a blocked account and applied directly to the repayment of indebtedness
outstanding under the credit facility. Accordingly, this debt is classified as a
current liability.
At March 31, 2005, we were not in compliance with certain bank
covenants, including Minimum EDITDA and Minimum Net Worth. On May 10, 2005, the
Company received a waiver of these covenants from its lenders for the quarter
ended March 31, 2005. Failure to remain in compliance with our bank covenants
could trigger an acceleration of our obligation to repay all outstanding
borrowings under our credit facility and/or limit our ability to borrow
additional amounts under the line of credit.
On February 11, 2005, our credit facility was amended to retroactively
restate the existing covenants and to add additional covenants, including, among
other things, to (i) modify the Availability Formula, (ii) require us to
maintain Undrawn Availability of not less than $1,500,000 at all times, (iii)
define and reset existing covenants for Minimum EBITDA, Fixed Charge Coverage,
Capital Expenditures and Minimum Net Worth, (iv) add a new covenant regarding
minimum sales, (v) establish additional reporting requirements, (vi) modify
interest provisions, and (vii) permit certain of our domestic and foreign
receivables to qualify as Eligible Receivables for a period of time.
On November 23, 2004, our credit facility was amended to exclude,
effective as of October 1, 2004, any extraordinary gains, including any gains
derived from the sale of assets of Nexus, from the calculation of EBITDA and
Fixed Charge Coverage Ratio covenants.
On September 20, 2004, our credit facility was amended to provide the
lenders' consent to our sale of our contract manufacturing subsidiary, Nexus,
and to (i) change our EBITDA, Fixed Charge Coverage Ratio and Minimum Net Worth
covenants, (ii) eliminate the remaining portion of the additional $732,000 of
the additional available amount under the facility to zero, (iii) require the
cash proceeds from the sale of Nexus to be used to repay indebtedness
outstanding under the facility, and (iv) and add a requirement that we maintain
an aggregate undrawn availability of $1.5 million until certain financial
requirements are achieved, which would reduce the undrawn availability
requirement to $500,000.
5) On September 18, 2001, the Company's Board of Directors authorized the
repurchase of up to 250,000 shares of its outstanding common stock. Purchases
may be made from time to time in market or private transactions at prevailing
market prices. The Company made purchases of 41,600 shares of its common stock
from November 5, 2002 through February 21, 2003 for aggregate consideration of
$110,051. However, no such repurchases of common stock were made during the
three and nine months ended March 31, 2005.
FORM 10-Q March 31, 2005
Page 11
6) Total comprehensive (loss) income and its components for the three and nine
months ended March 31, 2005 and 2004 are as follows:
Three Months Ended Nine Months Ended
March 31, March 31,
--------------------------------- ----------------------------------
2005 2004 2005 2004
-------------- -------------- ------------- ---------------
Net (loss) earnings $(1,092,847) $128,721 $(2,875,720) $(732,087)
Unrealized (loss) gain on marketable
securities, net of deferred tax benefit
(expense) of $1,746, $(5,000), $(19,254), and
$(39,000), respectively (2,780) 6,954 31,415 62,837
Reclassification adjustment for gains on
marketable securities recognized included in
net loss, net of deferred tax expense of
$42,005 (68,535) --- (68,535) ---
-------------- -------------- ------------- ---------------
Comprehensive (loss) income $(1,164,162) $135,675 $(2,912,840) $(669,250)
============== ============== ============= ===============
Accumulated other comprehensive income is comprised of unrealized gains
and losses on marketable securities, net of the related tax effect. During the
quarter ended March 31, 2005, the Company sold all of its marketable securities
for an aggregate amount of $829,422. The Company recognized a gain of $68,535,
net of deferred tax expense of $42,005, in connection with this sale.
7) The Company accounts for stock-based compensation using the intrinsic value
method in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations ("APB
No. 25"), and has adopted the disclosure provisions of Statement of Financial
Accounting Standards No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure, an Amendment of FASB Statement No. 123" ("SFAS No.
148"). Under APB No. 25, compensation expense is only recognized when the market
value of the underlying stock at the date of grant exceeds the amount an
employee must pay to acquire the stock. Accordingly, no compensation expense has
been recognized in the Company's condensed consolidated financial statements in
connection with employee stock option grants.
During the three and nine months ended March 31, 2005, there were no
stock options granted to employees or directors of the Company.
The following table illustrates the effect on net loss and loss per
share for the three and nine months ended March 31, 2005 and 2004 had the
Company applied the fair value recognition provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation," to
stock-based employee compensation.
FORM 10-Q March 31, 2005
Page 12
Three Months Ended Nine Months Ended
March 31, March 31,
--------------------------------- ---------------------------------
2005 2004 2005 2004
-------------- -------------- -------------- ---------------
Net (loss) earnings, as reported $(1,092,847) $128,721 $(2,875,720) $(732,087)
Deduct: Total stock-based employee
compensation expense determined under the
fair value based method for all awards, net
of related tax effects (6,410) (60,823) (141,252) (151,357)
-------------- -------------- -------------- -------------
Pro forma net (loss) earnings $(1,099,257) $67,898 $(3,016,972) $(883,444)
============== ============== ============== ==============
Net (loss) earnings per common share:
Basic - as reported $(0.17) $0.02 $(0.46) $(0.12)
============== ============== ============== =============
Basic - pro forma $(0.18) $0.01 $(0.48) $(0.15)
============== ============== ============== =============
Diluted - as reported $(0.17) $0.02 $(0.46) $(0.12)
============== ============== ============== =============
Diluted - pro forma $(0.18) $0.01 $(0.48) $(0.15)
============== ============== ============== =============
8) The weighted average common shares outstanding, net of treasury shares, used
in the Company's basic and diluted loss per share computations on its condensed
consolidated statements of operations were 6,264,954 and 6,243,575 for the three
and nine months ended March 31, 2005, respectively, compared to 5,997,409 and
5,905,567 for the three and nine months ended March 31, 2004, respectively.
Excluded from the calculation of loss per share are outstanding options to
purchase 569,500 and 760,550 shares of the Company's common stock, representing
all outstanding options for the three and nine months ended March 31, 2005 and
2004, respectively, as their inclusion would have been antidilutive. Common
stock equivalents for stock options are calculated using the treasury stock
method.
9) The Company is a party to legal matters arising in the general conduct of
business. The ultimate outcome of such matters is not expected to have a
material adverse effect on the Company's business, results of operations or
financial position.
10) Certain reclassifications have been made to prior year amounts to conform to
the current year's presentation.
11) During the three and nine months ended March 31, 2005, the Company recorded
sales of $3,134 and $1,060,761, respectively, compared to $1,559,853 and
$4,238,886 for the three and nine months ended March 31, 2004, respectively,
from a customer, Frequency Electronics, Inc. ("Frequency"). The Company's
Chairman of the Board of Directors and President serves on the Board of
Directors of Frequency. Amounts included in accounts receivable from Frequency
at March 31, 2005 and June 30, 2004 aggregate $0 and $188,720, respectively.
FORM 10-Q March 31, 2005
Page 13
12) At March 31, 2005, the Company had approximately $8,285,000 of unearned
revenue recorded as a current liability in the accompanying condensed
consolidated financial statements. The Company purchased inventory to fulfill an
existing sales order with a certain customer under an arrangement whereby the
Company has collected the amount due related to this order, however, at the
customer's request, shipment has not been made and the inventory remains in the
Company's warehouse for future delivery, and is included on the Company's
balance sheet as of March 31, 2005. The Company will recognize revenue as the
product is shipped to the customer and title is transferred.
13) In November 2004, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 151, "Inventory Costs--an amendment of ARB No. 43" ("SFAS 151"), which
is the result of its efforts to converge U.S. accounting standards for
inventories with International Accounting Standards. SFAS No. 151 requires idle
facility expenses, freight, handling costs, and wasted material (spoilage) costs
to be recognized as current-period charges. It also requires that allocation of
fixed production overheads to the costs of conversion be based on the normal
capacity of the production facilities. SFAS No. 151 will be effective for
inventory costs incurred during fiscal years beginning after June 15, 2005. The
Company is currently evaluating the impact of this standard on its consolidated
financial statements.
14) In December 2004, the FASB issued SFAS No. 123 (Revised 2004) "Share-Based
Payment" (SFAS No. 123R"). SFAS No. 123R addresses all forms of share-based
payment ("SBP") awards, including shares issued under employee stock purchase
plans, stock options, restricted stock and stock appreciation rights. SFAS No.
123R will require the Company to expense SBP awards with compensation cost for
SBP transactions measured at fair value. The FASB originally stated a preference
for a lattice model because it believed that a lattice model more fully captures
the unique characteristics of employee stock options in the estimate of fair
value, as compared to the Black-Scholes model which the Company currently uses
for its footnote disclosure. The FASB decided to remove its explicit preference
for a lattice model and not require a single valuation methodology. SFAS No.
123R requires the Company to adopt the new accounting provisions beginning in
the first quarter of fiscal 2006. The Company has not yet determined the impact
of applying the various provisions of SFAS No. 123R will have on its
consolidated financial statements.
FORM 10-Q March 31, 2005
Page 14
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion contains various forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, or
the Securities Act, and Section 21E of the Securities Act of 1934, as amended,
or the Exchange Act, which represent our management's beliefs and assumptions
concerning future events. When used in this report and in other written or oral
statements made by us from time to time, forward-looking statements include,
without limitation, statements regarding our financial forecasts or projections,
our expectations, beliefs, intentions or future strategies that are signified by
the words "expects", "anticipates", "estimates", "intends", "plans" or similar
language. Although we believe that the expectations in these forward-looking
statements are reasonable, we cannot assure you that such expectations will
prove to be correct. These forward-looking statements are subject to numerous
assumptions, risks and uncertainties, which are subject to change and/or beyond
our control, that could cause our actual results and the timing of certain
events to differ materially from those expressed in the forward-looking
statements. Consequently, the inclusion of the forward-looking statements should
not be regarded as a representation by us of results that actually will be
achieved. For a discussion of certain potential factors that could cause our
actual results to differ materially from those contemplated by the
forward-looking statements, see "Forward-Looking Statements" in our Annual
Report on Form 10-K for the fiscal year ended June 30, 2004, as amended, and our
other periodic reports and documents filed with the Securities and Exchange
Commission.
GENERAL
Jaco is a distributor of electronic components and provider of related
value-added services. Products distributed by us include semiconductors,
capacitors, resistors, electromechanical devices, flat panel displays, and power
supplies used in the assembly and manufacturing of electronic equipment.
Value-added services currently provided by us consist of automated inventory
management services and kitting (e.g., supplying sets of specified quantities of
products to a customer that are prepackaged in kits for ease of feeding the
customer's production lines). We are also expanding our flat panel display
value-added capabilities, including the recently completed construction of our
new in-house integration center. This new in-house integration center will allow
us to provide optimized and efficient design solutions, optical enhancements,
and touchscreen integrations, as well as the manufacture of flat panel display
subassemblies and complete displays for commercial, industrial, and military
applications.
Our customers are primarily small and medium sized manufacturers. The
trend for these customers has been to shift certain manufacturing functions to
third parties (i.e., outsourcing). We intend to seek to capitalize on this trend
by increasing sales of outsourced electronic products enhanced by our customized
value-added services.
Critical Accounting Policies and Estimates
We have disclosed in Note A to our consolidated financial statements
and in Management's Discussion and Analysis of Financial Condition and Results
of Operations included in our Annual Report on Form 10-K for the fiscal year
ended June 30, 2004, as amended, those accounting policies that we consider to
be significant in determining our results of operations and financial position.
There have been no material changes to the critical accounting policies
previously identified and described in our 2004 Form 10-K. The accounting
principles we utilized in preparing our consolidated financial statements
conform in all material respects to generally accepted accounting principles in
the United States of America.
FORM 10-Q March 31, 2005
Page 15
The preparation of these consolidated financial statements requires our
management to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses, as well as the disclosure of
contingent assets and liabilities at the date of our financial statements. We
base our estimates on historical experience, actuarial valuations and various
other factors that we believe to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying value of
assets and liabilities that are not readily apparent from other sources. Some of
those judgments can be subjective and complex and, consequently, actual results
may differ from these estimates under different assumptions or conditions. While
for any given estimate or assumption made by our management there may be other
estimates or assumptions that are reasonable, we believe that, given the current
facts and circumstances, it is unlikely that applying any such other reasonable
estimate or assumption would materially impact the financial statements.
New Accounting Standards
In November 2004, the Financial Accounting Standards Board, or the
FASB, issued FASB Statement No. 151, "Inventory Costs--an amendment of ARB No.
43" ("SFAS 151"), which is the result of its efforts to converge U.S. accounting
standards for inventories with International Accounting Standards. SFAS No. 151
requires idle facility expenses, freight, handling costs, and wasted material
(spoilage) costs to be recognized as current-period charges. It also requires
that allocation of fixed production overheads to the costs of conversion be
based on the normal capacity of the production facilities. SFAS No. 151 will be
effective for inventory costs incurred during fiscal years beginning after June
15, 2005. The Company is currently evaluating the impact of this standard on its
consolidated financial statements.
In December 2004, the FASB issued SFAS No. 123 (Revised 2004)
"Share-Based Payment" (SFAS No. 123R"). SFAS No. 123R addresses all forms of
share-based payment ("SBP") awards, including shares issued under employee stock
purchase plans, stock options, restricted stock and stock appreciation rights.
SFAS No. 123R will require the Company to expense SBP awards with compensation
cost for SBP transactions measured at fair value. The FASB originally stated a
preference for a lattice model because it believed that a lattice model more
fully captures the unique characteristics of employee stock options in the
estimate of fair value, as compared to the Black-Scholes model, which the
Company currently uses for its footnote disclosure. The FASB decided to remove
its explicit preference for a lattice model and not require a single valuation
methodology. SFAS No. 123R requires the Company to adopt the new accounting
provisions beginning in the first quarter of fiscal 2006. The Company has not
yet determined the impact of applying the various provisions of SFAS No. 123R
will have on its consolidated financial statements.
FORM 10-Q March 31, 2005
Page 16
Results of Operations
The following table sets forth certain items in our statements of operations as
a percentage of net sales for the periods shown:
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------------ ---------------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 89.0 86.0 87.9 86.6
---------- ---------- ---------- ----------
Gross Profit 11.0 14.0 12.1 13.4
Selling, general and
administrative expenses 12.6 13.5 14.3 13.7
---------- ---------- ---------- ----------
Operating (loss) profit (1.6) 0.5 (2.2) (0.3)
Interest expense 1.0 0.5 0.8 0.6
---------- ---------- ---------- ----------
Loss from continuing operations
before income taxes (2.6) 0.0 (3.0) (0.9)
Income tax benefit (0.8) 0.0 (0.9) (0.3)
---------- ---------- ---------- ----------
Loss from continuing operations (1.8) 0.0 (2.1) (0.6)
Earnings (loss) from discontinued
Operations, net of taxes
0.2 (0.1) 0.2
Gain on sale of subsidiary, net of taxes 0.5
---------- ---------- ---------- ----------
NET (LOSS) EARNINGS (1.8)% 0.2% (1.7)% (0.4)%
============ ============ ============ ============
COMPARISON OF THE THREE AND NINE MONTHS ENDED MARCH 31, 2005 AND MARCH 31, 2004
Results from Continuing Operations:
Net sales for the three and nine months ended March 31, 2005
were $60.5 million and $172.7 million, respectively, compared to $63.1 million
and $192.0 million for the three and nine months ended March 31, 2004,
representing decreases of 4.1% and 10.0%, respectively. Compared to net sales of
$52 million for the three months ended December 31, 2004, our net sales for the
three months ended March 31, 2005 increased 16.5% sequentially. As previously
reported, earlier this fiscal year, demand for our products had decreased
compared to last year. Currently, demand for our products has improved, however,
the average selling price of many of the components that we sell are down over
20% compared to last year. Due to the ongoing shift of manufacturing to the Far
East, we continue to adapt our marketing strategy to support the business that
we see remaining in the United States.
FORM 10-Q March 31, 2005
Page 17
Accordingly, during the quarter ended March 31, 2005, we made changes to better
serve the available market, including, among other initiatives, expanding our
quote group to enable us to be more responsive to the mid-level contract
manufacturers that continue to be based in the United States, changing our
marketing efforts to focus on those core lines, including our flat panel
displays ("FPD") product, where we believe we can increase sales. During the
quarter ended March 31, 2005, we opened in our Hauppauge, New York facility, an
in-house integration center that enables us to expand our value-added
capabilities to our customers. We believe it is important for distributors of
electronic components to focus on value-added solutions that are required by our
customers. Our FPD product represented approximately 13.7% and 18.4% of our net
sales for the three and nine months ended March 31, 2005, respectively, compared
to 19.5% and 20.2% for the comparable periods last year. Our electromechanical
product, such as power supplies and printer heads, are also a key focus for us.
This product represented approximately 8.7% of our net sales for both the three
and nine months ended March 31, 2005, compared to 6.7% and 6.9% for the
comparable periods last year. Passive components, such as capacitors and
resistors, which are standard commodity items, have become very competitive due
to low manufacturing costs in the Far East. Passives represented approximately
16.7% and 17.5% of our net sales for the three and nine months ended March 31,
2005, respectively, compared to 19.9% and 18.6% for the comparable periods last
year. Semiconductors represented 60.9% and 55.4% of our net sales for the three
and nine months ended March 31, 2005, respectively, compared to 53.9% and 54.3%
for the comparable periods last year. Although we are presently focusing our
business on supporting customers in the United States, we currently have a sales
office in Beijing, China and are utilizing a third-party warehouse in the Far
East to support certain contract manufacturing customers that we have been able
to maintain as this business transitions from the United States to the Far East.
Our business with the major contract manufacturers in the Far East has
increased. For the nine months ended March 31, 2005, our export sales, including
those to Europe, represented 31.0% of our net sales compared to 23.7% for the
comparable period last year.
Gross profit was $6.7 million, or 11.0% of net sales, and $20.8
million, or 12.1% of net sales, for the three and nine months ended March 31,
2005, respectively, compared to $8.8 million, or 14.0% of net sales, and $25.8
million, or 13.4% of net sales, for the comparable periods last year. Management
considers gross profit to be a key performance indicator in managing our
business. Gross profit margins are usually a factor of product mix and demand
for product. During the quarter ended March 31, 2005, we have been able to
support our business with certain large contract manufacturers in the Far East
with inventory management and warehousing capability, which constitutes
lower-end value added services. As a result, this business tends to be at much
lower margins than the rest of our business. If this mix of our sales continues,
we do not anticipate any material change in our margin for the foreseeable
future.
Selling, general and administrative ("SG&A") expenses were $7.6 million
and $24.6 million for the three and nine months ended March 31, 2005,
respectively, representing reductions of 10.3% and 6.5%, respectively, when
compared to $8.5 million and $26.3 million for the comparable periods last year.
SG&A as a percentage of net sales was 12.6% and 14.3% for the three and nine
months ended March 31, 2005, respectively, as compared to 13.5% and 13.7% for
the comparable periods last year. Management considers SG&A as a percentage of
net sales to be a key performance indicator in managing our business. We
continue to reduce our costs by aligning our SG&A with our refocused marketing
strategy. This is allowing us to reduce SG&A while maintaining the
infrastructure to support our customers. Sequentially, we reduced SG&A by $0.7
million, or 8%, in the three months ended March 31, 2005 compared to the three
months ended December 31, 2004. This reflects our commitment to reducing costs.
We have been able to reduce personnel, eliminate non-essential fixed costs by,
among other measures, achieving rent reductions, and, due to the decrease in
gross profit dollars, our sales commissions have decreased.
Interest expense was $0.6 million and $1.4 million for the three and
nine months ended March 31, 2005, respectively, compared to $0.3 million and
$1.2 million for the comparable periods last year. Due to an increase in
inventory, primarily to support an individual customer order, our borrowings
increased during the quarter ended March 31, 2005 compared to the same period
last year. This increase in borrowing combined with higher lending rates
resulted in the increase in interest expense. Because we support our operations
through bank borrowings, any significant increase in our borrowing rates could
significantly increase our interest expense, which would have a negative impact
on our results of operations.
FORM 10-Q March 31, 2005
Page 18
Net loss from continuing operations for the three and nine months ended
March 31, 2005 was $1.1 million, or $0.17 per diluted share, and $3.6 million,
or $0.58 per diluted share, respectively, compared to $28,000, or $0.01 per
diluted share, and $1.1 million, or $0.19 per diluted share, for the comparable
periods last year. The increase in our net loss from continuing operations
compared to last year is primarily attributable to the reduction in our net
sales and decrease in gross profit margin. This was partially offset by our
decrease in SG&A expenses. Our net loss from continuing operations of $1.1
million for the three months ended March 31, 2005 represents a $0.4 million, or
29%, sequential improvement compared to our $1.5 million net loss from
continuing operations for the three months ended December 31, 2004.
Discontinued Operations:
On September 20, 2004, the Company completed the sale of substantially
all of the assets of its contract manufacturing subsidiary, Nexus Custom
Electronics, Inc. ("Nexus"), to Sagamore Holdings, Inc. for consideration of up
to $13,000,000, subject to closing adjustments, and the assumption of certain
liabilities. The divestiture of Nexus allows the Company to focus its resources
on its core electronics distribution business. Under the terms of the purchase
agreement relating to this transaction, the Company received $9,250,000 of the
purchase consideration in cash on the closing date. Such cash consideration was
used to repay a portion of the outstanding borrowings under the Company's line
of credit (See Note 4). The balance of the fixed portion of the purchase
consideration was satisfied through the delivery of a $2,750,000 subordinated
note issued by the purchaser. This note has a maturity date of September 1, 2009
and bears interest at the lower of the prime rate or 7%. The note is payable by
the purchaser in quarterly cash installments ranging from $156,250 to $500,000
commencing September 2006 and continuing for each quarter thereafter until
maturity. Prepayment of the principal of and accrued interest on the note is
permitted. Additionally, the Company is entitled to receive additional
consideration in the form of a six-year earn-out based on 5% of the annual net
sales of Nexus after the closing date, up to $1,000,000 in the aggregate.
Net earnings from these discontinued operations for the nine months
ended March 31, 2005 was $0.8 million, or $0.12 per diluted share, compared to
$0.2 million, or $0.03 per diluted share, and $0.4 million, or $0.07 per diluted
share, for the three and nine months ended March 31, 2004, respectively. The
increase in our net earnings from discontinued operations compared to last year
was primarily attributable to the gain on the sale of Nexus.
Combined Net Loss:
The combined net loss from both the continuing and discontinued
operations for the three and nine months ended March 31, 2005 was $1.1 million,
or $0.17 per diluted share, and $2.9 million, or $0.46 per diluted share,
respectively, as compared to combined net earnings of $0.1 million, or $0.02 per
diluted share, for the three months ended March 31, 2004, and a combined net
loss of $0.7 million, or $0.12 per diluted share, for the nine months ended
March 31, 2004. The increase in our combined net loss compared to last year is
primarily attributable to the reduction in our net sales and gross profit
margins as described above.
LIQUIDITY AND CAPITAL RESOURCES
To provide additional liquidity and flexibility in funding its
operations, the Company borrows amounts under credit facilities and other
external sources of financing. On December 22, 2003, the Company entered into a
Third Restated and Amended Loan and Security Agreement with GMAC Commercial
Finance LLC and PNC Bank, National Association providing for a $50,000,000
revolving secured line of credit. This credit facility has a maturity date of
December 31, 2006. Borrowings under the credit facility are based principally on
eligible accounts receivable and inventories of the Company, as defined in the
credit agreement, and are collateralized by substantially all of the assets of
the Company. At March 31, 2005, the outstanding balance on this revolving line
of credit facility was $35.1 million, with an additional $4.1 million available.
The interest rate on the outstanding borrowings at March 31, 2005 was
FORM 10-Q March 31, 2005
Page 19
approximately 6.6%. The credit agreement contains certain financial covenants,
including, among others, provisions for maintenance of specified levels of
EBITDA and Minimum Net Worth. The credit agreement also includes a subjective
acceleration clause and requires the deposit of customer receipts to be directed
to a blocked account and applied directly to the repayment of indebtedness
outstanding under the revolving credit facility. Accordingly, this debt is
classified as a current liability.
At March 31, 2005, the Company had cash of approximately $30,000 and
working capital of approximately $10,604,000 as compared to cash of $553,000 and
working capital of $17,459,000 at June 30, 2004. As described in Note 4, the
Company's credit agreement requires its cash generated from operations to be
applied directly to the repayment of indebtedness under its credit facility. The
Company's working capital at June 30, 2004 included approximately $10,110,000
from discontinued operations. The Company incurred a loss of approximately
$2,876,000 during the nine months ended March 31, 2005. The Company utilized
approximately $7,301,000 of cash in operations during the nine months ended
March 31, 2005.
At March 31, 2005, we were not in compliance with certain bank
covenants, including Minimum EDITDA and Minimum Net Worth. On May 10, 2005, the
Company received a waiver of these covenants from its lenders for the quarter
ended March 31, 2005. Failure to remain in compliance with our bank covenants
could trigger an acceleration of our obligation to repay all outstanding
borrowings under our credit facility and/or limit our ability to borrow
additional amounts under the line of credit.
On February 11, 2005, our credit facility was amended to retroactively
restate the existing covenants and to add additional covenants, including, among
other things, to (i) modify the Availability Formula, (ii) require us to
maintain Undrawn Availability of not less than $1,500,000 at all times, (iii)
define and reset existing covenants for Minimum EBITDA, Fixed Charge Coverage,
Capital Expenditures and Minimum Net Worth, (iv) add a new covenant regarding
minimum sales, (v) establish additional reporting requirements, (vi) modify
interest provisions, and (vii) permit certain of our domestic and foreign
receivables to qualify as Eligible Receivables for a period of time.
On November 23, 2004, our credit facility was amended to exclude,
effective as of October 1, 2004, any extraordinary gains, including any gains
derived from the sale of assets of Nexus, from the calculation of EBITDA and
Fixed Charge Ratio covenants.
On September 20, 2004, our credit facility was amended to provide the
lenders' consent to our sale of our contract manufacturing subsidiary, Nexus,
and to (1) change our EBITDA, Fixed Charge Ratio and Minimum Net Worth
covenants, (2) eliminate the remaining portion of the additional $732,000 of the
additional available amount under the facility to zero, (3) require the cash
proceeds from the sale of Nexus to be used to repay indebtedness outstanding
under the facility, and (4) and add a requirement that we maintain an aggregate
undrawn availability of $1.5 million until certain financial requirements are
achieved, which would reduce the undrawn availability requirement to $500,000.
For the nine months ended March 31, 2005, our net cash used in
operating activities was approximately $7.3 million, as compared to $4.2 million
for the nine months ended March 31, 2004. The increase in net cash used is
primarily attributable to an increase in our loss from continuing operations and
a larger increase in our inventory for the nine months ended March 31, 2005 as
compared to the nine months ended March 31, 2004. This increase in net cash used
was partially offset by an $8.3 million cash payment from a certain customer
during the quarter ended March 31, 2005 as part of an arrangement where the
related inventory has not yet been shipped. Net cash provided by investing
activities was approximately $8.7 million for the nine months ended March 31,
2005 as compared to net cash used in investing activities of $0.4 million for
the nine months ended March 31, 2004. The increase in net cash provided by is
primarily attributable to $9.1 million in proceeds we received from our sale of
substantially all of the assets of Nexus in September 2004. Net cash used in
financing activities was approximately $1.9 million for the nine months ended
March 31, 2005 as compared to net cash provided by financing activities of $4.6
million for the nine months ended March 31, 2004. The increase in net cash used
is primarily attributable to the decrease in net borrowings under our credit
facility of approximately $5.3 million.
For the nine months ended March 31, 2005 and 2004, our inventory
turnover was 5.0 times and 6.0 times, respectively. The average days outstanding
of our accounts receivable at March 31, 2005 was 58 days, as compared to 50 days
at March 31, 2004. Inventory turnover and average days outstanding are key
ratios that management relies on to monitor our business.
FORM 10-Q March 31, 2005
Page 20
In March 2005, we completed certain leasehold improvements to construct
an FPD facility that now allows us to vertically integrate our entire FPD
operation. The completed facility offers customers a one-stop source for their
FPD supply and integration needs. The cost of this project was approximately
$570,000.
Based upon our present plans, including no anticipated material
capital expenditures, we believe that cash flow from operations and funds
available under our credit facility will be sufficient to fund our capital needs
for the next twelve months. However, our ability to maintain sufficient
liquidity depends partially on our ability to achieve anticipated levels of
revenue while continuing to control costs. Our cash expenditures may vary
significantly from current levels based on a number of factors, including, but
not limited to, future acquisitions and capital expenditures, if any.
Historically, we have, when necessary, been able to obtain amendments to our
credit facilities to satisfy instances of non-compliance with financial
covenants. While we cannot assure that any such future amendments, if needed,
will be available, management believes we will be able to continue to obtain
financing on acceptable terms under our existing credit facility or through
other external sources. Failure to maintain financing arrangements on acceptable
terms would have a material adverse effect on our business, results of
operations and financial condition.
Contractual Obligations
This table summarizes our known contractual obligations and commercial
commitments at March 31, 2005.
Total < 1 Year 1 to 3 Years 3 to 5 Years > 5 Years
--------------- --------------- --------------- ---------------- --------------
Bank Debt 35,080,375 35,080,375
Capital Lease 152,538 73,218 79,320
Operating Lease 8,699,722 1,603,534 2,196,955 1,634,658 3,264,575
--------------- --------------- --------------- ---------------- --------------
Total 43,932,635 36,757,127 2,276,275 1,634,658 3,264,575
=============== =============== =============== ================ ==============
Inflation
Inflation has not had a significant impact on our operations during the
last three fiscal years.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
We are exposed to interest rate changes with respect to borrowings
under our credit facility, which bears interest at the higher of the prime rate
plus 0.75% or the federal funds rate plus 1.25%. At April 30, 2005, $32.9
million was outstanding under the credit facility. Changes in the prime interest
rate or the federal funds rate during the current fiscal year will have a
positive or negative effect on our interest expense. Each 1.0% fluctuation in
the prime interest rate or the federal funds rate will increase or decrease our
interest expense under the credit facility by approximately $0.3 million based
on the amount of outstanding borrowings at April 30, 2005. The impact of
interest rate fluctuations on our other floating rate debt is not material.
FORM 10-Q March 31, 2005
Page 21
Item 4. Controls and Procedures.
An evaluation was performed, under the supervision and with the
participation of the Company's management, including the Company's Principal
Executive Officer and Principal Financial Officer, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934) as of March 31, 2005. Based upon that evaluation, the Company's
management, including its Principal Executive Officer and Principal Financial
Officer, has concluded that the Company's disclosure controls and procedures are
effective to ensure that information required to be disclosed in the reports
that the Company files or submits under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission's rules and forms. There have been no
changes in the Company's internal control over financial reporting or in other
factors identified in connection with this evaluation that occurred during the
three months ended March 31, 2005 that have materially affected, or are
reasonably likely to materially affect, the Company's internal control over
financial reporting.
FORM 10-Q March 31, 2005
Page 22
PART II - OTHER INFORMATION
Item 6. Exhibits
a) Exhibit 10.23.4 - Amendment to Third Restated and
Amended Loan and Security Agreement dated May 10,
2005, by and among GMAC Commercial Finance LLC, as
Lender and as Agent, PNC Bank, National
Association, as Lender and Co-Agent, Jaco
Electronics, Inc., Nexus Custom Electronics, Inc.
and Interface Electronics Corp.
Exhibit 31.1 - Rule 13a-14 (a) / 15d-14 (a)
Certification of Principal Executive Officer.
Exhibit 31.2 - Rule 13a-14 (a) / 15d-14 (a)
Certification of Principal Financial Officer.
Exhibit 32.1 - Section 1350 Certification of Principal Executive Officer.
Exhibit 32.2 - Section 1350 Certification of Principal Financial Officer.
S I G N A T U R E
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
May 16, 2005
JACO ELECTRONICS, INC.
(Registrant)
BY: /s/ Jeffrey D. Gash
-----------------------------------------
Jeffrey D. Gash, Executive Vice President,
Finance and Secretary
(Principal Financial Officer)