FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended June 30, 1998
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 1-12727
SENTRY TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter )
DELAWARE 96-11-3349733
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
350 WIRELESS BOULEVARD, HAUPPAUGE, NEW YORK 11788
(Address of principal executive offices) (Zip Code)
516-232-2100
(Registrant's telephone number, including area code)
_____________________________________________________________________
(Former name, former address and former fiscal year, if changed since last
report)
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 ____
Number of shares outstanding of issuer's common stock as of August 7, 1998 was
9,750,760.
<PAGE>
SENTRY TECHNOLOGY CORPORATION
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets --
June 30, 1998 and December 31, 1997 3
Condensed Consolidated Statements of Operations --
Three Months Ended June 30, 1998 and 1997
and Six Months Ended June 30, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows --
Six Months Ended June 30, 1998 and 1997 5
Notes to Condensed Consolidated Financial
Statements -- June 30, 1998 6 - 7
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition 8 - 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 9
<PAGE>
<TABLE>
<CAPTION>
SENTRY TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, December 31,
1998 1997
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 1,451 $ 2,146
Accounts receivable, less allowance for doubtful
accounts of $725 and $752, respectively 7,184 6,323
Net investment in sales-type leases -
current portion 561 613
Inventories 8,185 8,297
Prepaid expenses and other current assets 504 387
------------ ------------
Total current assets 17,885 17,766
NET INVESTMENT IN SALES-TYPE LEASES -
non-current portion 601 848
SECURITY DEVICES ON LEASE, net 144 151
PROPERTY, PLANT AND EQUIPMENT, net 6,548 6,948
GOODWILL AND OTHER INTANGIBLES, net 9,010 9,796
OTHER ASSETS 344 428
--------- --------
$ 34,532 $ 35,937
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings $ 1,901 $ ---
Accounts payable 1,072 1,982
Accrued liabilities 2,734 2,730
Obligations under capital leases -
current portion 178 218
Deferred income 447 421
--------- ---------
Total current liabilities 6,332 5,351
OBLIGATIONS UNDER CAPITAL LEASES -
non-current portion 3,180 3,095
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY 412 445
---------- ---------
Total liabilities 9,924 8,891
REDEEMABLE CUMULATIVE PREFERRED STOCK 25,877 25,254
COMMON SHAREHOLDERS' EQUITY
Common stock 10 10
Additional paid-in capital 16,162 16,785
Accumulated deficit (17,441) (15,003)
--------- ---------
(1,269) 1,792
--------- ---------
$ 34,532 $ 35,937
========= =========
See notes to the condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SENTRY TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Three Months Ended Six Months Ended
JUNE 30, JUNE 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
REVENUES $ 7,199 $ 5,622 $ 12,397 $ 10,725
COSTS AND EXPENSES:
Cost of sales 3,155 3,140 5,990 5,639
Customer service expenses 1,649 1,112 3,036 1,949
Selling, general and
administrative expenses 2,443 2,201 4,911 4,636
Research and development 330 419 666 849
Interest (income) expense, net 113 77 211 23
Purchased in-process
research and development --- --- --- 13,200
--------- --------- --------- ---------
7,690 6,949 14,814 26,296
--------- --------- --------- ---------
OPERATING LOSS (491) (1,327) (2,417) (15,571)
INCOME TAXES --- 36 21 72
--------- --------- --------- ---------
NET LOSS (491) (1,363) (2,438) (15,643)
PREFERRED STOCK DIVIDENDS 317 457 623 457
--------- --------- --------- ---------
NET LOSS ATTRIBUTED
TO COMMON SHAREHOLDERS $ (808) $ (1,820) $ (3,061) $ (16,100)
============== ========= ========= =========
NET LOSS PER SHARE
Basic $ (.08) $ (.19) $ (.31) $ (1.89)
============== ========= ========= =========
Diluted $ (.08) $ (.19) $ (.31) $ (1.89)
============== ========= ========= =========
WEIGHTED AVERAGE
COMMON SHARES
Basic 9,751 9,672 9,751 8,501
========= ========= ========= =========
Diluted 9,751 9,672 9,751 8,501
========= ========= ========= =========
See notes to the condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SENTRY TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Six Months Ended
JUNE 30,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (2,438) $(15,643)
Adjustments to reconcile net loss
to net cash used in operating activities:
Write-off of purchased in-process research
and development --- 13,200
Depreciation and amortization of security
devices and property, plant and equipment 590 631
Amortization of goodwill and intangibles 793 674
Provision for bad debts 7 43
Changes in operating assets and liabilities,
net of effects of business acquired:
Accounts receivable (868) 1,357
Net investment in sales-type leases 299 903
Inventories 112 (452)
Accounts payable (910) (1,391)
Accrued liabilities 4 (2,391)
Other, net (40) 218
--------- ---------
Net cash used in operating activities (2,451) (2,851)
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment, net (16) (122)
Security devices on lease (29) 26
Intangibles (7) ---
--------- ---------
Net cash used in investing activities (52) (96)
--- ---
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in short-term borrowings, net 1,901 ---
Repayment of acquired debt --- (2,166)
Repayment of obligations under capital leases (93) (253)
Exercise of stock options and warrants --- 138
--------- ---------
Net cash provided by (used in) financing activities 1,808 (2,281)
----- ------
DECREASE IN CASH (695) (5,228)
CASH, at beginning of period 2,146 7,658
--------- ---------
CASH, at end of period $ 1,451 $ 2,430
========= =========
See notes to the condensed consolidated financial statements.
</TABLE>
<PAGE>
SENTRY TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE A -- BASIS OF PRESENTATION - KNOGO NORTH AMERICA INC. AND VIDEO SENTRY
CORPORATION MERGER Sentry Technology Corporation ("Sentry"), a Delaware
Corporation, was established to effect the merger of Knogo North America Inc.
("Knogo N.A.") and Video Sentry Corporation ("Video Sentry") which was
consummated on February 12, 1997 (the "Effective Date"). The merger resulted in
Knogo N.A. and Video Sentry becoming wholly owned subsidiaries of Sentry. The
merger has been accounted for as a reverse acquisition of Video Sentry by Knogo
N.A. Accordingly the financial statements of Knogo N.A. are the historical
financial statements of Sentry and the results of Sentry's operations include
the results of operations of Video Sentry after the Effective Date. The term
"Company" refers to Sentry as of and subsequent to February 12, 1997 and to
Knogo N.A. prior to such date.
The consolidated financial statements are unaudited. In the opinion of
management, all adjustments, consisting of normal recurring adjustments
necessary for a fair presentation of the financial information for the periods
indicated have been included. Interim results are not necessarily indicative of
results for a full year.
NOTE B -- NET INVESTMENT IN SALES-TYPE LEASES The Company is the lessor of
security devices under agreements expiring in various years through 2002. The
net investment in sales-type leases consists of:
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1997
------------- -----------------
(in thousands)
<S> <C> <C>
Minimum lease payments receivable $ 1,337 $ 1,713
Allowance for uncollectible minimum lease payments (67) (86)
Unearned income (135) (195)
Unguaranteed residual value 27 29
--------- ---------
Net investment 1,162 1,461
Less current portion 561 613
--------- ---------
Non-current portion $ 601 $ 848
========= =========
NOTE C -- INVENTORIES Inventories consist of the following:
JUNE 30, 1998 DECEMBER 31, 1997
------------- -----------------
(in thousands)
Raw materials $ 3,483 $ 2,662
Work-in-process 2,675 3,765
Finished goods 2,027 1,870
--------- ---------
$ 8,185 $ 8,297
========= =========
</TABLE>
Reserves for excess and obsolete inventory totaled $1,351,000 and $1,246,000 as
of June 30, 1998 and December 31, 1997, respectively and have been included as a
component of the above amounts.
<PAGE>
SENTRY TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE D -- SUPPLY AGREEMENT
Knogo N.A. had a supply agreement under which Sensormatic Electronics
Corporation ("Sensormatic") was obligated to purchase $2 million of products
from Knogo N.A. per quarter through June 30, 1997. Such products were priced to
yield Knogo N.A. a 35% gross margin. Although the supply agreement officially
expired and minimum purchase obligations ended, Sensormatic continued to
purchase certain products at similar margins. Sales to Sensormatic were $531,000
and $529,000 in the quarters ended June 30, 1998 and 1997 and $1,298,000 and
$1,303,000 in the six month periods ended June 30, 1998 and 1997, respectively.
In the first quarter and first six months of 1997, Sensormatic did not meet its
minimum order amounts in accordance with the terms of the supply agreement and,
accordingly, the Company recorded in revenues amounts of $674,000 and $1,176,000
representing the cumulative profits on the shortfall payable to the Company
pursuant to the agreement. Included in accounts receivable as of June 30, 1998
and December 31, 1997 are amounts due from Sensormatic of $312,000 and $492,000,
respectively.
<PAGE>
SENTRY TECHNOLOGY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS:
Consolidated revenues were 28% and 16% higher in the second quarter and six
month period ended June 30, 1998 than in the quarter and six month period ended
June 30, 1997. Revenues from third party customers, other than Sensormatic, in
the current periods were $6,668,000 and $11,099,000 or 93% and 90% of total
revenues as compared to $4,419,000 and $8,246,000 or 79% and 77% of total
revenues in the prior year periods. The backlog of unfilled orders expected to
be delivered within the next twelve months was $8.5 million at June 30, 1998 as
compared to $3.5 million at June 30, 1997.
The increase in revenues in both the quarter and six months ended June 30, 1998
is attributable to higher sales in the CCTV product lines, including
SentryVision(R) traveling CCTV surveillance system, which grew at rates of 150%
and 165% over the sales in the prior year periods, respectively. A
SentryVision(R) sale to a multi-level parking garage accounted for $1,170,000 in
June 1998. Electronic Article Surveillance (EAS) system sales remained
relatively unchanged from the second quarter, but were 17% lower in the first
six months of 1998 over the comparable period in the prior year. Sales of 3M
library systems were 42% and 33% lower in the second quarter and first six
months of 1998 as compared to the prior year periods.
Although the supply agreement expired and minimum purchase obligations ended,
Sensormatic continued to purchase certain products at similar margins (See Note
D). Sales to Sensormatic in the quarter and six month period ended June 30, 1998
were $531,000 and $1,298,000 as compared to $529,000 and $1,303,000 in the prior
year periods. Revenues in the second quarter and first half of 1997 also
included $674,000 and $1,176,000, respectively, representing the cumulative
profits on the shortfall of minimum orders payable to the Company in accordance
with the supply agreement.
Service and other revenues increased by $209,000 and $183,000 second quarter and
first six months of 1998 over the same periods in the prior year primarily as a
result of increased SentryVision(R) maintenance contracts.
Cost of sales were 44% and 48% of total revenue in the three and six months
ended June 30, 1998 compared to 56% and 53% in the same periods in the previous
year. The reduction in percentages in the current periods is primarily
attributable to better product sourcing and engineering improvements in the CCTV
and SentryVision(R) product lines and higher fixed cost absorption due to higher
production levels in the Company's manufacturing facility.
Customer service expenses were higher in both the second quarter and first six
months of 1998 as compared to both the second quarter and first six months of
1997 due to a higher number of customer service representatives required to
install and maintain the increasing CCTV and SentryVision(R) customer base.
Selling, general and administrative expenses decreased to 34% and 40% of
revenues in the second quarter and first six months of 1998 as compared to 39%
and 43% in the same periods in 1997. The increase in the amounts in the current
periods related to higher warranty costs and amortization of patents and
goodwill and were partially offset by lower sales promotional expenses.
The 21% decrease in research and development costs in the second quarter and 22%
decrease in the first six months ended June 30, 1998 compared to the same
periods ended June 30, 1997 is a result of a reduction in staff levels and
prototype costs associated with the completion of certain EAS related projects.
At the consummation of the merger in the first quarter of 1997, Sentry recorded
for that period a non-recurring charge of $13,200,000 relating to purchased
in-process research and development. The amount was based on the purchase price
allocation and a valuation of existing technology and technology in-process. The
charge for in-process research and development equaled its estimated current
fair value based on risk adjusted cash flows of specifically identified
technologies for which the technological feasibility has not been established
and alternative future uses do not exist.
<PAGE>
SENTRY TECHNOLOGY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Net interest expenses for the second quarter and first six months of 1998
increased by $36,000 and $188,000, respectively, over the same periods of 1997.
This increase is due to borrowings under the Company's revolving credit
agreement which became effective during the first quarter of 1998.
Sentry has not provided for income taxes in the second quarter of 1998 due to
the net loss. Income taxes in the first quarter of 1998 and both periods
presented in 1997 represent provisions on the cumulative earnings of the Puerto
Rico manufacturing operations which cannot be offset by operating losses of
other subsidiaries.
As a result of the foregoing, Sentry had a net loss of $491,000 and $2,438,000
in the quarter and six months ended June 30, 1998 as compared to a net loss of
$1,363,000 and 15,643,000 in the quarter and six months ended June 30, 1997.
Preferred stock dividends of $317,000 and $623,000 have been accrued in the
second quarter and first six months of 1998 as compared to $457,000 in the
second quarter and first six months of 1997. These amounts will be paid-in-kind
as of February 12, 1999.
FINANCIAL CONDITION AS OF JUNE 30, 1998
During the quarter the Company funded its operations and capital expenditures
through borrowings under its revolving credit facility and use of existing cash.
The Company believes the liquidity provided by future operations, existing cash
and financing arrangements will be sufficient to meet the Company's capital
requirements for the next twelve months.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) List of Exhibits:
10.12 First Amendment and Waiver to the Loan and
Security Agreement Between the Company and General
Electric Capital Corporation Dated June 30, 1998
27. Financial Data Schedule (For SEC use only)
(b) Reports on Form 8-K - There were no reports on Form 8-K filed
for the three months ended June 30, 1998.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant had duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SENTRY TECHNOLOGY CORPORATION
Date: AUGUST 7, 1998 By: /S/ PETER J. MUNDY
Peter J. Mundy, Vice President -
Finance and Chief Financial Officer
(Principal Financial and
Accounting Officer)
FIRST AMENDMENT AND WAIVER TO THE LOAN AND SECURITY AGREEMENT
First Amendment and Waiver dated as of June 30, 1998 (this "Amendment") to the
Loan and Security Agreement, dated as of December 31, 1997 (the "LOAN
AGREEMENT"), between GENERAL ELECTRIC CAPITAL CORPORATION, a New York
corporation ("LENDER") and KNOGO NORTH AMERICA INC., a Delaware corporation
("BORROWER"), and the other Credit Parties executing this Agreement.
WITNESSETH :
WHEREAS, Borrower has requested waiver of the March 31, 1998, "EBITDA" financial
covenant default and the April 30, 1998, "Minimum Net Worth" financial covenant
default;
WHEREAS, Borrower has requested reset of certain financial covenants for Fiscal
Year 1998 only and certain Borrowing Base modifications;
WHEREAS, Lender is willing to waive such financial covenant defaults, reset such
financial covenants and modify such Borrowing Base items but only on the terms
and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises, the covenants and agreements
contained herein, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties do hereby agree that all
capitalized terms used herein shall have the meanings ascribed thereto in the
Loan Agreement and do hereby further agree as follows:
STATEMENT OF TERMS
AMENDMENTS RELATING TO FINANCIAL COVENANTS. Schedule G of the Loan Agreement is
hereby amended by deleting paragraphs one and two thereof and replacing
them with the following new paragraphs one and two:
MINIMUM EBITDA. SENTRY AND ITS SUBSIDIARIES ON A
CONSOLIDATED BASIS SHALL MAINTAIN AT THE END OF EACH
PERIOD SET FORTH BELOW, AN EBITDA OF NOT LESS THAN THE
AMOUNT SET FORTH OPPOSITE SUCH PERIOD BELOW:
Fiscal Period Minimum EBITDA
- --------------------------------------------------------------------------------
January 1, 1998 - June 30, 1998 $(1,500,000)
- --------------------------------------------------------------------------------
January 1, 1998 - September 30, 1998 $49,000
- --------------------------------------------------------------------------------
January 1, 1998 - December 31, 1998 $806,000
- --------------------------------------------------------------------------------
April 1, 1998 - March 31, 1999 $3,700,000
- --------------------------------------------------------------------------------
July 1, 1998 - June 30, 1999 $4,100,000
- --------------------------------------------------------------------------------
October 1, 1998 - September 30, 1999 $4,200,000
- --------------------------------------------------------------------------------
January 1, 1999 - December 31, 1999 $4,000,000
- --------------------------------------------------------------------------------
MINIMUM NET WORTH. Sentry and its Subsidiaries on a
consolidated basis shall maintain at all times
during each period set forth below Net Worth of not
less than the amount set opposite period:
FISCAL PERIOD Minimum Net Worth
- --------------------------------------------------------------------------------
May 31, 1998 to December 30, 1998 $22,000,000
- --------------------------------------------------------------------------------
December 31, 1998 to January 30, 1999 $23,500,000
- --------------------------------------------------------------------------------
January 31, 1999 to the termination date $25,000,000"
- --------------------------------------------------------------------------------
AMENDMENTS RELATING TO BORROWING BASE. a) The definition of "Borrowing Base" on
Schedule A of the Loan Agreement is hereby amended by: (i) deleting the
references to "five percent (5%) everywhere they appear in clause A thereof
and replacing them with references to "ten percent (10%)"; and (ii)
deleting clauses B and C thereof relating to Eligible Inventory and
replacing in lieu of such clauses the following new clause B:
THE LESSER OF (I) $500,000 OR (II) THE SUM OF 25% (OR SUCH
LESSER PERCENTAGE AS MAY BE SPECIFIED BY LENDER FROM
TIME TO TIME BY WRITTEN NOTICE TO BORROWER OF THE VALUE
OF THE ELIGIBLE INVENTORY OF VIDEO CONSISTING OF RAW
MATERIALS AND FINISHED GOODS, IN EACH CASE AS
DETERMINED BY LENDER ON A FIRST IN-FIRST OUT BASIS (AT
THE LOWER OF COST OR MARKET)."
b) The definition of "Eligible Accounts" appearing on Schedule A of the Loan
Agreement is hereby amended by inserting in clause (m) thereof after the words
"90 days," the following parenthetical: "( or 120 days in the case of Accounts
owing from Lowes Company and Goody's Family Clothing)".
AMENDMENT RELATING TO INTEREST RATE. Section 1.5 of the Loan Agreement is hereby
amended by replacing clause (a) thereof with the following new clause (a):
"(A) BORROWER SHALL PAY INTEREST TO LENDER ON THE AGGREGATE
OUTSTANDING REVOLVING CREDIT ADVANCES AT A FLOATING RATE EQUAL
TO THE INDEX RATE PLUS FOUR AND ONE-QUARTER PERCENT (4.25%)
PER ANNUM (THE "REVOLVING CREDIT RATE"); PROVIDED, HOWEVER, IF
NO DEFAULT SHALL HAVE OCCURRED AND BE CONTINUING (I) EFFECTIVE
ON THE DATE THAT LENDER RECEIVES THE AUDITED FINANCIAL
STATEMENTS FOR THE FISCAL YEAR END DECEMBER 31, 1998 AND A
COMPLIANCE CERTIFICATE FOR SUCH PERIOD, THE REVOLVING CREDIT
RATE SHALL BE REDUCED BY .25% FOR EACH $1,000,000 OF EBITDA
FOR SENTRY AND ITS SUBSIDIARIES FOR THE FISCAL YEAR ENDING
DECEMBER 31, 1998, AND (II) FOR EACH FISCAL QUARTER ENDING
THEREAFTER EFFECTIVE ON THE DATE THAT LENDER RECEIVES THE
FINANCIAL STATEMENTS FOR SUCH QUARTER (WHICH FINANCIAL
STATEMENTS SHALL BE AUDITED IN THE CASE OF THE 4TH QUARTER OF
EACH YEAR) AND A COMPLIANCE CERTIFICATE FOR SUCH QUARTER, THE
REVOLVING CREDIT RATE SHALL BE REDUCED BY AN ADDITIONAL .25%
FOR EACH $1,000,000 OF EBITDA FOR SENTRY AND ITS SUBSIDIARIES
FOR SUCH QUARTER, AND (III) EFFECTIVE ON THE DATE ON WHICH
LENDER RECEIVES THE FINANCIAL STATEMENTS FOR ANY FISCAL
QUARTER ENDING AFTER DECEMBER 31, 1998 AND A COMPLIANCE
CERTIFICATE SHOWING A ROLLING FOUR QUARTER EBITDA FOR SENTRY
AND ITS SUBSIDIARIES OF AT LEAST $4,200,000 FOR SUCH FOUR
QUARTER PERIOD, THE REVOLVING CREDIT RATE SHALL BE ADJUSTED TO
2.75%; PROVIDED, FURTHER, THAT (X) THE REVOLVING CREDIT RATE
SHALL BE RETROACTIVELY ADJUSTED UPWARD TO THE EXTENT THAT IT
WAS REDUCED BASED ON ANY EBITDA CALCULATION THAT IS LATER
ADJUSTED DOWNWARD PURSUANT TO ANY ANNUAL AUDIT, (Y) THE
REVOLVING CREDIT RATE SHALL NEVER BE LOWER THAN 2.75%, AND (Z)
THERE SHALL BE NO REDUCTION TO THE REVOLVING CREDIT RATE
PURSUANT TO CLAUSES (I) AND (II) ABOVE IN EXCESS OF .50%."
WAIVERS. Lender hereby waives the existing Events of Default relating solely to
Borrower's breach of the minimum EBITDA covenant solely for the fiscal
quarter ending March 31, 1998 and breach of the Minimum Net Worth covenant
solely for the period ending April 30, 1998.
REPRESENTATIONS AND WARRANTIES. To induce Lender to enter into this Amendment,
each Credit Party hereto hereby warrants, represents and covenants to
Lender that: (a) each representation and warranty of the Credit Parties set
forth in the Loan Agreement is hereby restated and reaffirmed as true and
correct on and as of the date hereof after giving affect to this Amendment
as if such representation or warranty were made on and as of the date
hereof (except to the extent that any such representation or warranty
expressly relates to a prior specific date or period in which case it is
true and correct as of such prior date or period), and no Default or Event
of Default has occurred and is continuing as of this date under the Loan
Agreement after giving effect to this Amendment; and (b) each Credit Party
hereto has the power and is duly authorized to enter into, deliver and
perform this Amendment, and this Amendment is the legal, valid and binding
obligation of such Credit Party enforceable against it in accordance with
its terms.
CONDITIONS PRECEDENT TO EFFECTIVENESS OF THIS AMENDMENT. The effectiveness of
this Amendment is subject to the fulfillment of the following conditions
precedent:
(a) Lender shall have received one or more counterparts
of this Amendment duly executed and delivered by the
Credit Parties hereto;
(b) Any and all guarantors of the Obligations shall have
consented to the execution, delivery and performance
of this Amendment and all of the transactions
contemplated hereby by signing one or more
counterparts of this Amendment in the appropriate
space indicated below and returning same to Lender;
(c) Borrower shall have paid to Lender an Amendment Fee
of $10,000 and a Documentation fee of $2,000.
CONTINUING EFFECT OF LOAN AGREEMENT. Except as expressly
amended and modified hereby, the provisions of the Loan
Agreement, and the Liens granted thereunder, are and shall
remain in full force and effect and the waiver set forth
herein shall be limited precisely as drafted and shall not constitute a
waiver of any other provisions of the Loan Agreement.
COUNTERPARTS. This Amendment may be executed in multiple counterparts each of
which shall be deemed to be an original and all of which when taken
together shall constitute one and the same instrument.
GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS
MADE AND PERFORMED IN SUCH STATE WITHOUT REGARD TO THE PRINCIPLES THEREOF
REGARDING CONFLICTS OF LAWS.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered as of the day and year specified at the beginning
hereof.
KNOGO NORTH AMERICA INC.
AS BORROWER
By: Peter J. Mundy
Name: Peter J. Mundy
Title: V.P. - CFO
SENTRY TECHNOLOGY CORPORATION
AS CREDIT PARTY
By: Peter J. Mundy
Name: Peter J. Mundy
Title: V.P. - CFO
VIDEO SENTRY CORPORATION
AS CREDIT PARTY
By: Peter J. Mundy
Name: Peter J. Mundy
Title: V.P. - CFO
KNOGO CARIBE
AS CREDIT PARTY
By: Peter J. Mundy
Name: Peter J. Mundy
Title: V.P. - CFO
GENERAL ELECTRIC CAPITAL CORPORATION
By: James DeSantis
Name: James DeSantis
Title: Duly Authorized Signatory
<PAGE>
CONSENT OF GUARANTORS
Each of the undersigned guarantors does hereby consent to the execution,
delivery and performance of the within and foregoing Amendment and confirms the
continuing effect of such guarantor's guarantee of the Obligations after giving
effect to the foregoing Amendment.
IN WITNESS WHEREOF, each of the undersigned guarantors has executed this
Consent to Guarantors as of the day and year first above set forth.
GUARANTORS:
SENTRY TECHNOLOGY CORPORATION
By:
Name:
Title:
VIDEO SENTRY CORPORATION
By:
Name:
Title:
KNOGO CARIBE
By:
Name:
Title:
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE PERIOD ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,451
<SECURITIES> 0
<RECEIVABLES> 7,909
<ALLOWANCES> 725
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25,877
0
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<EPS-PRIMARY> (.31)
<EPS-DILUTED> (.31)
</TABLE>
