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 March 31, 1999
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 May 13, 1999 was
9,750,760.
<PAGE>
SENTRY TECHNOLOGY CORPORATION
INDEX
PAGE NO.
---------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets --
March 31, 1999 and December 31, 1998 3
Condensed Consolidated Statements of Operations --
Three Months Ended March 31, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows --
Three Months Ended March 31, 1999 and 1998 5
Notes to Condensed Consolidated Financial
Statements -- March 31, 1999 6 - 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7 - 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)
MARCH 31, DECEMBER 31,
1999 1998
---- ----
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $1,603 $873
Accounts receivable, less allowance for doubtful
accounts of $638 and $651, respectively 9,047 9,308
Net investment in sales-type leases -
current portion 570 574
Inventories 7,724 7,382
Assets held for sale -- 1,691
Prepaid expenses and other current assets 498 371
-------- --------
Total current assets 19,442 20,199
NET INVESTMENT IN SALES-TYPE LEASES -
non-current portion 350 466
SECURITY DEVICES ON LEASE, net 60 65
PROPERTY, PLANT AND EQUIPMENT, net 4,188 4,348
GOODWILL AND OTHER INTANGIBLES, net 7,826 8,222
OTHER ASSETS 167 196
-------- --------
$32,033 $33,496
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Revolving line of credit $1,713 $2,765
Accounts payable 2,127 1,257
Accrued liabilities 3,193 3,080
Obligations under capital leases -
current portion 175 180
Deferred income 230 249
--- ---
Total current liabilities 7,438 7,531
OBLIGATIONS UNDER CAPITAL LEASES -
non-current portion 3,020 3,061
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY 352 362
-------- --------
Total liabilities 10,810 10,954
REDEEMABLE CUMULATIVE PREFERRED STOCK 26,838 26,517
COMMON SHAREHOLDERS' EQUITY (DEFICIT)
Common stock 10 10
Additional paid-in capital 15,201 15,522
Accumulated deficit (20,826) (19,507)
-------- --------
(5,615) (3,975)
-------- --------
$32,033 $33,496
======== ========
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
March 31,
---------
1999 1998
---- -----
<S> <C> <C>
REVENUES $5,390 $5,198
COSTS AND EXPENSES:
Cost of sales 2,773 2,835
Customer service expenses 1,700 1,387
Selling, general and administrative expenses 2,289 2,468
Research and development 313 336
Interest expense 137 98
--- --
7,212 7,124
----- -----
OPERATING LOSS (1,822) (1,926)
OTHER INCOME - Gain on sale of facilities (Note E) 503 --
--- ---
(1,319) (1,926)
INCOME TAXES -- 21
------ --
NET LOSS (1,319) (1,947)
PREFERRED STOCK DIVIDENDS 321 306
--- ---
NET LOSS ATTRIBUTED TO COMMON SHAREHOLDERS $(1,640) $(2,253)
======= =======
NET LOSS PER COMMON SHARE
Basic $(.17) $(.23)
===== =====
Diluted $(.17) $(.23)
===== =====
WEIGHTED AVERAGE COMMON SHARES
Basic 9,751 9,751
===== =====
Diluted 9,751 9,751
===== =====
See notes to the condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SENTRY TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Three Months Ended
March 31,
---------
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $(1,319) $(1,947)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization of security
devices and property, plant and equipment 203 301
Amortization of goodwill and intangibles 398 397
Provision for bad debts -- 5
Gain on sale of facilities (503) --
Changes in operating assets and liabilities,
net of effects of business acquired:
Accounts receivable 261 69
Net investment in sales-type leases 120 156
Inventories (342) (168)
Accounts payable 870 (374)
Accrued liabilities 113 10
Other, net (126) (105)
---- ----
Net cash used in operating activities (325) (1,656)
---- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of facilities 2,194 --
Purchase of property, plant and equipment, net (37) (25)
Security devices on lease (1) (22)
Intangibles (3) (4)
-- --
Net cash provided by (used in) investing activities 2,153 (51)
----- ---
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in borrowings under the revolving
line of credit (1,052) 1,052
Repayment of obligations under capital leases (46) (56)
--- ---
Net cash provided by (used in) financing activities (1,098) 996
------ ---
INCREASE (DECREASE) IN CASH 730 (711)
CASH, at beginning of period 873 2,146
--- -----
CASH, at end of period $1,603 $1,435
====== ======
See notes to the condensed consolidated financial statements.
</TABLE>
<PAGE>
SENTRY TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
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 2003. The net investment in sales-type leases consists of:
<TABLE>
<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1998
-------------- -----------------
(in thousands)
<S> <C> <C>
Minimum lease payments receivable $1,055 $1,204
Allowance for uncollectible minimum lease payments (53) (60)
Unearned income (98) (120)
Unguaranteed residual value 16 16
-- --
Net investment 920 1,040
Less current portion 570 574
--- ---
Non-current portion $350 $466
==== ====
</TABLE>
<TABLE>
<CAPTION>
NOTE C -- INVENTORIES
Inventories consist of the following:
MARCH 31, 1999 DECEMBER 31, 1998
-------------- -----------------
(in thousands)
<S> <C> <C>
Raw materials $2,699 $2,497
Work-in-process 3,171 3,058
Finished goods 1,854 1,827
----- -----
$ 7,724 $ 7,382
======= =======
</TABLE>
Reserves for excess and obsolete inventory totaled $1,381,000 and $1,318,000 as
of March 31, 1999 and December 31, 1998, respectively and have been included as
a component of the above amounts.
NOTE D -- SUPPLY AGREEMENT
Knogo N.A. had a supply agreement under which Sensormatic Electronics
Corporation ("Sensormatic") was obligated to purchase products from Knogo N.A.
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 $309,000 and $767,000 in the quarters ended
March 31, 1999 and 1998, respectively. Included in accounts receivable as of
March 31, 1999 and December 31, 1998 are amounts due from Sensormatic of
$361,000 and $646,000, respectively.
<PAGE>
SENTRY TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE E -- OTHER INCOME - GAIN ON SALE OF FACILITIES
In February 1999, the Company sold its Puerto Rico manufacturing facility and
Illinois CCTV design center and related land for net proceeds of approximately
$2.2 million. At December 31, 1998, included in assets held for sale was
approximately $1.7 million representing the net carrying amount of these
properties. A gain representing the excess of the net proceeds over the carrying
value of these properties of $503,000 was recognized in the first quarter of
1999.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FORWARD LOOKING STATEMENTS
This report may include information that could constitute forward-looking
statements made pursuant to the safe harbor provision of the Private Securities
Litigation Reform Act of 1995. Any such forward-looking statements may involve
risk and uncertainties that could cause actual results to differ materially from
any future results encompassed within forward-looking statements.
RESULTS OF OPERATIONS:
Consolidated revenues were 4% higher in the quarter ended March 31, 1999 than in
the quarter ended March 31, 1998. Revenues from third party customers, other
than Sensormatic, in the current periods were $5,081,000 or 94% of total
revenues, as compared to $4,431,000 or 85% of total revenues in the prior year
period. These revenues increased 15% over the first quarter in the previous year
(see Note D to the financial statements). Total revenues for the periods
presented are broken out as follows:
<TABLE>
<CAPTION>
Q-1 Q-1 % Change
1999 1998 Incr (Decr)
---- ---- -----------
<S> <C> <C> <C>
EAS systems $ 1,618 $ 1,492 8
CCTV 2,395 1,274 88
SentryVision(R) 295 792 (63)
3M library products 237 377 (37)
- - --- --- ---
4,545 3,935 16
Service revenues and other 536 496 8
--- --- -
Third party customer revenues 5,081 4,431 15
Sales to Sensormatic 309 767 (60)
--- --- ---
Total revenues $ 5,390 $ 5,198 4
======== ========= =
</TABLE>
The increase in CCTV revenues and decline in SentryVision(R) during the current
period is primarily related to the decision by one of the Company's major
customers to purchase conventional CCTV for the bulk of its security product
orders for 1999.
Cost of sales were 51% of total revenues in the three months ended March 31,
1999 compared to 55% in the same period in the previous year. The reduction in
the percentage in the current year is primarily due to better product sourcing
resulting in lower component costs and lower sales to Sensormatic on an OEM
basis which carry lower margins than normal sales to customers.
Customer service expenses were 23% higher in the first quarter of 1999 than in
the first quarter of 1998 due to a higher number of customer service
representatives required to install and maintain the increasing CCTV and
SentryVision(R) customer base.
<PAGE>
Selling, general and administrative expenses were lower when compared to last
year's first quarter primarily as a result of the savings from the consolidation
of facilities and lower warranty provisions due to fewer expected service calls
in the future. As a percentage of revenues, these expenses decreased by 5% from
47% to 42%.
Research and development costs remained fairly constant when compared to the
previous year's period. Much of the efforts in the current period were directed
towards manufacturing improvements related to the move from Puerto Rico to New
York.
Net interest expense for the first quarter of 1999 increased by $39,000 over the
first quarter of 1998 due to higher average borrowings under the Company's
revolving credit agreement.
During the quarter ended March 31, 1999, the Company sold its Puerto Rico
manufacturing facility and Illinois design center for net cash proceeds of
approximately $2.2 million which resulted in a net gain on the sale of $503,000.
Sentry's income taxes in the quarter ended March 31, 1998 represents a provision
on the cumulative earning of the Puerto Rico manufacturing operations which were
closed at the end of 1998.
As a result of the foregoing, Sentry had a net loss of $1,319,000 in the quarter
ended March 31, 1999 as compared to a net loss of $1,947,000 in the quarter
ended March 31, 1998.
Preferred stock dividends of $321,000 and $306,000 were recorded in the first
quarters of 1999 and 1998, respectively. Dividends accrued through February 12,
1999 were paid-in-kind as of that date. In connection with the waiver of certain
financial covenants under the Company's agreement with its commercial lender,
the Company is restricted from paying cash dividends, including the cash
dividend on its Class A Preferred Stock which would otherwise be payable in
August. Under the terms of the Class A Preferred Stock, the dividend will
cumulate. After August, Class A Preferred Stockholders, voting as a class, will
be entitled to elect two additional directors to the Company's Board.
LIQUIDITY AND CAPITAL RESOURCES AS OF MARCH 31, 1999
During the quarter the Company funded its operations and capital expenditures
through borrowings under its revolving credit facility and use of existing cash.
The cash proceeds of $2.2 million from the sale of certain facilities, noted
above, were used to reduce borrowings under the revolving credit facility during
the current quarter.
The Company anticipates that current cash reserves, cash generated by operations
and financing arrangements should be sufficient to meet the Company's working
capital requirements as well as future capital expenditure requirements for the
next twelve months.
YEAR 2000 UPDATE
Many existing computer programs were designed and developed without considering
the upcoming change in the century, which could lead to the failure of computer
applications or create erroneous results by or at the Year 2000. On January 1,
2000, any computer system or other equipment using date sensitive software which
uses only two digits to represent the year may recognize "00" as the year 1900
rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including among other things,
a temporary inability to process transactions, send invoices, or engage in
similar activities.
Recognizing the potential impact, the Company began actively resolving its Year
2000 compliance issues in early 1997. Using internal and external resources, the
Company analyzed and assessed its business systems, including computer systems,
PC's and network hardware, telephone systems, production process controllers,
access control, office equipment and the product it sells.
<PAGE>
Upgrades to both mid-range and network computer hardware, operating systems and
related infrastructures have been completed and are now Year 2000 compliant. All
critical application software has been reviewed and Year 2000 compliant versions
have been obtained. The Company has completed the process of retrofitting custom
modifications to the upgraded versions. All applications with forward scheduling
impact are now considered to be Year 2000 compliant. The Company believes its
manufactured products are Year 2000 compliant.
The cost of becoming compliant is not expected to exceed $300,000 and
approximately one third has been incurred to date. The remaining costs relate
primarily to hardware upgrades to the Company's PC's and telephone systems which
will be completed by the third quarter of 1999. There can be no assurance that
the Company will not incur unanticipated costs or that it will be able to
successfully address all Year 2000 issues.
The impact of the Year 2000 issue on the Company will also be affected by the
Year 2000 readiness of its business partners, customers, suppliers and vendors
and providers of facilities, equipment and services. Failure by these third
parties to be Year 2000 compliant may adversely affect, among other things, the
Company's production, revenue and the timing of cash receipts. The Company has
begun to make inquiries of such third parties in this regard and based on the
responses to these inquiries, the Company will decide to what extent, if any, a
contingency plan should be developed. To date, however, the Company has received
only preliminary feedback from such third parties and has not independently
confirmed any information received from such third parties with respect to Year
2000 issues. As such, there can be no assurance that such third parties will
address the Year 2000 issue and complete their Year 2000 conversion in a timely
fashion or will not suffer a Year 2000 business disruption that may adversely
affect the Company's business.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) List of Exhibits:
10.14 Second Amendment and Third Waiver to the Loan and Security
Agreement between the Company and General Electric Capital
Corporation dated May 12, 1999.
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 March 31, 1999.
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: May 13, 1999 By: /S/ PETER J. MUNDY
--------------------------------------------
Peter J. Mundy, Vice President - Finance and
Chief Financial Officer
(Principal Financial and Accounting Officer)
SECOND AMENDMENT AND THIRD WAIVER TO THE LOAN AND SECURITY AGREEMENT
Second Amendment and Third Waiver dated as of May 12, 1999 (this
"Amendment") to the Loan and Security Agreement, dated as of December 31, 1997
(as amended and modified, the "LOAN AGREEMENT"), among 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
Amendment.
WITNESSETH :
WHEREAS, Borrower has requested that Lender waive the defaults arising
from the breach of "Minimum EBITDA" financial covenant and the "Minimum Net
Worth" financial covenant for the period ending March 31, 1999;
WHEREAS, Borrower has requested that Lender amend certain financial
covenants for Fiscal Year ending December 31, 1999;
WHEREAS, Lender is willing to waive such financial covenant defaults
and amend such financial covenants only on the terms and conditions set forth
herein;
WHEREAS, Borrower has also agreed not to make any cash dividend
payments with respect to the Series A Preferred Stock;
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
1. AMENDMENT TO LOAN AGREEMENT. Section 5(l) of the Loan Agreement is
amended in its entirety to provide as follows:
(l) MAKE OR PERMIT ANY RESTRICTED PAYMENT EXCEPT THAT DIVIDEND
PAYMENTS MAY BE MADE ON THE SERIES A PREFERRED STOCK IN
ACCORDANCE WITH THE TERMS SET FORTH IN THE CERTIFICATE OF
DESIGNATION FILED WITH THE SECRETARY OF STATE OF DELAWARE ON
FEBRUARY 12, 1997, PROVIDED, THAT, IF PAYMENTS ARE IN THE FORM
OF CASH (I) NO DEFAULT SHALL HAVE OCCURRED AND BE CONTINUING
PRIOR TO AND AFTER GIVING EFFECT TO SUCH DIVIDEND PAYMENT AND
(II) AT THE TIME OF SUCH PAYMENT AND AFTER GIVING EFFECT
THERETO, THE FIXED CHARGE COVERAGE RATIO IS IN EXCESS OF 1.00
TO 1.00.
2. AMENDMENTS RELATING TO FINANCIAL COVENANTS. Schedule G of the Loan
Agreement is hereby amended as follows:
(a) Paragraph 1 is amended in its entirety to provide as follows:
1. MINIMUM EBITDA. SENTRY AND ITS SUBSIDIARIES ON A CONSOLIDATED
BASIS SHALL MAINTAIN AT THE END OF EACH FISCAL PERIOD SET FORTH
BELOW, AN EBITDA OF NOT LESS THAN THE AMOUNT SET FORTH OPPOSITE
SUCH FISCAL PERIOD BELOW:
<PAGE>
Fiscal Period Minimum EBITDA
----------------------------------------------------------------------
January 1, 1999- June 30, 1999 $(1,000,000)
----------------------------------------------------------------------
January 1, 1999- September 30, 1999 $(200,000)
----------------------------------------------------------------------
(b) Paragraph 2 is amended in its entirety to provide as follows:
2. MINIMUM NET WORTH. SENTRY AND ITS SUBSIDIARIES ON A CONSOLIDATED
BASIS SHALL AT THE END OF EACH FISCAL PERIOD SET FORTH BELOW HAVE A
NET WORTH OF NOT LESS THAN THE AMOUNT SET OPPOSITE FISCAL PERIOD:
Fiscal Period Minimum Net Worth
----------------------------------------------------------------------
At June 30, 1999 $18,950,000
----------------------------------------------------------------------
At September 30, 1999 $18,976,000
----------------------------------------------------------------------
At December 31, 1999 $18,850,000
----------------------------------------------------------------------
(c) A new paragraph 3 is inserted following end of paragraph 2 and
provides as follows:
3. FIXED CHARGE COVERAGE RATIO. SENTRY AND ITS SUBSIDIARIES
SHALL MAINTAIN A FIXED CHARGE COVERAGE RATIO OF NOT LESS
THAN 1.00 TO 1.00 FOR THE FISCAL YEAR ENDING DECEMBER 31, 1999.
(d) The following defined terms are inserted in the appropriate
alphabetical order:
"FIXED CHARGE COVERAGE RATIO" SHALL MEAN, FOR ANY PERIOD, THE RATIO OF
THE FOLLOWING FOR SENTRY AND ITS SUBSIDIARIES ON A CONSOLIDATED BASIS
DETERMINED IN ACCORDANCE WITH GAAP: (A) EBITDA FOR SUCH PERIOD LESS
CAPITAL EXPENDITURES FOR SUCH PERIOD WHICH ARE NOT FINANCED THROUGH
THE INCURRENCE OF ANY INDEBTEDNESS (EXCLUDING THE REVOLVING CREDIT
LOAN) TO (B) THE SUM OF (I) INTEREST EXPENSE PAID OR ACCRUED IN
RESPECT OF ANY INDEBTEDNESS DURING SUCH PERIOD, PLUS (II) TAXES TO THE
EXTENT ACCRUED OR OTHERWISE PAYABLE WITH RESPECT TO SUCH PERIOD PLUS
(III) REGULARLY SCHEDULED PAYMENTS OF PRINCIPAL PAID OR THAT WERE
REQUIRED TO BE PAID ON FUNDED DEBT (EXCLUDING THE REVOLVING CREDIT
LOAN) DURING SUCH PERIOD, PLUS (IV) CASH DIVIDEND PAYMENTS MADE WITH
RESPECT TO SERIES A PREFERRED STOCK.
"FUNDED DEBT" SHALL MEAN, FOR ANY PERSON, ALL OF SUCH PERSON'S
INDEBTEDNESS WHICH BY THE TERMS OF THE AGREEMENT GOVERNING OR
INSTRUMENT EVIDENCING SUCH INDEBTEDNESS MATURES MORE THAN ONE YEAR
FROM, OR IS DIRECTLY OR INDIRECTLY RENEWABLE OR EXTENDIBLE AT THE
OPTION OF SUCH PERSON UNDER A REVOLVING CREDIT OR SIMILAR AGREEMENT
OBLIGATING THE LENDER OR LENDERS TO EXTEND CREDIT OVER A PERIOD OF
MORE THAN ONE YEAR FROM, THE DATE OF CREATION THEREOF, INCLUDING
CURRENT MATURITIES OF LONG-TERM DEBT, REVOLVING CREDIT, AND SHORT-TERM
DEBT EXTENDIBLE BEYOND ONE YEAR AT THE OPTION OF SUCH PERSON.
3. WAIVERS. Lender hereby waives the Events of Default arising solely
as a result of the breach of the minimum EBITDA covenant and breach of the
Minimum Net Worth covenant solely for the period ending March 31, 1999.
4. 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 $2,500 and a Documentation fee of $1,000.
6. 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.
7. 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.
8. 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
-------------------------
(Conformed)
Name: Peter J. Mundy
Title: V.P. - CFO
SENTRY TECHNOLOGY CORPORATION,
AS CREDIT PARTY
By: PETER J. MUNDY
-------------------------
(Conformed)
Name: Peter J. Mundy
Title: V.P. - CFO
VIDEO SENTRY CORPORATION,
AS CREDIT PARTY
By: PETER J. MUNDY
--------------------------
(Conformed)
Name: Peter J. Mundy
Title: V.P. - CFO
KNOGO CARIBE, INC.,
AS CREDIT PARTY
By: PETER J. MUNDY
--------------------------
(Conformed)
Name: Peter J. Mundy
Title: Treasurer
GENERAL ELECTRIC CAPITAL CORPORATION,
AS LENDER
By: JAMES N. DESANTIS
--------------------------
(Conformed)
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: T. A. NICOLETTE
-------------------------
(Conformed)
Name: T. A. Nicolette
Title: President & CEO
VIDEO SENTRY CORPORATION
By: T. A. NICOLETTE
--------------------------
(Conformed)
Name: T. A. Nicolette
Title: President
KNOGO CARIBE, INC.
By: T. A. NICOLETTE
--------------------------
(Conformed)
Name: T. A. Nicolette
Title: President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FINANCIAL STATEMENTS FOR THE PERIOD ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,603
<SECURITIES> 0
<RECEIVABLES> 9,685
<ALLOWANCES> 638
<INVENTORY> 7,724
<CURRENT-ASSETS> 19,442
<PP&E> 9,548
<DEPRECIATION> 5,360
<TOTAL-ASSETS> 32,033
<CURRENT-LIABILITIES> 7,438
<BONDS> 3,020
26,838
0
<COMMON> 10
<OTHER-SE> (5,625)
<TOTAL-LIABILITY-AND-EQUITY> 32,033
<SALES> 4,853
<TOTAL-REVENUES> 5,390
<CGS> 2,773
<TOTAL-COSTS> 4,302
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 137
<INCOME-PRETAX> (1,319)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,319)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,319)
<EPS-PRIMARY> (.17)
<EPS-DILUTED> (.17)
</TABLE>
