UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended May 25, 1997
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 0-619
Washington Scientific Industries, Inc.
(Exact name of registrant, as specified in its charter)
Minnesota 41-0691607
(State or other jurisdiction of (I. R. S. Employer
incorporation of organization) Identification No.)
Long Lake, Minnesota 55356
(Address of principal executive offices) (Zip Code)
(612) 473-1271
(Registrant's telephone number, including area code)
Not Applicable
(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 ___
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date. 2,428,980 Common
Shares were outstanding as of June 18, 1997.
WASHINGTON SCIENTIFIC INDUSTRIES, INC.
AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
<S> <C>
Consolidated Balance Sheets May 25, 1997 (Unaudited)
and August 25, 1996 3
Consolidated Statements of Operations
Thirteen and Thirty-nine weeks ended May 25, 1997 and
Thirteen and Thirty-nine weeks ended May 26, 1996 (Unaudited) 4
Consolidated Statements of Cash Flows
Thirty-nine weeks ended May 25, 1997 and Thirty-nine
weeks ended May 26, 1996 (Unaudited) 5
Notes to Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7, 8
PART II. OTHER INFORMATION:
Item 5. Exhibits and Reports on Form 8-K 9
Signatures 9
</TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
WASHINGTON SCIENTIFIC INDUSTRIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
May 25 August 25,
Assets 1997 1996
----------- -----------
Current Assets:
Cash and cash equivalents $ 2,544,018 $ 1,642,739
Accounts receivable 3,060,290 1,868,942
Inventories - work-in-process 1,049,076 1,098,613
Prepaid and other current assets 65,943 123,186
----------- -----------
Total Current Assets 6,719,327 4,733,480
Property, Plant and Equipment 6,092,880 6,839,239
Other Long Term Assets 525 525
----------- -----------
$12,812,732 $11,573,244
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities:
Notes payable $ 0 $ 0
Trade accounts payable 1,639,601 785,602
Salaries, wages, and withholdings 430,120 474,107
Miscellaneous accrued expenses 710,243 324,214
Current portion of long-term debt 995,510 953,570
----------- -----------
Total Current Liabilities 3,775,474 2,537,493
Long-term Debt, less current portion 2,913,405 4,124,188
Long-term Pension Liability 464,930 458,502
Stockholders' Equity:
Common stock issued, 2,424,980 and
2,420,850 shares, respectively 242,498 242,085
Capital in excess of par value 1,521,185 1,511,598
Retained earnings 3,895,240 2,699,378
----------- -----------
Total Stockholders' Equity 5,658,923 4,453,061
----------- -----------
$12,812,732 $11,573,244
=========== ===========
See notes to consolidated financial statements.
WASHINGTON SCIENTIFIC INDUSTRIES,INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
13 weeks ended 39 weeks ended
---------------------------- ----------------------------
May 25, May 26, May 25, May 26,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Sales $ 6,673,338 $ 5,492,811 $ 18,034,846 $ 16,011,130
Cost of products sold 5,636,488 4,868,158 15,332,425 14,464,508
------------ ------------ ------------ ------------
Gross margin 1,036,850 624,653 2,702,421 1,546,622
Selling and administrative expenses 636,620 524,191 1,810,624 1,613,817
Interest and other income (26,312) (70,142) (549,223) (628,957)
Interest and other expense 66,516 111,040 239,358 390,932
------------ ------------ ------------ ------------
Earnings from operations
before income taxes 360,026 59,564 1,201,662 170,830
Income taxes -- -- 5,800 5,800
------------ ------------ ------------ ------------
Earnings from operations $ 360,026 $ 59,564 $ 1,195,862 $ 165,030
============ ============ ============ ============
Net earnings per share $ 0.15 $ 0.02 $ 0.48 $ 0.07
============ ============ ============ ============
Weighted average number of common and
common equivalent shares outstanding 2,474,853 2,487,025 2,468,736 2,477,207
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
WASHINGTON SCIENTIFIC INDUSTRIES,INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
39 weeks ended
--------------------------
May 25, May 26,
1997 1996
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net earnings $ 1,195,862 $ 165,030
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Gain on sale of property, plant & equipment (432,445) (592,224)
Depreciation and amortization 1,068,466 1,505,270
Increase in pension liability 6,428 33,191
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (1,191,348) 1,074,988
(Increase) decrease in inventories 49,537 (152,473)
(Increase) decrease in prepaid expenses 57,241 5,160
Increase (decrease) in accounts payable and
accrued expenses 1,237,981 (473,364)
----------- -----------
Net cash provided by operating activities 1,991,722 1,565,578
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property, plant and equipment 448,000 644,000
Purchases of property, plant & equipment (337,662) (754,234)
----------- -----------
Net cash provided by (used in) investing activities 110,338 (110,234)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt (1,210,781) (1,279,097)
Issuance of common stock 10,000 108,920
----------- -----------
Net cash (used in) financing activities (1,200,781) (1,170,177)
NET INCREASE IN CASH AND CASH EQUIVALENTS 901,279 285,167
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,642,739 1,260,053
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF REPORTING PERIOD $ 2,544,018 $ 1,545,220
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 243,573 $ 406,378
Income taxes $ 4,550 $ 5,800
Noncash investing and financing activities:
Acquisition of property, plant and equipment
through capital lease $ 0 $ 885,330
See notes to consolidated financial statements.
</TABLE>
WASHINGTON SCIENTIFIC INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONSOLIDATED FINANCIAL STATEMENTS:
The consolidated balance sheet as of May 25, 1997, the
consolidated statements of operations for the thirteen weeks and
thirty-nine weeks ended May 25, 1997 and May 26, 1996 and the
consolidated statements of cash flows for the thirty-nine weeks then
ended, respectively, have been prepared by the Company without audit.
In the opinion of management, all adjustments (which include normal
recurring adjustments) necessary to present fairly the financial
position, results of operations and cash flows for all periods
presented have been made.
The balance sheet at August 25, 1996, is derived from the
audited balance sheet as of that date. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted. Therefore, these condensed consolidated financial
statements should be read in conjunction with the financial statements
and notes thereto included in the Company's fiscal 1996 annual report
to shareholders. The results of operations for interim periods are not
necessarily indicative of the operating results for the full year.
2. DEBT AND LINE OF CREDIT:
On April 30, 1997, the Company amended its agreement with the
bank for its line of credit and term debt. The amendment extends the
agreement to March 31, 2000 with reduced interest rates on the line of
credit and the term debt and other terms and conditions essentially the
same.
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
and
RESULTS OF OPERATIONS
Results of Operations:
Net sales of $6,673,000 for the quarter ending May 25, 1997
increased $1,181,000 or 21.5% from the third quarter of the prior year.
Primary changes in sales included a decrease in the industrial
compressor market of $256,000, a decrease in the computer market of
$138,000, an increase in the agricultural market of $1,093,000, an
increase in the auto components market of $274,000 and an increase in
the marine market of $175,000.
Net sales for the thirty-nine weeks ended May 25, 1997
increased $2,024,000 or 12.6% from the first thirty-nine weeks of
fiscal 1996. Sales reductions occurred in the computer market of
$1,614,000 and in the industrial component market of $1,107,000. The
agricultural market increased by $3,963,000 and the auto components
market increased by $762,000.
Gross margin improved to 15.5% of sales in the third quarter
of fiscal 1997 compared to 11.4% in the prior year's third quarter. The
first thirty-nine weeks of fiscal 1997 gross margin improved to 15.0%
compared to the prior year's first thirty-nine weeks gross margin of
9.7%. The improved gross margin resulted primarily from cost reductions
and improved manufacturing efficiencies.
Selling and administrative expense of $637,000 was $112,000
higher than the third quarter of the prior year and the first
thirty-nine weeks' $1,811,000 was $197,000 higher due to costs related
to performance based compensation, depreciation and maintenance of new
computer equipment and increased costs of attendance at trade shows.
Interest and other income was $44,000 lower than the
comparable quarter of the prior year due to lower miscellaneous income.
The first thirty-nine weeks of fiscal 1997 was $80,000 less primarily
due to the lower net gain of $410,000 from the disposition of excess
equipment in fiscal 1997 than the net gain of $455,000 in the
comparable period of the prior year.
Interest and other expense decreased $45,000 in the third
quarter and $152,000 in the first thirty-nine weeks from the comparable
period of the prior year due to lower term debt balances.
In the first quarter of fiscal 1997, the Company recorded
$5,800 of mandatory state income taxes and was able to recognize the
benefit of a portion of its net operating loss carry-forwards. The
Company has not recorded the benefit of net operating losses and other
net deductible temporary differences in the consolidated statement of
operations due to the fact that the Company has not been able to
establish that it is more likely than not that the tax benefits will be
realized.
Liquidity and Capital Resources:
On May 25, 1997, working capital was $2,944,000 compared to
$2,196,000 at August 25, 1996 an increase of $748,000, due primarily to
improvement in operations. The ratio of current assets to current
liabilities at May 25, 1997 and August 25, 1996 was 1.78 to 1.0 and
1.87 to 1.0, respectively.
On May 25, 1997, the Company did not have an outstanding bank
note payable balance. As of that date the Company had cash and cash
equivalents of $2,544,000.
Proceeds from the disposition of excess equipment related to
completed and discontinued manufacturing programs amounted to $410,000
in the fiscal quarter ended November 24, 1996. Those proceeds and
scheduled monthly payments reduced the long-term debt by $1,169,000 in
the thirty-nine weeks ended May 25, 1997.
It is management's belief that its internally generated funds
combined with the line of credit will be sufficient to enable the
Company to meet its financial requirements during fiscal 1997.
Cautionary Statement:
The statements included herein which are not historical or
current facts are "forward-looking statements" made pursuant to the
safe harbor provisions of the Private Securities Reform Act of 1995.
There are certain important factors which could cause actual results to
differ materially from those anticipated by some of the statements made
herein, including the Company's ability to obtain additional
manufacturing programs and retain current programs and other factors
detailed from time to time in the Company's SEC reports, including the
report on Form 10-K for the year ended August 25, 1996.
PART II. OTHER INFORMATION;
Item 5. Exhibits and Reports on Form 8-K:
A. Exhibit 10. Third Amendment to Amended and Restated Credit
and Security Agreement between the Company and FBS Business
Finance Corporation dated April 30, 1997.
Exhibit 27. Financial Data Schedule
B. There were no reports on Form 8-K filed for the thirteen
weeks ended May 25, 1997
SIGNATURES
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.
WASHINGTON SCIENTIFIC INDUSTRIES, INC.
Date: July 2, 1997 /S/ Michael J. Pudil
--------------------------------------
Michael J. Pudil, President & CEO
Date: July 2, 1997 /S/ James J. Valento
--------------------------------------
James J. Valento, Vice President & CFO
THIRD AMENDMENT TO
AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT
THIS THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AND SECURITY
AGREEMENT (the "Amendment') is dated as of April 30, 1997 and is by and between
WASHINGTON SCIENTIFIC INDUSTRIES, INC. (the "Borrower") and FBS BUSINESS FINANCE
CORPORATION (the "Lender"). Terms not otherwise expressly defined herein shall
have the meanings set forth in the Credit Agreement.
RECITALS
WHEREAS, the Borrower and the Lender are parties to an Amended and
Restated Credit and Security Agreement, dated as of March 31, 1995 as amended by
that certain First Amendment to Amended and Restated Credit and Security
Agreement dated as of April 20, 1995 and by a Waiver and Second Amendment to
Amended and Restated Credit and Security Agreement dated as of October 31, 1996
(as so amended, the "Credit Agreement") under which the Lender has agreed to
make Advances to the Borrower; and
WHEREAS, the Borrower and the Lender desire to amend the Credit
Agreement as hereinafter set forth.
NOW THEREFORE, for value received, the Borrower and the Lender agree as
follows.
ARTICLE I - AMENDMENTS TO THE CREDIT AGREEMENT
1.1 AMENDMENTS.
Supplement A to the Credit Agreement is hereby amended to read
in its entirety in the form of Supplement A attached hereto as Exhibit
A.
1.2 CONSTRUCTION. All references in the Credit Agreement to "this
Agreement", "herein" and similar references shall be deemed to refer to the
Credit Agreement as amended by this Amendment.
ARTICLE III- REPRESENTATIONS AND WARRANTIES
To induce the Lender to enter into this Amendment and to make and
maintain the Loans under the Credit Agreement as amended hereby, the Borrower
hereby warrants and represents to the Lender that it is duly authorized to
execute and deliver this Amendment, and to perform its obligations under the
Agreement as amended hereby, and that this Amendment constitutes the legal,
valid and binding obligation of the Borrower, enforceable in accordance with its
terms.
ARTICLE IV - CONDITIONS PRECEDENT
This Amendment shall become effective as of the date first set forth
above, provided, however, that the effectiveness of this Amendment is subject to
the satisfaction of each of the following conditions precedent.
4.1 EXECUTION OF AMENDMENT, EXTENSION OF MORTGAGE AND SUPPLEMENT A. The
Borrower and the Lender shall have executed this Amendment, the Extension of
Mortgage in the form of Exhibit B hereto and initialled Supplement A as amended
pursuant hereto.
4.2 WARRANTIES. Before and after giving effect to this Amendment, the
representations and warranties in Article IV of the Credit Agreement shall be
true and correct as though made on the date hereof, except for changes that are
permitted by the terms of the Credit Agreement. The execution by the Borrower of
this Amendment shall be deemed a representation that the Borrower has complied
with the foregoing condition.
4.3 DEFAULTS. After giving effect to this Amendment, no Event of
Default and no Unmatured Event of Default shall have occurred and be continuing
under the Credit Agreement. The execution by the Borrower of this Amendment
shall be deemed a representation that the Borrower has complied with the
foregoing condition.
4.4 DOCUMENTS. The following shall have been delivered to the Lender,
each duly executed and dated, or certified, as of the date hereof, as the case
may be:
(a) RESOLUTIONS. Certified copies of resolutions of the Board
of Directors of the Borrower authorizing or ratifying the execution,
delivery and performance, respectively, of this Amendment and other
documents (if any) provided for in this Amendment.
(b) CONSENTS. Certified copies of all documents evidencing any
necessary corporate action, consent or governmental or regulatory
approval (if any) with respect to this Amendment.
(c) INCUMBENCY AND SIGNATURES. A certificate of the Secretary
or an Assistant Secretary of the Borrower certifying the names of the
officer or officers of the Borrower authorized to sign this Amendment
and other documents provided for in this Amendment, together with a
sample of the true signature of each such officer.
(d) GOOD STANDING CERTIFICATES. Certificates of good standing
as to the Borrower issued by the Secretary of State of the state in
which the Borrower is organized, and each other state in which the
failure of the Borrower to be in good standing would constitute an
Adverse Event or have a material adverse effect on the Lender's rights
in any Collateral.
ARTICLE V - GENERAL
5.1 EXPENSES. The Borrower agrees to reimburse the Lender upon demand
for all reasonable expenses (including reasonable attorneys' fees and legal
expenses) incurred by this Lender in the preparation, negotiation and execution
of this Amendment and any other document required to be furnished herewith, and
in enforcing the obligations of the Borrower hereunder, and to pay and save the
Lender harmless from all liability for, any stamp or other taxes which may be
payable with respect to the execution or delivery of this Amendment hereunder,
which obligations of the Borrower shall survive any termination of the Credit
Agreement.
5.2 COUNTERPARTS. This Amendment may be executed in as many
counterparts as may be deemed necessary or convenient, and by the different
parties hereto on separate counterparts, each of which, when so executed, shall
be deemed an original but all such counterparts shall constitute but one and the
same instrument.
5.3 SEVERABILITY. Any provision of this Amendment which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining portions hereof or affecting the validity or
enforceability of such provisions in any other jurisdiction.
5.4 LAW. This Amendment shall be a contract made under the laws of the
State of Minnesota, which laws shall govern all the rights and duties hereunder.
5.5 SUCCESSORS; ENFORCEABILITY. This Amendment shall be binding upon
the Borrower and the Lender and their respective successors and assigns, and
shall inure to the benefit of the Borrower and the Lender and the successors and
assigns of the Lender. Except as hereby amended, the Credit Agreement shall
remain in full force and effect and is hereby ratified and confirmed in all
respects.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed at Minneapolis, Minnesota by their respective officers thereunto duly
authorized as of the date first written above.
WASHINGTON SCIENTIFIC
INDUSTRIES, INC.
By: /S/ Michael J. Pudil
----------------------------
Title: President/CEO
-------------------------
FBS BUSINESS FINANCE
CORPORATION
By: /S/ Leonard H. Ramotar
----------------------------
Title: VP
-------------------------
EXHIBIT A
SUPPLEMENT A
(AMENDED APRIL 30, 1997)
TO
AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT
DATED AS OF MARCH 31, 1995 BETWEEN
FBS BUSINESS FINANCE CORPORATION (THE "LENDER")
AND
WASHINGTON SCIENTIFIC INDUSTRIES, INC. (THE "BORROWER")
1. CREDIT AGREEMENT REFERENCE. This Supplement A, as it may be amended
or modified from time to time, is a part of the Amended and Restated Credit and
Security Agreement, dated as of March 31, 1995, between the Borrower and the
Lender (together with all amendments, modifications and supplements thereto, the
"Credit Agreement"). Capitalized terms used herein which are defined in the
Credit Agreement shall have the meanings given such terms in the Credit
Agreement unless the context otherwise requires.
2. DEFINITIONS.
2.1 REVOLVING CREDIT AMOUNT. The term "Revolving Credit
Amount" shall mean the maximum amount of Revolving Loans which the
Lender will make available to the Borrower which amount shall not
exceed ONE MILLION AND NO/100 DOLLARS ($1,000,000); provided, however,
that the aggregate outstanding principal balance of the Revolving Loans
plus the Letter of Credit Obligations shall not exceed the Revolving
Credit Amount.
2.2 BORROWING BASE.
(a) DEFINITION. The term "Borrowing Base" shall mean
an amount of up to 80% of the net amount (as determined by the
Lender after deduction of such reserves and allowances as the
Lender deems proper and necessary) of the Borrower's Eligible
Accounts Receivable.
(b) LENDER'S RIGHTS. The Borrower agrees that nothing
contained in this Supplement A (a) shall be construed as the
Lender's agreement to resort or look to a particular type or
item of Collateral or as security for any specific Loan or
advance or in any way limit the Lender's right to resort to
any or all of the Collateral or as security for any of the
Obligations, (b) shall be deemed to limit or reduce any lien
on or any security interest in or upon any portion of the
Collateral or other security for the Obligations or (c) shall
supersede Section 2.10 of the Credit Agreement.
2.3 LETTER OF CREDIT SUBLIMIT. The term "Letter of Credit
Sublimit" shall mean $300,000.
2.4 TERMINATION DATE. The term "Termination Date" shall mean
March 31, 2000.
3. INTEREST; FEES.
3.1 LOANS.
(a) INTEREST TO MATURITY. The unpaid principal
balance of the Revolving Loans shall bear interest to maturity
at the Reference Rate in effect from time to time plus 0.50%
per annum. The unpaid principal balance of the Term Loan shall
bear interest to maturity at the Reference Rate in effect from
time to time plus 0.75% per annum.
(b) DEFAULT RATE. If any amount of the Loans is not
paid when due, whether by acceleration or otherwise, the
entire unpaid principal balance of the Loans (other than
Overdraft Loans and Over Advances) shall bear interest until
paid at a rate per annum equal to the greater of (i) the
Reference Rate from time to time in effect plus 4% or (ii) 4%
above the Reference Rate in effect at the time such amount
became due.
3.2 OVERDRAFT LOANS; OVER ADVANCES. Overdraft Loans and Over
Advances shall bear interest at the rate(s) determined pursuant to
Section 2.7 or Section 2.8 of the Credit Agreement, as applicable.
3.3 COMMITMENT FEE. The Borrower shall pay to the Lender a
commitment fee for the period from the date hereof to the date the
Credit terminates in an amount equal to .50% per annum on the average
daily Unused Revolving Credit Amount.
3.4 LETTER OF CREDIT FEES. The Borrower shall pay the Lender,
or any Affiliate, a commission on the undrawn amount of each Letter of
Credit and on each L/C Draft accepted by the Lender, or such Affiliate,
in an amount equal to 2.0% per annum.
3.5 PREPAYMENT FEE. Upon prepayment in full of the Term Loan
pursuant to any third party refinancing of the same or in connection
with a sale of the Borrower or substantially all of its assets, the
Borrower shall pay to the Lender a prepayment fee in an amount equal to
one percent (1%) of the outstanding principal balance of the Term Loan;
provided, that if at the time of such prepayment the advance rate then
applicable to Eligible Accounts Receivable pursuant to Section 2.2(a)
of this Supplement A is less than 75%, the prepayment fee shall not be
applicable.
4. ELIGIBLE ACCOUNT RECEIVABLE REQUIREMENTS.
(a) For Accounts Receivable which are due and payable in full
within 30 days of the date of the invoice evidencing such Account
Receivable, such Account Receivable must not be unpaid on the date that
is 60 days after the due date. For Accounts Receivable which are due
and payable in full within 60, 90 or 120 days of the date of the
invoice evidencing such Account Receivable, such Account Receivable
must not be unpaid on the date that is 30 days after the due date.
(b) If invoices representing 10% or more of the unpaid net
amount of all Accounts Receivable from any one Account Debtor are
unpaid more than the number of days set forth in Section 4(a) above for
such Accounts Receivable, then all Accounts Receivable relating to such
Account Debtor shall cease to be Eligible Accounts Receivable.
5. ADDITIONAL COVENANTS. From the date of the Credit Agreement and
thereafter until all of the Borrower's Obligations under the Credit Agreement
are paid in full, the Borrower agrees that, unless the Lender shall otherwise
consent in writing, it will not, and will not permit any Subsidiary to, do any
of the following:
5.1 NET WORTH. Permit the Borrower's Net Worth at any time to
be less than $3,000,000.
5.2 LIABILITIES TO NET WORTH RATIO. Permit the ratio, as of
the last day of any fiscal quarter, of the Borrower's consolidated
total liabilities to the Borrower's Net Worth to exceed 4.0 to 1.0.
5.3 CAPITAL EXPENDITURES.
(a) Make Capital Expenditures in an amount exceeding
$3,000,000 on a consolidated basis in any fiscal year.
(b) Fund any Capital Expenditures with Revolving
Loans in an amount exceeding $1,000,000 in any fiscal year.
5.4 CASH FLOW COVERAGE RATIO.
(a) Permit the ratio of the Borrower's EBITDA to the sum of
(i) its consolidated interest expense (including, without limitation,
imputed interest expense on Capitalized Leases), plus (ii) mandatory
principal payments on Long Term Debt, plus (iii) income taxes actually
paid during such period, to be less than (x) 0.75 to 1.0 as of
November 24, 1996, for the four consecutive fiscal quarters ending on
that date and (y) 1.1 to 1.0 as of February 23, 1997, for the four
consecutive fiscal quarters ending on that date.
(b) Subsequent to February 23, 1997, permit the ratio, as of
the last day of any fiscal quarter, of the Borrower's EBITDA for the
four consecutive fiscal quarters ending on that date to the sum of
(a) its consolidated interest expense (including, without limitation,
imputed interest expense on Capitalized Leases), plus (b) mandatory
principal payments on Long Term Debt, plus (c) cash Capital
Expenditures not financed by Long Term Debt, plus (d) income taxes
actually paid during such period, to be less than 1.1 to 1.0.
Borrower's Initials /S/ Michael J. Pudil
--------------------
Lender's Initials /S/ Leonard H. Ramotar
----------------------
Dated as of April 30, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> MAY-25-1997
<CASH> 2,544,018
<SECURITIES> 0
<RECEIVABLES> 3,110,290
<ALLOWANCES> 50,000
<INVENTORY> 1,049,076
<CURRENT-ASSETS> 6,719,327
<PP&E> 25,711,530
<DEPRECIATION> 19,618,650
<TOTAL-ASSETS> 12,812,732
<CURRENT-LIABILITIES> 3,775,474
<BONDS> 2,913,405
0
0
<COMMON> 242,498
<OTHER-SE> 5,416,425
<TOTAL-LIABILITY-AND-EQUITY> 12,812,732
<SALES> 6,673,338
<TOTAL-REVENUES> 6,673,338
<CGS> 5,636,488
<TOTAL-COSTS> 5,636,488
<OTHER-EXPENSES> 610,308
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 66,516
<INCOME-PRETAX> 360,026
<INCOME-TAX> 0
<INCOME-CONTINUING> 360,026
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 360,026
<EPS-PRIMARY> .15
<EPS-DILUTED> .00
</TABLE>
