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 MARCH 28, 1997
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OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-9348
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QMS, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 63-0737870
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
ONE MAGNUM PASS, MOBILE, AL 36618
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(Address of principal executive offices) (Zip Code)
(334) 633-4300
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(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 the issuer's common stock, as of the latest practicable date
10,697,065 AT APRIL 25, 1997.
- -----------------------------------
<TABLE>
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QMS, INC. AND SUBSIDIARIES
INDEX
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PART I - FINANCIAL INFORMATION PAGE NUMBER
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<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
(unaudited) as of March 28, 1997 and
September 27, 1996 3 - 4
Condensed Consolidated Statements of Operations
(unaudited) for the three and six months ended
March 28, 1997 and March 29, 1996 5
Condensed Consolidated Statements of Cash Flows
(unaudited) for the six months ended
March 28, 1997 and March 29, 1996 6
Notes to Condensed Consolidated Financial Statements
(unaudited) 7 - 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10 - 12
PART II - OTHER INFORMATION 13
-----------------
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. (a) Exhibits
(b) Reports on Form 8-K
SIGNATURES 14
</TABLE>
<TABLE>
<CAPTION>
QMS, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
as of March 28, 1997 and September 27, 1996
(Unaudited)
March 28, September 27,
in thousands 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 253 $ 190
Trade Receivables (less allowance for doubtful
accounts of $340 at March 1997 and $383
at September 1996) 21,013 24,145
Note Receivable 110 667
Inventories, Net (Note 3) 28,635 28,366
Other Current Assets 2,637 2,908
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Total Current Assets 52,648 56,276
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PROPERTY, PLANT AND EQUIPMENT 43,035 62,534
Less Accumulated Depreciation 36,107 42,252
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Property, Plant and Equipment, Net 6,928 20,282
NOTES RECEIVABLE, NET 3,767 4,267
OTHER ASSETS, NET (Note 4) 12,601 10,893
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TOTAL ASSETS $ 75,944 $ 91,718
See Notes to Condensed Consolidated Financial Statements
</TABLE>
<TABLE>
<CAPTION>
QMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
as of March 28, 1997 and September 27, 1996
(Unaudited)
<S> <C> <C>
March 28, September 27,
in thousands 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 8,080 $ 7,463
Revolving Credit Loan and Short-Term Debt (Note 5) 1,609 14,432
Other Current Liabilities (Note 6) 18,304 18,646
------------- -------------
Total Current Liabilities 27,993 40,541
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS 526 531
OTHER LIABILITIES 3,776 3,214
STOCKHOLDERS' EQUITY 43,649 47,432
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 75,944 $ 91,718
See Notes to Condensed Consolidated Financial Statements
</TABLE>
<TABLE>
<CAPTION>
QMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Six Months Ended March 28, 1997 and March 29, 1996
(Unaudited)
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
------------------ ------------------
March 28, March 29, March 28, March 29,
in thousands, except per share amounts 1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
NET SALES
Printers and Supplies $ 22,487 $ 29,211 $ 45,602 $ 58,658
U.S. Service 8,400 8,192 16,753 16,090
----------- ----------- ----------- -----------
Total Net Sales 30,887 37,403 62,355 74,748
----------- ----------- ----------- -----------
COST OF GOODS SOLD
Printers and Supplies 18,087 19,981 34,938 40,273
U.S. Service 5,472 4,982 10,368 9,618
----------- ----------- ----------- -----------
Total Cost of Goods Sold 23,559 24,963 45,306 49,891
----------- ----------- ----------- -----------
GROSS PROFIT
Printers and Supplies 4,400 9,230 10,664 18,385
U.S. Service 2,928 3,210 6,385 6,472
----------- ----------- ----------- -----------
Total Gross Profit 7,328 12,440 17,049 24,857
----------- ----------- ----------- -----------
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 11,416 10,881 20,689 21,854
----------- ----------- ----------- -----------
OPERATING INCOME (LOSS) (4,088) 1,559 (3,640) 3,003
------------ ----------- ------------ -----------
OTHER INCOME (EXPENSE)
Interest Income 88 90 188 169
Interest Expense (223) (451) (548) (1,024)
Miscellaneous Expense (169) (141) (324) (472)
------------ ------------ ------------ ------------
Total Other Expense (304) (502) (684) (1,327)
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES (4,392) 1,057 (4,324) 1,676
INCOME TAX BENEFIT (6) 0 0 0
------------ ----------- ----------- -----------
NET INCOME (LOSS) $ (4,386) $ 1,057 $ (4,324) $ 1,676
EARNINGS (LOSS) PER
COMMON SHARE (Note 2)
Primary and Fully Diluted $ (0.41) $ 0.10 $ (0.40) $ 0.16
SHARES USED IN PER SHARE
COMPUTATION (Note 2)
Primary and Fully Diluted 10,697 10,723 10,695 10,700
See Notes to Condensed Consolidated Financial Statements
</TABLE>
<TABLE>
<CAPTION>
QMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended March 28, 1997 and March 29, 1996
(Unaudited)
March 28, March 29,
in thousands 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income (Loss) $ (4,324) 1,676
Adjustments to Reconcile Net Income (Loss) to Net Cash
Provided by Operating Activities:
Depreciation of Property, Plant and Equipment 2,536 2,786
Amortization of Capitalized and Deferred Software 3,235 2,134
Provision for Losses on Inventory 2,020 1,092
Other 50 60
Net Change in Assets and Liabilities that Provided Cash 711 8,499
------------- -------------
Net Cash Provided by Operating Activities 4,228 16,247
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Cash Flows from Investing Activities:
Additions to Notes Receivable 0 (7,500)
Collections of Notes Receivable 1,057 0
Purchase of Property, Plant and Equipment (1,079) (808)
Proceeds from Disposal of Property, Plant and Equipment 12,585 0
Additions to Capitalized and Deferred Software Costs (4,233) (3,827)
Proceeds from Divestiture of Businesses 0 9,800
Other 0 90
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Net Cash Provided by (Used in) Investing Activities 8,330 (2,245)
------------- -------------
Cash Flows from Financing Activities:
Proceeds from Debt and Capital Lease Obligations 318 12,887
Payments of Debt and Capital Lease Obligations (13,146) (25,356)
Payments of Bank Loans 0 (7,764)
Other 328 158
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Net Cash Used in Financing Activities (12,500) (20,075)
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Effect of Exchange Rate Changes on Cash 5 (272)
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Net Change in Cash and Cash Equivalents 63 (6,345)
Cash and Cash Equivalents at Beginning of Period 190 7,431
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Cash and Cash Equivalents at End of Period $ 253 $ 1,086
See Notes to Condensed Consolidated Financial Statements
</TABLE>
QMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.MANAGEMENT OPINION
In the opinion of management, the condensed consolidated financial statements
reflect all adjustments necessary to present fairly the financial position of
the Company as of March 28, 1997, the results of operations for the three and
six months ended March 28, 1997 and March 29, 1996 and changes in cash flows
for the six months ended March 28, 1997 and March 29, 1996. All adjustments
included in the condensed consolidated financial statements are of a normal
recurring nature except amounts related to the restructuring reserves (see
Note 8). The results of operations for the six months ended March 28, 1997
are not necessarily indicative of the results to be expected for the fiscal
year ending October 3, 1997.
2.PER COMMON SHARE COMPUTATIONS
Per share computations are based on the weighted average number of common
shares outstanding during the period and the dilutive effect of the assumed
exercise of stock options. This effect was not material for the three- and
six-month periods ending March 28, 1997 and March 29, 1996 and did not change
the amounts of the primary and fully diluted earnings (loss) per common
share.
3.INVENTORIES
Inventories at March 28, 1997 and September 27, 1996 are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
March 28, September 27,
1997 1996
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<S> <C> <C>
Raw materials $ 6,303 $ 6,164
Work in process 2,232 1,426
Finished goods 24,706 25,953
Inventory reserves (4,606) (5,177)
---------------- ---------------
TOTAL $ 28,635 $ 28,366
</TABLE>
4.OTHER ASSETS
Other assets at March 28, 1997 and September 27, 1996 are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
March 28, September 27,
1997 1996
----------------- -----------------
<S> <C> <C>
- ---
Capitalized and deferred software costs $ 10,526 $ 9,528
Other 2,075 1,365
---------------- ---------------
TOTAL $ 12,601 $ 10,893
</TABLE>
5.CLASSIFICATION OF REVOLVING CREDIT LOAN
In compliance with FASB Emerging Issues Task Force Issue No. 95-22, "Balance
Sheet Classification of Borrowings Outstanding Under Revolving Credit
Arrangements That Include a Subjective Acceleration Clause and a Lock-Box
Arrangement," the Company's revolving credit loan is classified as short-term
debt in the financial statements. This revolving credit agreement expires in
November 1999. The Company has received a waiver of noncompliance from the
lender for the net worth requirement at March 28, 1997, and was in compliance
with all other covenants.
6.OTHER CURRENT LIABILITIES
Other current liabilities at March 28, 1997 and September 27, 1996 are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
March 28, September 27,
1997 1996
----------------- -----------------
<S> <C> <C>
Employment costs $ 3,935 $ 3,714
Deferred service revenue 10,316 10,362
Accrued expenses 1,250 1,075
Restructuring reserves 344 466
Other 2,459 3,029
---------------- ---------------
TOTAL $ 18,304 $ 18,646
</TABLE>
7.COMMITMENTS AND CONTINGENCIES
As of March 28, 1997, the Company had a commitment of approximately $14.5
million under contracts to purchase print engines and related components.
The Company was contingently liable for approximately $235,000 as of March
28, 1997, the result of letters of credit issued in the normal course of
business for the purchase of inventory.
8.RESTRUCTURING RESERVES
At September 27, 1996 the Company had reserves for restructuring charges and
business divestitures totaling $466,000. During the first six months of
fiscal 1997, total net charges of $122,000 were taken against these reserves
leaving a balance of $344,000 at March 28, 1997.
9.SALE-LEASEBACK
In February 1997, the Company completed the sale and leaseback of land and
buildings at its Mobile, Alabama headquarters and operations. The initial
term of the operating lease is fifteen years with renewal options for five
additional five-year periods. Rent of approximately $0.4 million is payable
quarterly in advance, subject after three years to adjustment for increases
in the Consumer Price Index.
Net proceeds of the sale were approximately $12.5 million and resulted in a
gain of approximately $0.5 million. The net proceeds were used to retire the
existing term loan and to substantially reduce the balance of the Company's
revolving credit loan. The gain will be recognized over the initial fifteen-
year term of the lease. The lease agreement contains certain financial
covenants and the Company was in full compliance with these covenants at
March 28, 1997.
10. RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share," which
replaces the presentation of primary earnings per share with a presentation
of basic earnings per share. It also requires dual presentation of basic and
diluted earnings per share on the face of the income statement for all
entities with complex capital structures and provides guidance on other
computational changes. The Company will adopt SFAS 128 in the first quarter
of fiscal 1998 and management does not expect the adoption of this Statement
to have a material impact on the Company's earnings per share in the near
future.
11. RECLASSIFICATIONS
Certain reclassifications have been made to fiscal 1996 amounts to conform to
the fiscal 1997 presentation.
QMS, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
________________________________________________________________________________
RESULTS OF OPERATIONS
- ---------------------
The net loss for the second quarter of fiscal 1997 was $4.4 million on net sales
of $30.9 million and for the six months ended March 28, 1997, was a net loss of
$4.3 million on net sales of $62.4 million. These 1997 results compare to net
income of $1.1 million on net sales of $37.4 million for the second quarter of
fiscal 1996 and $1.7 million on net sales of $74.7 million for the six months
ended March 29, 1996. The loss in the second quarter of fiscal 1997 includes
an increase in the reserves for excess and obsolete inventory of approximately
$0.8 million ($0.08 per share) for end-of-life products, primarily in color
printer equipment. In addition, unusual expenses of approximately $0.4 million
($0.04 per share) were recorded for expenses related to the sale-leaseback of
the corporate facility and the write-off of various non-operating accounts
receivable.
<TABLE>
Table of Net Sales Comparisons for Key Channels of Distribution
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<CAPTION>
Three Months Ended Six Months Ended
----------------------------------------- ----------------------------------------
March 28, March 29, March 28, March 29,
(000's) 1997 1996 Difference 1997 1996 Difference
- ------- ---- ---- ---------- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
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U.S. Direct $ 11,042 $ 11,802 $ (760) $ 23,528 $ 24,539 $ (1,011)
U.S. Service 8,400 8,192 208 16,753 16,090 663
U.S. Reseller 2,340 4,289 (1,949) 5,258 9,064 (3,806)
Europe 2,939 6,118 (3,179) 5,706 11,226 (5,520)
Japan 2,150 2,798 (648) 3,328 5,300 (1,972)
Canada 2,015 2,343 (328) 4,048 5,424 (1,376)
QMS Circuits 481 973 (492) 995 1,846 (851)
All Other 1,520 888 632 2,739 1,259 1,480
--------------------------------------- --------------------------------------
Total Net Sales $ 30,887 $ 37,403 $ (6,516) $ 62,355 $ 74,748 $ (12,393)
</TABLE>
Net sales for the second quarter of fiscal 1997 declined by 17.4% from net sales
for the second quarter of fiscal 1996 and by 16.6% in the six-month comparison.
Lower revenues in Japan and Europe and U.S. reseller channels caused 88.6% ($5.8
million) and 91.2% ($11.3 million) of the decline in net sales for the second
quarter and six-month comparisons from fiscal 1996 to fiscal 1997, respectively.
The decrease in Europe and Japan revenue was caused primarily by the fiscal 1996
end-of-life sales of the 16 page-per-minute product. This resulted in higher
fiscal 1996 sales without a corresponding increase in 1997 of the replacement
product. Because the fiscal 1996 sales were at greatly reduced margins there
has not been a corresponding reduction in profit margin in fiscal 1997. The
U.S. reseller channel decline in net sales was due to a new emphasis on niche
market resellers. The Company has now refocused its efforts on traditional as
well as niche distributors which should position the Company for greater
penetration and revenue growth.
Overall, the Company's gross profit as a percentage of sales decreased from
33.3% to 23.7% in the three-month comparison and from 33.3% to 27.3% in the six-
month comparison. The principal reasons for this decline are an increase of
approximately $0.8 million in reserves for end-of-life product inventory caused
by lower sales and an increase of approximately $0.7 million in software
amortization due to the release of new products.
The selling, general, and administrative expenses ("SG&A") increased 4.9% (from
$10.9 million in fiscal 1996 to $11.4 million in fiscal 1997) in the three-month
comparison and decreased 5.3% (from $21.9 million in fiscal 1996 to $20.7
million in fiscal 1997) in the six-month comparison. The six-month decrease of
$1.2 million reflects both the continuing success of the Company's expense
management program (implemented during the first half of fiscal 1996) and the
Company's ability to keep expenses in line with revenues. The increase in SG&A
in the second quarter comparison relates primarily to increases in the direct
sales force and approximately $0.1 million in rent expense as a result of the
sale-leaseback transaction for which there is a corresponding reduction in
interest expense.
Total other expense for the first six months of fiscal 1997 was $0.7 million
compared to $1.3 million in the comparable period of fiscal 1996. This
reduction of $0.6 million, or 48.5%, is caused primarily by lower Company debt
resulting in lower interest expense. Interest-bearing debt has been reduced
from $18.2 million at March 29, 1996, to $2.1 million at March 28, 1997,
primarily due to net proceeds from the sale and leaseback of the Company's land
and buildings in Mobile, Alabama (discussed in the Financial Condition section
below).
The Company has not provided for any income tax expense during fiscal 1996 or
1997 due to available operating loss carryforwards and income tax credits.
FINANCIAL CONDITION
- -------------------
In February 1997, the Company completed the sale and leaseback of land and
buildings at its Mobile, Alabama headquarters and operations. Net proceeds of
the sale were approximately $12.5 million and resulted in a gain of
approximately $0.5 million. The net proceeds were used to retire the existing
term loan and to substantially reduce the balance of the Company's revolving
credit loan. The gain will be recognized over the initial fifteen-year term of
the lease.
Current and long-term notes receivable decreased by approximately $0.6 million
and $0.5 million, respectfully, reflecting the continued paydown of the debt
associated with the sale of the Company's foreign subsidiaries. Accounts
receivable decreased $3.1 million during the first two quarters of fiscal 1997
due to lower sales and increased collection effort.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
During the second quarter and first six months of fiscal 1997, the Company's
working capital and capital expenditure requirements came principally from
operations and proceeds from the sale and leaseback of land and buildings in
Mobile, Alabama. The Company's net working capital as of March 28, 1997, was
$24.7 million compared to $15.7 million at September 27, 1996. This increase is
principally due to the retirement of the senior secured notes payable and the
reduction of the balance of the revolving credit loan.
At March 28, 1997, borrowings under the revolving credit facility were $1.0
million. Total borrowing capacity under this credit facility is $30.0 million.
Availability at any given point in time is a function of eligible accounts
receivable and inventory levels. At March 28, 1997, total availability was
$13.0 million.
REVOLVING CREDIT FACILITY
- -------------------------
In compliance with FASB Emerging Issues Task Force Issue No. 95-22, "Balance
Sheet Classification of Borrowings Outstanding Under Revolving Credit
Arrangements That Include a Subjective Acceleration Clause and a Lock-Box
Arrangement," the Company's revolving credit loan is classified as short-term
debt in the financial statements. This revolving credit facility expires in
November 1999 and requires the Company to comply with various restrictive
covenants that require the maintenance of certain financial conditions. The
Company has received a waiver of noncompliance from the lender for the net worth
requirement at March 28, 1997, and was in compliance with all other covenants.
Management believes that the Company's continuing working capital and capital
expenditure requirements will be met by cash flow from operations and borrowings
under the Foothill credit facility.
FOREIGN CURRENCY EXCHANGE RATES
- -------------------------------
The Company purchases print engine mechanisms and memory components from several
Japanese suppliers. Fluctuations in foreign currency exchange rates will affect
the prices of these products. The Company attempts to mitigate possible
negative impacts through yen-sharing arrangements with suppliers, foreign
exchange contracts and price negotiations; however, material price increases
resulting from exchange rate fluctuations could develop which would adversely
affect operating results.
QMS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
- --------------------------------------------------------------------------------
ITEM 1. LEGAL PROCEEDINGS
- ---------------------------
The Company is a defendant in a case in the United States District Court for the
Southern District of Alabama involving a former employee alleging violation of
the plaintiff's civil rights and certain other acts of wrongful conduct. The
Company has filed an answer denying all allegations of wrongful conduct in the
complaint. The Company cannot predict the ultimate outcome of this case;
however, it does not expect the resolution of this matter to materially affect
the Company's financial condition or results of operations.
ITEM 2. CHANGES IN SECURITIES - None.
- ------------------------------
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
- -----------------------------------------
(a) The Company's revolving credit facility expires in November 1999 and
requires the Company to comply with various restrictive covenants that require
the maintenance of certain financial conditions. The Company has received a
waiver of noncompliance from the lender for the net worth requirement at March
28, 1997, and was in compliance with all other covenants.
(b) None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None.
- ------------------------------------------------------------
ITEM 5. OTHER INFORMATION - None.
- --------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description
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<S> <C>
- ----------------------------------
10(r)(xiv) Waiver Agreement dated May 5, 1997 waiving certain provisions of the
Loan and Security Agreement.
27 Financial Data Schedule
</TABLE>
(b) Reports: The following report was filed on Form 8-K during the second
quarter of fiscal 1997.
o Form 8-K dated February 18, 1997 reporting the disposition of assets in a
sale-leaseback transaction.
QMS, INC. AND SUBSIDIARIES
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.
<TABLE>
<CAPTION>
<S> <C>
QMS, INC.
(Registrant)
Date: May 9, 1997 /s/ Gerald G. Roenker
----------------------------- ----------------------------------------------
GERALD G. ROENKER
Executive Vice President, Chief Operating
Officer and Chief Financial Officer
(Mr. Roenker is the Principal Operating and
Financial Officer and has been duly authorized
to sign on behalf of the Registrant.)
</TABLE>
Exhibit 10(r)(xiv)
VIA FEDERAL EXPRESS
May 5, 1997 Foothill.
QMS, Inc.
One Magnum Pass
Mobile, Alabama 26618
Attention: Richard Wiggins, CFO
Gentlemen:
Reference is hereby made to that certain Loan And Security Agreement, (as
amended and supplemented, the "Agreement") dated as of November 7, 1995 by
and between Foothill Capital Corporation ("Foothill") and QMS, Inc.
("Borrower"). Terms defined in the Agreement which are used herein shall
have the same meanings as set forth in the Agreement, unless otherwise
specified.
Borrower has requested, and this letter shall serve as Foothill's agreement
to waive Borrower's compliance with the Tangible Net Worth covenant under
Section 6.13(c) of the Agreement for its fiscal quarter ended March 28,
1997.
Foothill shall charge Borrower's loan account a fee in the amount of Two
Thousand Five Hundred ($2,500.00) upon execution and delivery of this
waiver letter. Said fee shall be in addition to any other fees, expenses,
or compensation payable to Foothill under any Loan Document, shall be
compensation to Foothill for said waiver, and fully-earned, non-refundable
on the date Borrower's loan account is charged.
This waiver is effective only to the extent specifically stated above and
does not affect or diminish Foothill's rights hereafter to require strict
performance by Borrower of this provision of the Agreement. Foothill's
rights and remedies under the Agreement continue in full force and effect
and the consequences of any act or failure to act on the part of Borrower
which would constitute an Event of Default as defined in the Agreement and
to which Foothill has not herein specifically consented are not waived.
Sincerely,
FOOTHILL CAPITAL CORPORATION
By /s/ Lisa M. Gonzales
Lisa M. Gonzales
Its Assistant Vice President
Foothill Capital Corporation/310-996-7000
11111 Santa Monica Blvd., Suite 1500, Los Angeles, California 90025-3333
A NORWEST Company
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<CURRENCY> $
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-03-1997
<PERIOD-START> SEP-28-1996
<PERIOD-END> MAR-28-1997
<EXCHANGE-RATE> .00001
<CASH> 253
<SECURITIES> 0
<RECEIVABLES> 21353
<ALLOWANCES> 340
<INVENTORY> 28635
<CURRENT-ASSETS> 52648
<PP&E> 43035
<DEPRECIATION> 36107
<TOTAL-ASSETS> 75944
<CURRENT-LIABILITIES> 27993
<BONDS> 0
0
0
<COMMON> 118
<OTHER-SE> 43531
<TOTAL-LIABILITY-AND-EQUITY> 75944
<SALES> 62355
<TOTAL-REVENUES> 62355
<CGS> 45306
<TOTAL-COSTS> 45306
<OTHER-EXPENSES> 20689
<LOSS-PROVISION> 2020
<INTEREST-EXPENSE> 548
<INCOME-PRETAX> (4324)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4324)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4324)
<EPS-PRIMARY> (0.40)
<EPS-DILUTED> (0.40)
</TABLE>
