<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
---------------------
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
- ----- EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
---------------------
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
- ----- EXCHANGE ACT OF 1934
For the transition period from to
---------- ----------
Commission File Number 0-13324
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QUESTRON TECHNOLOGY, INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 23-2257354
- ---------------------------------------- -------------------------------
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification Number)
6400 Congress Avenue, Suite 200A, 33487
Boca Raton, FL
- ----------------------------------------- -------------------------------
(Address of principal executive offices) (Zip Code)
(561) 241 - 5251
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(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
------ -------
As of May 12, 1997, there were 1,535,484 shares of the issuer's Common
Stock and 1,150,000 shares of the issuer's Series B Convertible Preferred Stock
outstanding.
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QUESTRON TECHNOLOGY, INC.
INDEX
Page No.
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PART I. Financial Information
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheet -
At March 31, 1997 and December 31, 1996 3
Consolidated Statement of Operations -
Three Months Ended March 31, 1997 and 1996 4
Consolidated Statement of Cash Flows -
Three Months Ended March 31, 1997 and 1996 5
Notes to Consolidated Financial Statements 6 - 7
Item 2. Management's Discussion and Analysis or Plan of 8 - 11
Operation
PART II. Other Information 12
Signature Page 13
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
QUESTRON TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 1997 AND DECEMBER 31, 1996
ASSETS
MARCH 31, DECEMBER 31,
1997 1996
------------ ------------
Current assets:
Cash and cash equivalents $ 873,900 $ 74,400
Accounts receivable, less allowance for
doubtful accounts of $93,885 and $53,773,
respectively 2,525,066 1,228,803
Other receivables 20,947 14,638
Inventories 4,760,184 3,168,767
Other current assets 165,915 83,417
------------ ------------
Total current assets 8,346,012 4,570,025
Property and equipment - net 444,598 373,367
Cost in excess of net assets of businesses acquired,
less accumulated amortization of $353,594 and
$303,356, respectively 10,742,192 6,694,153
Other assets 192,432 394,249
============ ============
Total assets $19,725,234 $12,031,794
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 2,509,828 $ 977,263
Current portion of long-term debt 625,000 550,000
------------ ------------
Total current liabilities 3,134,828 1,527,263
Long-term debt 1,531,266 1,785,000
------------ ------------
Total liabilities 4,666,094 3,312,263
------------ ------------
Commitments and Contingencies
Shareholders' Equity:
Preferred stock, $.01 par value; authorized
10,000,000 shares; 1,150,000 issued
and outstanding 11,500 --
Common stock, $.001 par value; authorized 20,000,000
shares; issued 1,547,333 shares in 1997 and 1996 1,547 1,547
Additional paid-in capital 29,883,122 23,880,069
Accumulated deficit (14,481,551) (14,806,607)
------------ ------------
15,414,618 9,075,009
Less: Treasury stock, 11,849 shares, at cost (355,478) (355,478)
------------ ------------
Total shareholders' equity 15,059,140 8,719,531
------------ ------------
Total liabilities and shareholders' equity $19,725,234 $12,031,794
============ ============
See notes to consolidated financial statements.
3
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QUESTRON TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
THREE MONTHS ENDED
MARCH 31,
-------------------------
1997 1996
------------ ------------
Revenue:
Sales
$ 3,896,764 $ 2,767,137
Fee income 15,513 51,363
------------ ------------
3,912,277 2,818,500
------------ ------------
Operating costs and expenses:
Cost of products and services sold 2,328,374 1,675,487
Selling, general & administration expenses 1,086,020 861,354
Depreciation and amortization 79,870 64,272
------------ ------------
3,494,264 2,601,113
------------ ------------
Operating income 418,013 217,387
Interest expense 60,209 79,160
------------ ------------
Income before income taxes 357,804 138,227
Provision for income taxes 32,750 20,953
------------ ------------
Net income $ 325,054 $ 117,274
============ ============
Net income per common share $ .17 $ .08
============ ============
Average number of common shares and common
share equivalents outstanding 1,968,091 1,541,039
============ ============
See Notes to Consolidated Financial Statements.
4
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QUESTRON TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1997 1996
-------------- --------------
<S> <C>
Cash flows from operating activities:
Net income $ 325,054 $ 117,274
Adjustments to reconcile net income to net
cash provided (used) by operating
activities:
Depreciation and amortization 79,870 64,272
Provision for doubtful accounts 14,112 16,591
Change in assets and liabilities:
(Increase) in accounts receivable (187,102) (48,327)
(Increase) decrease in other receivables (6,309) 25,099
Decrease (increase) in inventories 126,220 (23,405)
Decrease (increase) in prepaid expenses
and other assets 364,874 (40,789)
Increase (decrease) in accounts payable
and accrued expenses 410,428 (140,436)
------------- -------------
Net cash provided (used) by operating
activities 1,127,147 (29,721)
------------- -------------
Cash flows from investing activities:
Net cash consideration paid for acquired
business (4,921,809) --
Acquisition of property and equipment (1,380) (27,681)
------------- -------------
Net cash used for investing activities (4,923,189) (27,681)
------------- -------------
Cash flows from financing activities:
Proceeds from borrowings under revolving
facility -- 315,000
Proceeds from long-term borrowings 750,000 --
Proceeds from issuance of warrants 375,000 --
Proceeds from Convertible Preferred Stock
Unit Offering 6,900,000 --
Costs associated with Convertible
Preferred Stock Unit Offering (1,260,447) --
Repayment of long-term debt (137,500) (137,500)
Repayment of revolving facilities (2,033,193)
------------- -------------
Net cash provided by financing activities 4,593,860 177,500
------------- -------------
Increase in cash and cash equivalents 797,818 120,098
Cash and cash equivalents at beginning of
period 76,082 39,358
============= =============
Cash and cash equivalents at end of period $ 873,900 $ 159,456
============= =============
</TABLE>
See Notes to Consolidated Financial Statements.
5
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QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
NOTE 1. BASIS OF PRESENTATION.
The accompanying unaudited consolidated financial statements
include the accounts of the Company and its subsidiaries. The consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and in accordance with
the instructions for Form 10-QSB. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have been
included. Operating results for the three month period ended March 31, 1997 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1997. The consolidated balance sheet as of December 31,
1996 reflects the audited balance sheet at that date. For further information,
refer to the financial statements and footnotes thereto included in the
Company's annual report on Form 10-KSB for the year ended December 31, 1996.
NOTE 2. ACQUISITION OF WEBB DISTRIBUTION.
In March 1997, the Company's wholly-owned subsidiary Quest
Electronic Hardware, Inc. ("Quest") acquired 100% of the stock of Comp Ware,
Inc. d/b/a Webb Distribution ("Webb"), a privately owned company. The business
of Webb is substantially similar to the business of Quest, serving customers in
the high technology equipment manufacturing industry. The purchase price of Webb
consisted of:
(i) $3,250,000 in cash;
(ii) Note A in the amount of $375,000. Principal and interest
at the rate of 10% are due and payable 18 months from the
effective date of the closing;
(iii) Note B in the amount of $375,000. Principal and interest at
the rate of 10% are payable monthly over five years from
the effective date of the closing; and
(iv) 1,500,000 Series IV Warrants (the "Webb Warrants") issued to
the majority shareholder of Webb as a down payment under the
Stock Purchase Agreement.
6
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QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
The Company's obligations under Notes A and B above may be reduced on a
dollar for dollar basis in the event and to the extent that the former majority
stockholder receives net proceeds greater than $375,000 from a sale of the Webb
Warrants. In addition, the Notes will be canceled in the event that the
Underwriter releases the lock-up in connection with a proposed transaction to
sell the Webb Warrants and the majority stockholder of Webb declines to sell
such warrants following such release.
Such acquisition was effected pursuant to a Stock Purchase Agreement
dated as of December 16, 1996. The Company has accounted for such acquisition
using the purchase method of accounting. In connection with this acquisition,
the Company recorded $4,091,077 of cost in excess of net assets of the business
acquired.
NOTE 3. CONVERTIBLE PREFERRED STOCK UNIT OFFERING
In March 1997, the Company completed an Offering of 1,150,000 Units of
its securities. Each Unit consisted of one share of Series B Convertible
Preferred Stock and one Series IV Common Stock Purchase Warrant. The net
proceeds to the Company, after deducting underwriting discounts and other
expenses of the Offering, were $5,639,553. These proceeds were used in part to
finance the cash portion of the purchase price of Webb. The remaining cash
($2,389,553) was used to repay the outstanding balance on Quest's revolving
credit facility ($750,000) and to repay the outstanding balance on Webb's
revolving credit facility ($1,000,000), with the remaining balance ($639,553)
retained by the Company for working capital.
NOTE 4. REVOLVING CREDIT FACILITY.
In connection with the acquisition of Webb, Quest entered into an
amendment to its Loan & Security Agreement with a bank. The amendment provides
for Quest to be able to borrow, for working capital purposes, loans of up to
$3,000,000 under an annually renewable two-year revolving facility. The Loan
Agreement contains a provision for the calculation of a borrowing base, which
determines the amount of borrowings available under the revolving facility.
Interest on the revolving facility is due monthly at the prime rate plus 1%.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
For the three months ended March 31, 1997.
The results of operations through March 31, 1997 include the operating
results of the Company's fasteners and electronic hardware distribution
("Distribution") business and its alternative dispute resolution ("ADR")
business. The Distribution business includes the operating results of Quest
Electronic Hardware, Inc. ("Quest") for the three months ended March 31, 1997
and the operating results of Webb Distribution ("Webb") for the month ended
March 31, 1997. Webb, which was acquired by Quest in March 1997, is a fasteners
and electronic hardware distribution business serving the New England market.
The following summarizes the results of operations for each of the
Company's businesses and corporate for the three month period ended March 31,
1997:
THREE MONTHS ENDED MARCH 31, 1997
-------------------------------------------------------
DISTRIBUTION ADR CORPORATE TOTAL
------------ ----------- ------------- ------------
Revenue $ 3,896,764 $ 15,513 $ -- $ 3,912,277
Costs and expenses 3,340,116 46,839 107,309 3,494,264
------------ ----------- ------------- ------------
Operating income 556,648 (31,326) (107,309) 418,013
Interest income
(expense) (62,378) -- 2,169 (60,209)
------------ ----------- ------------- ------------
Income (loss)
before taxes 494,270 (31,326) (105,140) 357,804
Tax provision 32,750 -- -- 32,750
============ =========== ============= ============
Net income (loss) $ 461,520 $ (31,326) $ (105,140) $ 325,054
============ =========== ============= ============
The Company's revenues for the three months ended March 31, 1997 amounted
to $3,912,277, compared with $2,818,500 for the three months ended March 31,
1996. The significant growth in the Company's revenues is due to the growth of
its Distribution business, which had revenues of $3,896,764 in the 1997 period,
representing a record level of sales for the business, compared with $2,767,137
for the comparable prior year period. The 1997 revenues of the Company's
Distribution business include the growth in revenues of Quest in the markets it
serves, including its 1996 expansion into the Austin,
8
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Texas market and the revenues of Webb for the month of March 1997. Revenues of
the ADR business for the three month ended March 31, 1997 declined 70% compared
with the comparable period in the prior year. This decline reflects the effects
of increased competition, which continue to erode the revenues of the ADR
business. The Company has evaluated its alternatives with respect to the future
operation of its ADR business and has concluded that it will sell or
discontinue the business as of May 31, 1997.
The Company's operating income was $418,013 for the three months ended
March 31, 1997 compared with operating income of $217,387 for the comparable
period of the prior year. The increase in operating income for the three month
period ended March 31, 1997 compared with the comparable prior year period is
primarily due to the operating income achieved by the Distribution business of
$556,648 compared with operating income from the Distribution business of
$314,689 for the comparable prior year period. The increase in operating income
of the Distribution business resulted in a record level of operating income for
the Company. The Distribution business' operating income of $556,648 for the
three month period ended March 31, 1997 represents approximately 14% of its
revenues, a relationship which is consistent with the historical performance of
the Distribution business and greatly improved over recent quarters as the
temporary pause in the semiconductor industry begins to reverse itself.
Interest expense, which principally reflects the cost of borrowings
associated with the Distribution business, amounted to $60,209 for the three
months ended March 31, 1997 compared with $79,160 for the comparable prior year
period. The decrease in interest expense principally reflects the pay down of
revolving credit facilities of the Distribution business with a portion of the
net proceeds received by the Company from the Preferred Stock Unit Offering in
March 1997.
The provision for income taxes for the three months ended March 31, 1997
principally reflects state income tax provisions for states in which the
Distribution business conducts business. The provision for income taxes also
includes a minimal provision for federal income taxes for the federal
alternative minimum tax. The Company is not expected to have a regular federal
income tax liability for 1997, as a result of the availability of net operating
loss income tax carryforwards of approximately $12.5 million as of December 31,
1996, expiring in the years 2000 through 2009.
Net income for the three months ended March 31, 1997 amounted to $325,054
compared with net income of $117,274 for the comparable period of the prior
year. This improvement reflects the increased operating income of the
Distribution business, partially reduced by income taxes and the increased
operating losses of the ADR business.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1997, the Company had $873,900 in cash and short-term
investments, compared to $74,400 as of December 31, 1996. As of March 31, 1997,
the Company had working capital of $5,211,184, compared with working capital of
$3,042,762 as of December 31, 1996.
9
<PAGE>
For the three months ended March 31, 1997, the net cash provided by the
Company's operating activities amounted to $1,127,147, principally reflecting a
decrease in prepaid expenses, other assets and inventories, and an increase in
accounts payable and accrued expenses, as well as the profits of the Company's
Distribution business offset in part by the increase in accounts receivable.
Corporate expenses and the operations of the Company's ADR business continued
to use cash, although at a reduced rate compared with prior years. As
previously discussed, the Company has evaluated its alternatives with respect
to the future operation of its ADR business and has concluded that it will sell
or discontinue the business as of May 31, 1997.
For the three months ended March 31, 1997, the net cash used in the
Company's investing activities amounted to $4,923,189, including $4,921,809 net
cash consideration paid for the acquisition of Webb Distribution. In addition,
the Company had capital expenditures $1,380 for the acquisition of fixed
assets, primarily computer and warehouse equipment to support the continued
growth of the Company's Distribution business. The Company does not have
significant commitments for capital expenditures as of March 31, 1997 and no
significant commitments are anticipated for the remainder of 1997.
For the three months ended March 31, 1997, the net cash provided by the
Company's financing activities amounted to $4,593,860, which consists of
$5,639,553 in net proceeds derived from an Offering of Units of the Company's
securities, a $750,000 note payable to the seller of Webb and $375,000 in
warrants issued to the seller of Webb as a down payment on the purchase price
of Webb, reduced by repayments of Quest's and Webb's revolving facilities of
$2,033,193 and $137,500 of principal repaid on the term debt.
In connection with the acquisition of Webb, Quest increased its revolving
facility to $3,000,000, under terms and conditions generally consistent with
those already in effect for the original facility. At March 31, 1997, $95,566
was borrowed and outstanding under the revolving facility. The remaining amount
of the $3,000,000 revolving facility, or $2,904,434, was fully available at
March 31, 1997 for future working capital needs. Amounts outstanding under the
revolving facility bear interest at a rate equal to 1.0% above the lender's
prime rate. As of May 12, 1997, the interest rate on the amount outstanding
under the revolving facility was 9.25%. In order to secure the obligations of
Quest under the revolving facility and the related term loan facility under the
loan and security agreement with the lender, the Company entered into a stock
pledge agreement with the lender whereby the Company pledged to the lender the
shares of capital stock of Quest which the Company held at the date of such
agreement and any shares of Quest in which the Company may thereafter acquire
an interest. In addition, Quest granted a security interest in substantially
all of its assets to the lender and a major shareholder of the Company
guaranteed the obligations of Quest under the loan agreement.
The Company intends to continue to identify and evaluate potential merger
and acquisition candidates engaged in lines of business complementary to the
Distribution businesses. While certain of such potential acquisition
opportunities are at various stages of consideration and evaluation, none is at
any definitive stage at this time. Management believes that its working
capital, funds available under its credit agreement, and funds
10
<PAGE>
generated from operations will be sufficient to meets its obligations through
1997, exclusive of any cash requirements which may come about as a result of
other business acquisitions.
11
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PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Not applicable.
Item 2. CHANGES IN SECURITIES
Not applicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
Item 5. OTHER INFORMATION
Not applicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits:
10.1 Amendment No. 4, dated as of April 9, 1997, to the Loan and
Security Agreement, dated as of March 31, 1995, Between Silicon
Valley Bank and Quest Electronics Hardware, Inc.
Reports on Form 8-K:
Not applicable.
12
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
QUESTRON TECHNOLOGY, INC.
(1) Principal Executive Officer:
Date: May 14, 1997 /s/ Dominc A. Polimeni
-------------- ----------------------
Dominic A. Polimeni
Chief Executive Officer
(2) Principal Financial and Accounting
Officer:
Date: May 14, 1997 /s/ Milton M. Adler
------------- -------------------
Milton M. Adler
Treasurer
13
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EXHIBIT 10.1
AMENDMENT
TO
LOAN AND SECURITY AGREEMENT
This Amendment to Loan and Security Agreement is entered into as of April
9, 1997 (this "Amendment"), by and between Silicon Valley Bank ("Bank") and
Quest Electronic Hardware, Inc. ("Borrower").
RECITALS
Borrower and Bank are parties to that certain Loan and Security Agreement
dated as of March 31, 1995, as amended from time to time, including, without
limitation, the Amendment No. 1 to Loan and Security Agreement dated May 31,
1995, the Amendment No. 1 to Loan and Security Agreement dated November 16,
1995, the Amendment to Loan and Security Agreement dated March 31, 1996, and
the Amendment to Loan and Security Agreement dated September 30, 1996
(collectively, the "Agreement"). The parties desire to amend the Agreement in
accordance with the terms of this Amendment.
NOW, THEREFORE, the parties agree as follows:
1. The following definitions in Section 1.1 are hereby amended
to read as follows:
"Committed Line" means Three Million Dollars ($3,000,000).
"Guarantor" means Questron Technology, Inc.
"Guaranty" means the Unconditional Guaranty dated September
26, 1996 executed by Guarantor in favor of Bank.
"Letters of Credit" means a letter of credit or similar undertaking
issued by Bank pursuant to Section 2.1.2.
"Revolving facility Maturity Date" means March 30, 1999, as
extended from time to time in Bank's sole discretion pursuant to
Section 2.1, provided that the Revolving Facility Maturity Date
shall be March 30, 1998 if Bank gives Borrower notice not later
than December 31, 1997 that Borrower has not complied with the
terms of the Agreement to Bank's reasonable satisfaction.
"Total Liabilities" means as of any applicable date, any date as of
which the amount thereof shall be determined, all obligations that
should, in accordance with GAAP be classified as liabilities on the
consolidated balance sheet of Borrower, including in any event all
Indebtedness.
<PAGE>
2. The first paragraph of Section 2.1 is amended to read as follows:
2 .1 Advances. Subject to and upon the terms and conditions of
this Agreement, Bank agrees to make Advances to Borrower in an
aggregate amount not to exceed (a) the lesser of the Committed Line
or the Borrowing Base, minus (b) the face amount of all outstanding
Letters of Credit (including drawn but unreimbursed Letters of
Credit). For purposes of this Agreement, "Borrowing Base" shall
mean an amount equal to (I) seventy-five percent (75%) of Eligible
Accounts plus (ii) (x) if the value of Borrower's total Inventory
is equal to or greater than Four Million Two Hundred Fifty Thousand
Dollars ($4,250,000), then the lesser of twenty-five percent (25%)
of the value of Borrower's Eligible Inventory or One Million
Dollars ($1,000,000), or (y) if the value of Borrower's total
Inventory is less than Four Million Two Hundred Fifty Thousand
Dollars ($4,250,000) but greater than or equal to Two Million Five
Hundred Thousand Dollars ($2,500,000), then the lesser of
twenty-five percent (25%) of the value of Borrower's Eligible
Inventory or Seven Hundred Fifty Thousand Dollars ($750,000), or
(z) if the value of Borrower's total Inventory is less than Two
Million Five Hundred Thousand Dollars ($2,500,000), then the lesser
of twenty-five percent (25%) of the value of Borrower's Eligible
Inventory or Five Hundred Thousand Dollars ($500,000). Subject to
the terms and conditions of this Agreement, amounts borrowed
pursuant to this Section 2.1 may be repaid and reborrowed at any
time prior to the Revolving Facility Maturity Date.
3. The Section numbers set forth in Amendment No. 1 to Loan and
Security Agreement dated May 31, 1995, for the sections titled "Letters of
Credit" and "Letter of Credit Reimbursement; Reserve" shall hereby be amended
to Section 2.1.2 for the "Letters of Credit" and Section 2.1.3 for the "Letter
of Credit Reimbursement; Reserve."
4. Sections 6.9, 6.10 and 6.12 are hereby amended to read as follows:
6.9 Debt-Tangible Net Worth. Borrower shall maintain, as of the
last day of each calendar month, commencing with the calendar month
ending on March 31, 1997, a ratio of Total Liabilities less Subordinated
Debt to Tangible Net Worth plus Subordinated Debt of not more than 1.25
to 1.0.
6.10 Tangible Net Worth. Borrower shall maintain, as of the last
day of each calendar month, commencing with the calendar month ending on
March 31, 1997, a Tangible Net Worth of not less than Four Million Five
Hundred Thousand Dollars ($4,500,000), plus fifty percent (50%) of
Borrower's net income in the subsequent years of this Agreement,
6.12 Debt Service Coverage. Borrower shall maintain, as of the last
day of each calendar month, commencing with the calendar month ending on
March 31, 1997, a Debt Service Coverage Ratio of at least 1.75 to 1.0 for
each month from March through November, and at least 1.50 to 1.0 for each
month from December through February.
5. Section 6.11 is hereby deleted in its entirety.
<PAGE>
6. The borrowing base certificate and the compliance certificate
attached to the Agreement as Exhibit C and Exhibit D, respectively, are hereby
replaced by Exhibit "C" and Exhibit "D", respectively, attached hereto.
7. In order to secure prompt repayment of any and all Obligations and
in order to secure prompt performance by Borrower of each of its covenants and
duties under the Loan Documents, Borrower hereby pledges to Bank all the shares
of capital stock of Comp Ware, Inc. which Borrower now owns or hereafter
acquires an interest, by executing concurrently herewith a Stock Pledge
Agreement and taking such further actions requested by Bank that are necessary
to effect such pledge.
8. As a condition to the effectiveness of this Amendment, Borrower
shall pay Bank a per annum fee of Twenty Two Thousand Five Hundred Dollars
($22,500), plus a cost of capital fee of Twenty Five Thousand Dollars
($25,000), plus all Bank Expenses (including reasonable attorneys' fees)
incurred through the date of this Amendment, which fees and expenses become
nonrefundable and fully earned on the date of this Amendment.
9. The effectiveness of this Amendment is subject to the condition
precedent that Bank shall have received, in form and substance satisfactory to
Bank, the following:
a. this Amendment duly executed by Borrower;
b. a certificate of secretary of Borrower with respect to
incumbency and resolutions authorizing the execution and delivery of this
Amendment;
c. the Stock Pledge Agreement duly executed by Borrower;
d. the Affirmation of Guaranty duly executed by Questron
Technology, Inc.;
e. the Affirmation of Stock Pledge Agreement duly executed by
Questron Technology, Inc.;
f. evidence of corporate authority and incumbency as Bank shall
require from all third parties entering into agreements in connection with this
Amendment;
g. payment of the fees and Bank Expenses then due specified in
Paragraph 6 hereof; and
h. such other documents, and completion of such other matters, as
Bank may reasonably deem necessary or appropriate.
10. Unless other-wise defined, all capitalized terms in this Amendment
shall be as defined in the Agreement. Except as amended, the Agreement remains
in full force and effect.
11. Borrower represents and warrants that the Representations and
Warranties contained in the Agreement are true and correct as of the date of
this Amendment (except such representations and warranties to be expressly true
as of a specific date), and that no Event of Default has occurred and is
continuing.
<PAGE>
12. This Amendment may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one instrument.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of
the first date above written.
QUEST ELECTRONIC HARDWARE, INC.,
a Delaware corporation
By: Dominic A. Polimeni
-----------------------------
Title: Chairman and CEO
SILICON VALLEY BANK
By: Julie Schneider
-----------------------------
Asst. Vice-President
<PAGE>
EXHIBIT C
BORROWING BASE CERTIFICATE
- -------------------------------------------------------------------------------
Borrower: Quest Electronic Hardware, Inc. Lender: Silicon Valley Bank
Commitment Amount: $3,000,000.00
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ACCOUNTS RECEIVABLE
1. Accounts Receivable Book Value as of $______________
2. Additions (please explain on reverse) $______________
3. TOTAL ACCOUNTS RECEIVABLE $______________
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 90 days due $______________
5. Balance of 50% over 90 day accounts $______________
6. Concentration Limits $______________
7. Foreign Accounts $______________
8. Governmental Accounts $______________
9. Contra Accounts $______________
10. Promotion or Demo Accounts $______________
11. Intercompany/Employee Accounts $______________
12. Other (please explain on reverse) $______________
13. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $______________
14. Eligible Accounts (#3 minus #13) $______________
15. LOAN VALUE OF ACCOUNTS (75% of #14) $______________
INVENTORY
16. Value of Inventory $______________
17. LOAN VALUE OF INVENTORY (lesser of (a) 25% of #16,
(b) $1,000,000 if #16 is greater than $4,250,000,
(c) $750,000 if #16 is greater than $2,500,000 but less
$4,250,000, or (d) $500,000 if #16 is less than $2,500,000 $______________
BALANCES
18. Maximum Loan Amount $ 3,000,000.00
19. Total Funds Available [Lesser of #18 or (#15 plus #17)] $______________
20. Present balance owing on Line of Credit $______________
21. Face amount of all outstanding Letters of Credit $______________
22. RESERVE POSITION (#19 minus #20 minus 21) $______________
The undersigned represents and warrants that the foregoing is true, complete
and correct,, and that the information reflected in this Borrowing Base
Certificate complies with the representations and warranties set forth in the
Loan and Security Agreement between the undersigned and Silicon Valley Bank.
---------------------------------
COMMENTS: | |
| BANK USE ONLY |
| ------------- |
| Rec'd By: |
| -------------------- |
Quest Electronic Hardware, Inc. | Auth. Signer |
| |
| Date: |
| ------------------------ |
| |
By: | Verified: |
---------------------------- | -------------------- |
Authorized Signer | Auth. Signer |
| |
| Date: |
| ------------------------ |
| |
---------------------------------
</TABLE>
<PAGE>
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: QUEST ELECTRONIC HARDWARE, INC.
The undersigned authorized officer of Quest Electronic Hardware, Inc.
hereby certifies that in accordance with the terms and conditions of the Loan
and Security Agreement between Borrower and Bank (the "Agreement"), (i)
Borrower is in complete compliance for the period ending ____________________
with all required covenants except as noted and (ii) all representations and
warranties of Borrower stated in the Agreement are true and correct in all
material respects as of the date hereof. Attached herewith are the required
documents supporting the above certification. The Officer further certifies
that these are prepared in accordance with Generally Accepted Accounting
Principles (GAAP) and are consistently applied from one period to the next
except as explained in an accompanying letter or footnotes.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING
YES/NO UNDER "COMPLIES"COLUMN.
<TABLE>
REPORTING COVENANT REQUIRED COMPLIES
- ------------------ -------- --------
<S> <C> <C>
Monthly financial statements Monthly within 30 days Yes No
Annual (CPA Audited) FYE within 90 days Yes No
A/R & A/P Agings Monthly within 20 days Yes No
A/R Audit Initial and Semi-Annual Yes No
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
- ------------------ -------- ------ --------
Maintain on a Monthly Basis:
Minimum Quick Ratio 0.50:1.0 :1.0 Yes No
Minimum Tangible Net Worth $4,500,000 plus $ Yes No
50% of Net Income
Maximum Debt/Tangible Net Worth 1.25:1.0 :1.0 Yes No
Debt Service Coverage 1.75:1.0 for March :1.0 Yes No
through Nov.;
1.50:1.0 for Dec.
through Feb.
COMMENTS REGARDING EXCEPTIONS: See Attached.
---------------------------------
| |
| BANK USE ONLY |
Sincerely, | ------------- |
| Received by: |
- ---------------------------------- | ----------------- |
SIGNATURE | AUTHORIZED SIGNER |
| |
- ---------------------------------- | Date: |
TITLE | ------------------------ |
| |
- ---------------------------------- | Verified: |
DATE | -------------------- |
| AUTHORIZED SIGNER |
| |
| Date: |
| ------------------------ |
| Compliance Status: Yes No |
---------------------------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF INCOME FOR THE 3 MONTHS ENDED MARCH 31, 1997 AND
THE CONSOLIDATED BALANCE SHEET FOR THE QUARTER ENDED MARCH 31, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 873,900
<SECURITIES> 0
<RECEIVABLES> 2,525,066
<ALLOWANCES> 93,885
<INVENTORY> 4,760,184
<CURRENT-ASSETS> 8,346,012
<PP&E> 444,598
<DEPRECIATION> 186,903
<TOTAL-ASSETS> 19,725,234
<CURRENT-LIABILITIES> 3,134,828
<BONDS> 0
0
11,500
<COMMON> 1,547
<OTHER-SE> 15,401,571
<TOTAL-LIABILITY-AND-EQUITY> 19,725,234
<SALES> 3,896,764
<TOTAL-REVENUES> 3,912,277
<CGS> 2,328,374
<TOTAL-COSTS> 3,414,394
<OTHER-EXPENSES> 79,870
<LOSS-PROVISION> 14,112
<INTEREST-EXPENSE> 60,209
<INCOME-PRETAX> 357,804
<INCOME-TAX> 32,750
<INCOME-CONTINUING> 325,054
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 325,054
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
