SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended December 31, 1996 Commission File Number 0-13318
STAR TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 93-0794452
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
515 Shaw Road
Sterling, Virginia 20166
(Address of principal executive offices)
(Zip Code)
(703) 689-4400
(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
19,841,924 shares of Common Stock were outstanding as of December 31, 1996.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements
<TABLE>
STAR TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenue $ 206 $ 875 $ 1,138 $ 3,956
Cost of revenue 433 672 897 2,347
------- ------- ------- -------
Gross margin (227) 203 241 1,609
------- ------- ------- -------
Operating expenses
Research and development 213 457 893 1,585
Selling, general and administrative 914 1,011 2,728 2,873
------- ------- ------- -------
Total operating expenses 1,127 1,468 3,621 4,458
------- ------- ------- -------
Operating loss (1,354) (1,265) (3,380) (2,849)
Interest income, net 95 97 495 348
Other income, net 1 3 6,216 38
------- ------- ------- -------
Net income (loss) before provision for income taxes (1,258) (1,165) 3,331 (2,463)
Provision for income taxes - - - -
------- ------- ------- -------
Net income (loss) $(1,258) $(1,165) $ 3,331 $(2,463)
======= ======= ======= =======
Net income (loss) $(1,258) $(1,165) $ 3,331 $(2,463)
Preferred stock dividend requirement (50) (348) (75) (994)
Adjustment for repurchase of preferred stock - - (522) -
Excess carrying amount and cumulative undeclared
dividends of preferred stock over consideration - - 10,580 4,954
------- ------- ------- -------
Net income (loss) applicable to common shares $(1,308) $(1,513) $13,314 $ 1,497
======= ======= ======= =======
Earnings (loss) per share:
Per common and common equivalent share $ (.07) $ (.08) $ .67 $ .08
======= ======= ======= =======
Assuming full dilution $ (.07) $ (.08) $ .61 $ .08
======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
<TABLE>
STAR TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Unaudited)
(In thousands, except share data)
<CAPTION>
Dec. 31, March 31,
Assets 1996 1996
Current assets
<S> <C> <C>
Cash $ 35 $ 166
Short-term investments 6,295 4,886
Accounts receivable, net 131 156
Inventory, net 291 726
Other current assets 92 94
------- -------
Total current assets 6,844 6,028
Property and equipment, net 392 502
Other assets 144 144
------- -------
Total assets $ 7,380 $ 6,674
======= =======
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 316 $ 608
Accrued payroll and related benefits 285 408
Other accrued liabilities 683 450
------- -------
Total current liabilities 1,284 1,466
------- -------
Commitments and contingencies - -
Stockholders' equity
Preferred stock; $.01 par value; 1,000,000 shares authorized
Series A convertible; 500,000 shares designated; 17,500
and 46,900 shares issued; 17,500 and 46,900 shares
outstanding; aggregate liquidation preference of
$630 and $1,688 1 1
Series B convertible; 120,117 shares designated; 11,917
and 59,584 shares issued; 11,917 and 59,584 shares
outstanding; aggregate liquidation preference of $1,192
and $5,958 1 1
Series C convertible; 80,079 shares designated; 7,945
and 39,723 shares issued; 7,945 and 39,723 shares
outstanding aggregate liquidation preference of
$795 and $3,972 1 1
Common stock; $.01 par value; 60,000,000 shares authorized;
19,937,115 and 19,927,035 shares issued; 19,841,924 and
19,880,244 shares outstanding 199 199
Additional paid-in capital 61,011 63,446
Treasury stock, at cost; 95,191 and 46,791 shares (209) (201)
Retained deficit (54,908) (58,239)
------- -------
Total stockholders' equity 6,096 5,208
------- -------
Total liabilities and stockholders' equity $ 7,380 $ 6,674
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
<TABLE>
STAR TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<CAPTION>
Nine Months Ended
December 31,
1996 1995
<S> <C> <C>
Cash flows from (used for) operating activities
Net income (loss) $ 3,331 $(2,463)
Adjustments to reconcile net income (loss) to net cash
from (used for) operating activities
Depreciation and amortization 154 241
Decrease in restricted cash 17 441
Decrease in accounts receivable 25 85
Decrease in inventory 435 1,463
(Increase) decrease in other current assets 2 (25)
Decrease in accounts payable (292) (397)
Increase (decrease) in accrued liabilities 110 (902)
------- -------
Net cash from (used for) operating activities 3,782 (1,557)
------- -------
Cash flows from (used for) investing activities
Capital expenditures (44) (65)
Other investing activities, net - 57
------- -------
(44) (8)
------- -------
Cash flows from (used for) financing activities
Repurchase of preferred stock (2,435) (1,187)
Proceeds from stock option exercises - 5
Purchase of treasury stock (8) -
------- -------
(2,443) (1,182)
------- -------
Net increase (decrease) in cash and equivalents 1,295 (2,747)
Cash and equivalents, beginning of period 5,035 8,723
------- -------
Cash and equivalents, end of period $ 6,330 $ 5,976
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
STAR TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Star Technologies, Inc. ("Star" or the "Company") has historically
designed and manufactured performance-enhancing computing products and
solutions for the image and signal processing marketplace, principally for
medical imaging. Star is currently developing products for the image and
information management market. A key segment of this market is medical
imaging, which draws upon Star's historical skills and experience. Star's
current product focus is a family of DICOM 3.0-compliant solutions, with
special expertise in the area of DICOM image storage. Star markets its
products and technology to OEM suppliers of medical imaging equipment. The
Company has not yet generated any significant revenue from these products.
The Company's products compete in markets which are highly competitive and
characterized by rapid technological advances.
NOTE 1 - Financial Information
The interim financial statements presented herein are unaudited. They
reflect all adjustments that, in the opinion of management, are necessary to
fairly present the Company's financial position and results of operations
for the interim periods presented. All such adjustments are of a normal,
recurring nature. The results of operations for the three- and nine-month
periods ended December 31, 1996 are not necessarily indicative of the
results to be expected for the entire fiscal year.
The interim consolidated financial information should be read in
conjunction with the Company's Annual Report on Form 10-K, Commission file
number 0-13318, for the fiscal year ended March 31, 1996.
Certain fiscal 1996 amounts have been reclassed for comparative
purposes.
NOTE 2 - Short-Term Investments
The Company's short-term investments consist entirely of commercial
paper. These investments, which are held to maturity (less than three
months from the date of purchase), are carried at cost which approximates
their market value.
NOTE 3 - Inventory
Inventory is stated at the lower of cost (first-in, first-out basis) or
market. All classifications of inventory include materials and an
allocation of manufacturing overhead. Systems-in-process and completed
systems include an allocation of labor.
The major classifications of inventory are as follows (in thousands):
<TABLE>
<CAPTION>
Dec. 31, March 31,
1996 1996
<S> <C> <C>
Components and subassemblies $270 $686
Systems-in-process 7 22
Completed systems 14 18
---- ----
$291 $726
==== ====
</TABLE>
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<PAGE>
NOTE 4 - Accounts Receivable
Accounts receivable are shown net of an allowance for doubtful accounts
of $23,000 and $22,000 at December 31, 1996 and March 31, 1996, respectively.
NOTE 5 - Transactions with General Electric Medical Systems ("GEMS") and
General Electric ("GE")
In August 1996, GEMS paid Star $9.4 million, the amount, including
interest, awarded to Star in March 1996 in its claim against GEMS for breach
of contract. The payment from GEMS arose from a demand for arbitration that
Star filed against GEMS in January 1995. As previously reported, Star filed
the demand after GEMS declared that it would not purchase any reconstruction
processors from Star after May 1995. The demand alleged that GEMS' decision
to stop buying reconstruction processors from Star violated a development
and technology transfer agreement that Star and GEMS entered into in October
1991. Following a hearing on Star's demand, a three-member panel of the
American Arbitration Association found that GEMS violated the agreement by
terminating its purchases from Star and by using certain technology owned by
Star in reconstruction processors that GEMS is manufacturing.
GEMS paid the award in connection with an agreement with Star that
provided for Star to repurchase 80% of Series B and Series C Senior
Preferred Stock (the "Preferred Stock") held by GE. Pursuant to the
agreement, in August 1996, Star paid GE $2.4 million for the Preferred Stock
which had an aggregate redemption price of $13.0 million, including 100% of
cumulative, undeclared dividends that totaled in excess of $5.0 million. GE
also granted to Star a three-year option to repurchase the remaining 20% of
the Preferred Stock at the same per share price that Star paid in the August
1996 repurchase. In addition, Star and GEMS have amended the related
preferred stock purchase agreement and Star's Certificate of Incorporation
to eliminate numerous rights that GE had as the sole remaining holder of the
Preferred Stock, including the rights to elect one third of Star's Board of
Directors and, under certain circumstances, to assume control of the Board.
Effective August 1996, the remaining Preferred Stock accrues dividends
at a rate of 10% per annum. To the extent declared, such dividends would be
payable quarterly in the amount of $50,000 in cash. Unpaid cumulative
dividends in arrears on the Preferred Stock total $75,000 as of December 31,
1996.
The Company's revenue from GEMS totaled $20,000 and $10,000 for the
quarters ended December 31, 1996 and 1995, respectively. For the nine
months ended December 31, 1996 and 1995, revenue from GEMS totaled $100,000
and $2.3 million, respectively.
NOTE 6 - Notes Payable and Capital Lease Obligations
The Company has not borrowed under any bank agreement since December
1993 and has had sufficient cash reserves for its operating needs since that
time. Although the Company does not require a credit agreement to meet its
anticipated operating requirements, the Company is in discussion with
several banks regarding potential credit agreement arrangements. The
Company's remaining short-term obligations relate entirely to capital lease
obligations, all of which expire in 1997.
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<PAGE>
The Company expects to have sufficient cash, through its current cash
and short-term investments position and from operations, to meet its fiscal
1997 operating requirements. In the event that the Company requires more
funds, there can be no assurance that the Company would be successful in
raising new capital from external sources.
NOTE 7 - Repurchases of Stock
In December 1996, the Company repurchased 28,000 shares of Series A
Preferred Stock (representing 201,600 shares of common stock on an
if-converted basis) from State Farm Mutual Automobile Insurance Company
("State Farm") for $35,000. The Company also repurchased 48,400 shares of
the Company's common stock from State Farm for $8,000.
In August 1996, the Company repurchased 80% of the outstanding shares
of its Series B and Series C Senior Preferred Stock (the "Preferred Stock")
from GE. In the transaction, the Company paid $2.4 million for 79,445
shares of the Preferred Stock which had a redemption price of $13.0 million,
including cumulative undeclared dividends in excess of $5.0 million. For
purposes of computing earnings per share for the nine-month period ended
December 31, 1996, the transaction resulted in the availability of $10.6
million additional earnings to common stockholders, representing the
difference between the carrying amount of the redeemed Preferred Stock,
including cumulative undeclared dividends, and the price paid by the Company
to repurchase the stock.
In April 1995, the Company also repurchased 46,549 shares of the
outstanding shares of the Preferred Stock. In the transaction, the Company
paid $1.2 million for the shares which had a redemption price of $6.2
million, including cumulative undeclared dividends in excess of $1.5
million. For purposes of computing earnings per share for the nine-month
period ended December 31, 1995, the transaction resulted in the availability
of $5.0 million additional earnings to common stockholders, representing the
difference between the carrying amount of the redeemed Preferred Stock,
including cumulative undeclared dividends, and the price paid by the Company
to repurchase the stock.
NOTE 8 - Recent Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of
("Statement 121"). Statement 121 requires that the Company review its
long-lived assets for impairment whenever events or circumstances indicate
that the carrying amount of an asset may not be recoverable. To the extent
that the undiscounted net future cash flows expected to be generated from an
asset are less than the asset's carrying amount, an impairment loss is
recognized as the difference between that asset's carrying amount and its
fair value. The Company adopted Statement 121 as of April 1, 1996. The
adoption of Statement 121 did not have a material impact on the Company's
results of operations.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, Accounting for Stock
Based Compensation ("Statement 123"). Under Statement 123, the Company may
elect, but is not required, to adopt a fair value approach to accounting for
stock-based awards granted to employees. The Company adopted Statement 123
as of April 1, 1996. The Company did not implement the fair value
methodology of Statement 123, although certain pro forma disclosures will be
required in the Company's fiscal 1997 consolidated financial statements.
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<PAGE>
NOTE 9 - Settlement of Patent Litigation
In August 1996, the Company settled all claims asserted by Ronald G.
Walters ("Walters") against the Company and certain officers and directors
of the Company in a patent infringement and unjust enrichment lawsuit. In
that suit, Walters had sought over $67 million, with trebling of any damages
awarded. In response to the suit, the Company had filed a counterclaim
against Walters.
Under the terms of the settlement agreement, the Company paid Walters a
one-time payment of $2.9 million for which Walters dismissed the claims he
had brought against the Company, and the Company dismissed the counterclaim
it had asserted against Walters.
The settlement payment is reflected as a reduction of other income on
the Consolidated Statement of Operations for the nine months ended December
31, 1996.
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
Results of Operations
Revenue for the three and nine months ended December 31, 1996 decreased
76% and 71%, respectively, from the comparable prior-year periods. The
decreases are attributable to a payment received and recognized as revenue
in the third quarter of fiscal 1996 relating to a claim for recovery of
inventory and related costs under the U.S. Navy's SH-60 Program. For the
nine-months ended December 31, 1996, the decrease in revenue is also
attributable to the cessation of reconstruction processor sales to General
Electric Medical Systems ("GEMS") in the first quarter of fiscal 1996. (See
Note 5.)
The gross margin percentage for the three- and nine-month periods ended
December 31, 1996 decreased from 23% to (110%) and from 41% to 21%,
respectively, from the comparable periods a year ago, primarily due to
unfavorable absorption rates of fixed costs associated with lower revenue
levels. The decrease in gross margin percentage for the three months is
also unfavorably impacted by a reserve for potentially excess G2000
inventory recorded in the current quarter as cost of revenue. The Company
previously anticipated sales of G2000 spare parts to the U.S. Navy under its
SH-60 Program.
Research and development ("R&D") expense for the three and nine months
ended December 31, 1996 decreased 53% and 44%, respectively, from the same
prior-year periods. The decreases are primarily attributable to reduced
staff levels.
Selling, general and administrative ("SG&A") expense for the quarter
and nine months ended December 31, 1996 decreased 10% and 5%, respectively,
from the same periods a year ago. The decreases are primarily related to
lower legal costs, partially offset by a one-time expense incurred in the
current quarter in connection with the reduction of the Company's leased
facility space. Resultant cost savings from the facility reduction will
begin in the fourth quarter of fiscal 1997.
During the three- and nine-month periods ended December 31, 1996 and
1995, the Company earned $95,000 and $97,000, and $495,000 and $348,000,
respectively, of net interest income. The increase for the nine months
ended December 31, 1996 from the same prior-year period is primarily
attributable to interest received from GEMS in the second quarter of fiscal
1997 on the arbitration award. (See Note 5.)
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<PAGE>
Other income for the nine-month period ended December 31, 1996 includes
the GEMS arbitration award of $9.1 million, excluding interest, offset by
the settlement of a patent infringement lawsuit of $2.9 million. (See Notes
5 and 9.)
Liquidity and Capital Resources
The Company generated $3.8 million of cash flow for the nine months
ended December 31, 1996, primarily as a result of the receipt of the
arbitration award from GEMS in August 1996. (See Note 5.)
In December 1996, the Company repurchased 28,000 shares of Series A
Preferred Stock (representing 201,600 shares of common stock on an
if-converted basis) from State Farm Mutual Automobile Insurance Company
("State Farm") for $35,000. The Company also repurchased 48,400 shares of
the Company's Common Stock from State Farm for $8,000.
In August 1996, the Company repurchased 80% of the outstanding shares
of its Series B and Series C Senior Preferred Stock (the "Preferred Stock")
from GE. In the transaction, the Company paid $2.4 million for 79,445
shares of the Preferred Stock which had a redemption price of $13.0 million,
including cumulative undeclared dividends in excess of $5.0 million. GE
also issued to Star a three-year option to purchase the remaining 20% of the
Preferred Stock at the same per share price that Star paid in the August
1996 repurchase. In addition, Star and GE amended the related preferred
stock purchase agreement and Star's Certificate of Incorporation to
eliminate numerous rights that GE had as the holder of the Preferred Stock,
including the rights to elect one third of Star's Board of Directors and,
under certain circumstances, to assume control of the Board. (See Note 5.)
The remaining Preferred Stock now accrues dividends at a rate of 10%
per annum effective August 1996. To the extent declared, such dividends
would be payable quarterly in the amount of $50,000 in cash. Unpaid
cumulative dividends in arrears on the Preferred Stock total $75,000 as of
December 31, 1996.
The Company has not borrowed under any bank agreement since December
1993 and has had sufficient cash reserves for its operating needs since that
time. Although the Company does not require a credit agreement to meet its
anticipated operating requirements, the Company is in discussion with
several banks regarding potential credit agreement arrangements. The
Company's remaining short-term obligations relate entirely to capital lease
obligations, all of which expire in 1997.
The Company expects to have sufficient cash, through its current cash
and short-term investment position and from operations, to meet its fiscal
1997 operating requirements. In the event that the Company requires more
funds, there can be no assurance that the Company would be successful in
raising new capital from external sources.
Corporate Repositioning
The Company previously engaged in acquisition discussions with
Electronic Instrumentation and Technology, Inc. ("EIT") and had announced,
in August 1996, the signing of a letter of intent to acquire EIT. In
October 1996, the Company announced that it had ended acquisition
discussions with EIT, citing the inability of the two parties to reach
agreement on key financial aspects of the acquisition.
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<PAGE>
The Company remains committed to growth through strategic mergers or
acquisitions. The Company continues to work with investment banking firms
and with other sources to identify potential merger or acquisition
candidates.
The Company has concentrated its R&D efforts over the past few years
exploring growth opportunities in the medical imaging business in which the
Company has over ten years of experience. The Company has targeted the
medical information systems market, including both medical reporting and
digital medical imaging and communications systems. In fiscal 1996, the
Company received Food and Drug Administration clearance to market the Image
Management Server ("IMS") and the Film Image Scan System ("FISS"), the
Company's two products in the medical information systems market. Although
the Company's first sale of the IMS product occurred in the quarter ended
December 31, 1996, the Company has not yet generated any significant revenue
from the IMS and FISS products. The Company can give no assurances that the
products will be accepted in the marketplace.
Certain statements in Management's Discussion and Analysis of Results
of Operations and Financial Condition contain "forward-looking" information
(as defined in the Private Securities Litigation Reform Act of 1995) that
involve risks and uncertainties, including, but not limited to, customer
concentration, product demand and market acceptance risks, product
development, commercialization and technological difficulties, the impact of
competitive products and pricing, availability of parts and supplies from
third party suppliers on a timely basis and at reasonable prices, and the
effect of economic conditions.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 5. Other Information
Francis Jungers, a Director of the Company, resigned in November 1996.
Robert Compton, Alan Maxwell and Dr. Carl Ravin continue to serve as
Directors of the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
The exhibits filed herewith or incorporated by reference are set
forth on the Exhibit Index immediately preceding the exhibits.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the quarter
ended December 31, 1996.
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<PAGE>
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 thereinto duly authorized.
STAR TECHNOLOGIES, INC.
Dated: February 14, 1997 /s/ Robert C. Compton
--------------------------------------
Robert C. Compton
Chairman of the Board of Directors,
President and Chief Executive
Officer and Director
/s/ Brenda A. Potosnak
--------------------------------------
Brenda A. Potosnak
Vice President of Finance and
Administration, Secretary, Treasurer
and Chief Financial Officer
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<PAGE>
EXHIBIT INDEX
Exhibit
No.
3.1* Restated Certificate of Incorporation of the Company, as
amended, incorporated by reference from the Company's
Annual Report on Form 10-K for the fiscal year ended March
31, 1988 (Registration No. 0-13318) filed with the
Commission on June 29, 1988.
3.2* Certificate of Designation, Preferences and Rights of
Series B Senior Preferred Stock and Series C Senior
Preferred Stock ("Certificate of Designation"),
incorporated by reference from the exhibit filing to the
Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1990 (Registration No. 0-13318) filed with
the Commission on June 29, 1990.
3.3* Certificate of Amendment of Restated Certificate of
Incorporation of the Company, dated August 29, 1994,
incorporated by reference from the Company's Annual Report
on Form 10-K for the fiscal year ended March 31, 1995
(Registration No. 0-13318) filed with the Commission on
June 29, 1995.
3.4* Certificate of Amendment of Restated Certificate of
Incorporation of the Company dated August 23, 1996,
incorporated by reference from the exhibit filing to the
Company's Quarterly Report on Form 10-Q for the Quarter
ended September 30, 1996 (Registration No. 0-13318) filed
with the Commission on November 14, 1996.
3.5* By-Laws of the Company, as amended and restated on February
24, 1994, and as further amended on August 22, 1996,
incorporated by reference from the exhibit filing to the
Company's Quarterly Report on Form 10-Q for the Quarter
ended September 30, 1996 (Registration No. 0-13318) filed
with the Commission on November 14, 1996.
4.1* Restated Certificate of Incorporation, as amended (see
Exhibit 3.1).
4.2* Certificate of Amendment of Restated Certificate of
Incorporation (see Exhibit 3.2).
4.3* Certificate of Designation (see Exhibit 3.3).
4.4* Certificate of Amendment of Restated Certificate of
Incorporation (see Exhibit 3.4).
10.29 Addendum No. 1 to Lease Agreement dated August 19, 1994 by
and between Richard E. Curtis, Trustee and the Company.
11 Statement Regarding Computation of Per Share Earnings.
27 Financial Data Schedule.
*Incorporated by reference.
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EXHIBIT 10.29
ADDENDUM NO. 1 TO LEASE AGREEMENT DATED AUGUST 19, 1994
(THE "LEASE") BY AND BETWEEN RICHARD E. CURTIS, TRUSTEE
("LANDLORD") AND STAR TECHNOLOGIES, INC., A DELAWARE
CORPORATION ("TENANT")
This Addendum to Lease is made and effective as of the 14th day of January,
1997.
RECITALS
1. Landlord presently leases to Tenant approximately 78,728
square feet in a Building located at 515 Shaw Road, Sterling, Virginia (the
"premises"). Atlantic Coast Airlines has indicated a desire to lease 45,841
square feet in the premises, and Tenant desires to vacate 45,841 square
feet, reducing its premises to 32,887 square feet.
2. Landlord is willing to permit the Tenant to delete from the
Lease 45,841 square feet upon the terms and conditions set forth below.
NOW THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Landlord and Tenant have made the following:
AGREEMENTS
1. Not later than January 15, 1997, Tenant will vacate 45,841
square feet of the premises. Tenant warrants that as of January 15, 1997,
the HVAC units are in good working order and that there are no known roof
leaks in the roof above the premises.
2. Through February 15, 1997, Tenant will pay rent at the
existing rate of $5.04 per square foot on the entire premises currently
leased, 78,728 square feet.
3. Beginning February 16, 1997, Tenant will pay rent at the
existing rate of $5.04 per square foot on 32,887 square feet, which rental
will continue through the existing term of the Lease, subject to the annual
adjustment set out in Article IV 4.04. The sums, rate, square footage and
monthly installments set forth in Article IV 4.02 are hereby modified
accordingly.
4. Beginning February 16, 1997, the premises under the Lease will
consist of 32,887 square feet as shown on Exhibit A, attached hereto and
made a part hereof. All tenant improvements in the new premises will be at
the sole cost and expense of Tenant. All demising costs, segregation of the
building systems, sub-metering of utilities and creation of rear entrance
common area will be at Landlord's expense.
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<PAGE>
5. Tenant will keep the address 515 Shaw Road as its business
address.
6. The security deposit specified in Article V 5.01 will be
reduced to $30,000.00 effective 15 February 1997 provided the roof covering
and HVAC systems are in a state of good repair and condition. Tenant is
responsible for the roof and HVAC repairs up to and including February 15,
1997. Tenant will not be responsible for any deficiencies arising because
of Atlantic Coast Airlines build-outs or installation of roof equipment.
7. Tenant will contribute $300,000 toward the complete build-out
and demising of the new premises. At the signing of a Lease by Atlantic
Coast Airlines, Tenant will pay to Landlord the sum of $150,000. The final
$150,000 will be paid to Landlord thirty (30) days after the date of the
signing of the Lease between Landlord and Atlantic Coast Airlines.
8. Article I 1.03 Definitions, change "Pro-Rata Share" means: to
read:
With respect to Operating Expenses attributable to the
Building, 25.6% of all such Operating Expenses and with
respect to Operating Expenses attributable to the Property,
9.7% of all such Operating Expenses.
With respect to Taxes attributable to the Building, which
include, but are not limited to real estate taxes 25.6% of all
such Taxes.
With respect to Taxes attributable to the Property, 9.7% of
all such Taxes.
All other provisions of Article I remain unchanged.
9. Article III 3.01 Demising is hereby deleted.
10. Article XXVI of the Lease, Option to Purchase, is hereby
deleted in its entirety.
11. Article XIX of the Lease, Miscellaneous Rights and
Responsibilities of Tenant, is deleted and the following is substituted in
its place and stead:
19.01 Parking. During the initial term of this Lease, Tenant
shall have the use of approximately 51 parking spaces of which
7 are reserved, 28 are designated and 16 are undesignated
parking spaces in the rear parking lot. Landlord and Tenant
will mutually designate the exact location of the reserved
spaces. Tenant shall instruct its employees to use only those
parking spaces reserved for Tenant and not more than 16
unreserved spaces.
- 2 -
<PAGE>
12. Except as specifically modified above, all other terms,
conditions and covenants of the Lease remain unmodified and in full force
and effect.
**
IN WITNESS WHEREOF, the parties have set their hands and seals,
intending to be bound as of the day, month and year first above written.
LANDLORD:
RICHARD E. CURTIS, TRUSTEE OF THE
RICHARD E. CURTIS REVOCABLE TRUST
/s/ Richard E. Curtis, Trustee (SEAL)
------------------------------
Richard E. Curtis, Trustee
TENANT:
STAR TECHNOLOGIES, INC.,
a Delaware Corporation
By:/s/ Robert C. Compton (SEAL)
------------------------------
Robert C. Compton
Chairman, President and CEO
- 3-
** Landlord has obtained approval from Mortgagee to enter into this
Lease Addendum No. 1.
<PAGE>
EXHIBIT A
Exhibit A to Addendum No. 1 to Lease Agreement Dated August 19, 1994 By and
Between Richard E. Curtis, Trustee and Star Technologies, Inc., a Delaware
Corporation is a one-dimensional, top-view drawing of the one-story
manufacturing building, parking lots, access drive and surrounding property
located at 515 Shaw Road, Sterling, VA.
<TABLE>
EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share data)
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
Primary Per Share Earnings (Loss) 1996 1995 1996 1995
<S> <C> <C> <C> <C>
Average shares outstanding during period 19,878 19,880 19,884 19,878
======= ======= ======= =======
Net income (loss) $(1,258) $(1,165) $ 3,331 $(2,463)
Undeclared cumulative dividends on Series B
and Series C Senior Preferred Stock (50) (348) (597) (994)
Excess carrying amount and cumulative
undeclared dividends of Series B and Series C
Senior Preferred Stock over consideration - - 10,580 4,954
Adjustment for interest reduction of assumed 4 - 3 -
debt redemption, net of tax
------- ------- ------- -------
Net income (loss) applicable to common shares $(1,304) $(1,513) $13,317 $ 1,497
======= ======= ======= =======
Primary earnings (loss) per common and common
equivalent share $ (.07) $ (.08) $ .67 $ .08
======= ======= ======= =======
</TABLE>
<PAGE>
<TABLE>
EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS (Cont'd)
(In thousands, except per share data)
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
Fully Diluted Per Share Earnings 1996 1995 1996 1995
<S> <C> <C> <C> <C>
Average shares outstanding during period 19,878 19,880 19,884 19,878
Dilutive effect of convertible securities
computed by the "if converted" method:
Series A preferred stock 126 338 126 338
Series B & C preferred stock 1,986 9,931 1,986 9,931
------- ------- ------- -------
21,990 30,149 21,996 30,147
======= ======= ======= =======
Net income (loss) $(1,258) $(1,165) $ 3,331 $(2,463)
Adjustment for repurchase of Series B and
Series C Senior Preferred Stock - - (522) -
Excess carrying amount and cumulative undeclared
dividends of Series B and Series C Senior
Preferred Stock over consideration - - 10,580 4,954
Adjustment for interest reduction of assumed 4 - 3 -
debt redemption, net of tax
------- ------- ------- -------
Net income (loss) applicable to common shares $(1,254) $(1,165) $13,392 $ 2,491
======= ======= ======= =======
Fully diluted earnings (loss) per common
and common equivalent share $ (.06) $ (.04) $ .61 $ .08
======= ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC
Form 10-Q and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 35
<SECURITIES> 6295
<RECEIVABLES> 154
<ALLOWANCES> 23
<INVENTORY> 291
<CURRENT-ASSETS> 6844
<PP&E> 7789
<DEPRECIATION> 7397
<TOTAL-ASSETS> 7380
<CURRENT-LIABILITIES> 1284
<BONDS> 0
0
3
<COMMON> 199
<OTHER-SE> 6093
<TOTAL-LIABILITY-AND-EQUITY> 7380
<SALES> 1138
<TOTAL-REVENUES> 1138
<CGS> 897
<TOTAL-COSTS> 897
<OTHER-EXPENSES> 3621
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3331
<INCOME-TAX> 0
<INCOME-CONTINUING> 3331
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3331
<EPS-PRIMARY> .67
<EPS-DILUTED> .61
</TABLE>
