UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-19960
Datawatch Corporation
(Exact name of registrant as specified in its charter)
Delaware 02-0405716
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
234 Ballardvale Street, Wilmington Massachusetts 01887
(Address of principal executive offices) (Zip Code)
(508) 988-9700
(Registrant's telephone number, including area code)
None
(Former name, former address, 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
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date:
Class Outstanding at May 6, 1997
Common stock, $.01 par value 9,100,321
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DATAWATCH CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page #
a) Consolidated Condensed Balance Sheets:
March 31, 1997 and September 30, 1996 3
b) Consolidated Condensed Statements of Operations:
Three Months Ended March 31, 1997 and 1996
Six Months Ended March 31, 1997 and 1996 4
c) Consolidated Condensed Statements of Cash Flows:
Six Months Ended March 31, 1997 and 1996 5
d) Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings *
Item 2. Changes in Securities *
Item 3. Default upon Senior Securities *
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information *
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES
* No information provided due to inapplicability of item.
<PAGE>
<TABLE>
PART I.
Item 1. Financial Statements
DATAWATCH CORPORATION AND SUBSDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
March 31, September 30,
1997 1996
ASSETS (Unaudited) (Audited)
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 1,478,269 $ 1,696,349
Short-term investments 642,883 792,665
Accounts receivable, net 8,850,143 7,767,748
Inventories 784,079 480,758
Prepaid advertising and other expenses 2,497,490 1,264,798
Total current assets 14,252,864 12,002,318
PROPERTY PLANT & EQUIPMENT:
Property and equipment 4,071,287 3,534,759
Less accumulated depreciation
and amortization (2,087,131) (1,737,733)
Net property and equipment 1,984,156 1,797,026
OTHER ASSETS 321,884 400,062
EXCESS OF COST OVER NET ASSETS
OF ACQUIRED COMPANIES 1,658,324 1,041,165
TOTAL ASSETS $ 18,217,228 $ 15,240,571
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,076,479 $ 2,914,952
Accrued expenses 1,196,104 1,063,129
Deferred revenue 2,417,390 1,946,473
Borrowings under credit lines 636,806
Current portion of long-term debt 265,292 230,501
Total current liabilities 6,955,265 6,791,861
LONG-TERM DEBT 1,671,853 209,824
TOTAL LIABILITIES 8,627,118 7,001,685
SHAREHOLDERS' EQUITY:
Common stock 91,002 89,659
Additional paid-in capital 19,720,030 18,665,402
Accumulated deficit (10,029,902) (10,538,117)
Common stock held in treasury (140,388)
Cumulative translation adjustment (50,632) 21,942
Total shareholders' equity 9,590,110 8,238,886
TOTAL LIABILITIES &
SHAREHOLDERS' EQUITY $ 18,217,228 $ 15,240,571
See notes to unaudited consolidated financial statements.
</TABLE>
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<TABLE>
Item 1. Financial Statements (continued)
DATAWATCH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
March 31, March 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
NET SALES $8,196,900 $7,531,946 $16,416,372 $14,297,016
COSTS AND EXPENSES:
Cost of sales 1,455,046 1,080,499 2,915,079 2,154,921
Engineering & product
development 655,319 552,748 1,314,736 1,071,722
Selling, general and
administrative 5,950,348 5,849,582 11,660,924 10,965,597
INCOME FROM OPERATIONS 136,187 49,117 525,633 104,776
INTEREST EXPENSE (20,784) (19,721) (50,879) (42,483)
OTHER INCOME,
primarily interest 12,567 19,274 28,596 35,442
FOREIGN CURRENCY
TRANSACTION GAIN(LOSS) (34,180) (7,943) 12,878 8,160
PROVISION FOR INCOME TAX (8,013) (3,153) (8,013) (3,153)
NET INCOME $ 85,777 $ 37,574 $ 508,215 $ 102,742
NET INCOME
PER COMMON SHARE $ .01 $ .00 $ .06 $ .01
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES AND
COMMON EQUIVALENT
SHARES OUTSTANDING 9,149,973 8,881,747 9,151,121 8,882,408
See notes to unaudited consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
Item 1. Financial Statements (continued)
DATAWATCH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
SIX MONTHS ENDED
March 31,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 508,215 $ 102,742
Adjustments to reconcile net income to net cash:
Depreciation and amortization 681,612 412,027
Changes in current assets and liabilities:
Inventories (82,456) (53,236)
Prepaid advertising and other expenses (1,168,827) 134,659
Accounts receivable (686,593) (1,577,446)
Accounts payable and accrued expenses (590,388) 681,884
Deferred revenue 470,917 34,203
Net cash used in operating activities (867,520) (265,167)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to equipment and fixtures (386,067) (181,795)
Proceeds from maturity of short-term investments 1,081,362 1,128,714
Purchase of short-term investments (931,580) (986,850)
Acquisition of Guildsoft Holdings Ltd., net of
working capital acquired 71,039
Other assets 64,800 30,764
Net cash used in investing activities (100,446) (9,167)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 9,333 11,022
Proceeds from bank term loan 1,500,000
Principal payments on long-term obligations (122,641) (222,469)
Borrowings under credit lines, net (636,806) 541,455
Net cash provided by financing activities 749,886 330,008
NET (DECREASE) INCREASE IN CASH AND EQUIVALENTS (218,080) 55,674
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 1,696,349 876,802
CASH AND EQUIVALENTS, END OF PERIOD $ 1,478,269 $ 932,476
See notes to unaudited consolidated financial statements.
</TABLE>
<PAGE>
Item 1. Financial Statements (continued)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation: The consolidated condensed balance sheet
as of March 31, 1997 and the consolidated condensed statements of
operations for the three months and six months ended March 31, 1997
and 1996, and the consolidated condensed statements of cash flows for
the six months ended March 31, 1997 and 1996 are unaudited. In the
opinion of management these statements include all adjustments
necessary for the fair presentation of the financial data for such
periods. The results of operations for the interim periods are not
necessarily indicative of the results to be expected for the full
year. These financial statements should be read in conjunction with
the Company's audited financial statements for the year ended
September 30, 1996 which appear in the Company's Form 10-K.
2. Inventories: The Company accounts for its inventories using a
standard cost methodology. Inventories were comprised of the
following:
March 31, September 30,
1997 1996
Raw materials $ 277,568 $ 218,615
Work in process 2,639 2,458
Finished goods 503,872 259,685
--------- ---------
TOTAL $ 784,079 $ 480,758
3. Acquisitions: On November 7, 1996, the Company acquired all of
the outstanding capital stock of Guildsoft Holdings Limited
("Guildsoft"), a United Kingdom based software distributor, in
exchange for an aggregate of 125,000 shares of the Company's common
stock, with 12,500 of such shares held in escrow for contingent
liabilities. The acquisition was accounted for as a purchase and as
such, the $882,326 difference between the fair value of the assets
acquired and the consideration was recorded as goodwill.
4. Long-term Debt: During the quarter ended March 31, 1997
DATAWATCH paid down its overdraft facilities with a $1,500,000 term
loan which calls for monthly principal payments beginning in March
1998 and ending in February 2001. This term loan bears interest at
1.5% above the prime rate, is collateralized by certain assets of the
Company, and has priority over all debt incurred.
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
GENERAL
DATAWATCH CORPORATION (the "Company" or "DATAWATCH"),
is engaged in the design, development, manufacture,
marketing and support of personal computer software.
On November 7, 1996, the Company acquired all the
outstanding shares of capital stock of Guildsoft
Holdings Limited ("Guildsoft"), located in Plymouth,
England, which provides software companies with multi-
lingual telesales, support and fulfillment services
throughout Europe, in exchange for 125,000 shares of
DATAWATCH common stock. This acquisition was accounted
for as a purchase. Guildsoft's results of operations
for the period from the date of acquisition through
March 31, 1997 have been included in the Company's
consolidated statements of operations and statements of
cash flows.
DATAWATCH's principal products are: Monarch(TM),
which provides data access, translation, and reporting
capability to users of networked PCs; VIREX(R) and VET
for the PC, which detect, repair and monitor for virus
infections for Apple Macintosh and IBM compatible PCs,
respectively; Q-Support(TM) for Windows (in the United
States), or Quetzal(TM) (internationally), a complete
help desk and asset management system; and netOctopus(TM)
, a network management and administration system.
From time to time, information provided by the
Company, statements made by its employees or
information in its filings with the Securities and
Exchange Commission (including statements in this Form
10-Q) may contain statements which are not historical
facts (so called "forward-looking statements"), and are
made pursuant to the safe harbor provision of the
Private Securities Litigation Reform Act of 1995 and
releases of the Securities and Exchange Commission. In
that regard, the discussion in this Item 2 contains
forward looking statements which involve certain risks
and uncertainties, including statements related to
liquidity and capital resources. The Company's
operating results may continue to vary significantly
from quarter to quarter or year to year depending on a
number of factors, including technological changes,
competition and general market trends, and the other
factors identified in the Company's Securities and
Exchange Commission filings (including but not limited
to its Form 10-K for the year ended September 30,
1996). The Company's current planned expense levels are
based in part upon expectations as to future revenue.
Consequently, operating results may vary significantly
from quarter to quarter or year to year, based on
timing of revenue. Revenue or net income in any period
will not necessarily be indicative of results of
subsequent periods and there can be no assurance that
<PAGE>
the Company will maintain profitability or that revenue
growth can be sustained in the future.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1997 and 1996.
Net sales for the three months ended March 31, 1997
were $8,197,000, which represents an increase of
$665,000 or 9% from the net sales of $7,532,000 for the
three months ended March 31, 1996. This increase
results from growth in sales for DATAWATCH's Q-Support
product and the inclusion of $468,000 of sales from
Guildsoft which was purchased by the Company in
November 1996. Overall, Monarch and Q-Support each
accounted for approximately 38% of sales. For the
three months ended March 31, 1997, the Company's
products for the IBM compatible PC accounted for
approximately 82% of sales while the Company's products
for the Apple PC accounted for approximately 18%.
The Company's cost of sales for the three months ended
March 31, 1997 was $1,455,000 or approximately 18% of
net sales. Cost of sales for the three months ended
March 31, 1996 was $1,080,000 or approximately 14% of
net sales. The increase in cost of sales, as a
percentage of net sales, results from the inclusion of
Guildsoft's product sales which bear lower gross
margins than the Company's other products. Cost of
sales, as a percentage of net sales, for the March 31,
1997 period, excluding Guildsoft would have been 15%,
which is substantially consistent with the prior year
period.
Engineering and product development expenses were
$665,000 for the three months ended March 31, 1997, an
increase of $102,000 or approximately 18% from $553,000
for the three months ended March 31, 1996. This
increase is primarily attributable to additions in
personnel and expenses necessary for continued
development of the Q-Support product and the quality
assurance for the Monarch product.
Selling, general and administrative expenses were
$5,950,000 for the three months ended March 31, 1997,
an increase of $100,000 from $5,850,000 for the three
months ended March 31, 1996. Included in the 1996
period were $450,000 of expenses associated with the
acquisition of WorkGroup Systems Limited ("WorkGroup")
in March 1996. Excluding these expenses the increase
would have been $550,000 or approximately 10%. This
increase is primarily attributable to increases in
personnel within the sales and marketing organizations
principally for Q-Support and Monarch, and the
inclusion of Guildsoft's operating expenses for the
period which accounted for approximately 28% of the
increase.
<PAGE>
As a result of the foregoing, the income from
operations for the three months ended March 31, 1997
was $136,000, an increase of $87,000 when compared to
the income from operations of $49,000 for the three
months ended March 31, 1996. Net income for the three
months ended March 31, 1997 was $86,000 which compares
to net income of $38,000 for the three months ended
March 31, 1996. The net income was lower than the
income from operations principally due to foreign
currency losses incurred during the periods. The
Company recorded only minimal tax provisions for either
domestic or international operations during both period
because of its ability to utilize net operating loss
carryforwards.
Six Months Ended March 31, 1997 and 1996.
Net sales for the six months ended March 31, 1997 were
$16,416,000, which represents an increase of $2,119,000
or 15% from the net sales of $14,297,000 for the six
months ended March 31, 1996. This increase results
from growth in sales for DATAWATCH's Q-Support, Monarch
and netOctopus products and the inclusion of $937,000
of sales from Guildsoft. Monarch amounted to
approximately 39% of sales; Q-Support amounted to
approximately 37% of sales. For the six months ended
March 31, 1997, the Company's products for the IBM
compatible PC accounted for approximately 82% of sales
while the Company's products for the Apple PC accounted
for approximately 18%.
The Company's cost of sales for the six months ended
March 31, 1997 was $2,915,000 or approximately 18% of
net sales. Cost of sales for the six months ended
March 31, 1996 was $2,155,000 or approximately 15% of
net sales. The increase in cost of sales, as a
percentage of net sales, results from the inclusion of
Guildsoft's product sales which bear lower gross
margins than the Company's other products. Cost of
sales, as a percentage of net sales, for the March 31,
1997 period, excluding Guildsoft would have been 15%,
which is substantially consistent with the prior
period.
Engineering and product development expenses were
$1,315,000 for the six months ended March 31, 1997, an
increase of $243,000 or approximately 23% from
$1,072,000 for the six months ended March 31, 1996.
This increase is primarily attributable to additions in
personnel and expenses necessary for continued
development of the Q-Support product and quality
assurance for the Monarch product.
Selling, general and administrative expenses were
$11,661,000 for the six months ended March 31, 1997, an
increase of $695,000 from $10,966,000 for the six
months ended March 31, 1996. Included in the 1996
period were $450,000 of expenses associated with the
acquisition of WorkGroup in March 1996. Excluding
<PAGE>
these expenses the increase in expenses would have been
$1,145,000 or approximately 11%. This increase is
primarily attributable to increases in personnel within
the sales and marketing organizations principally for Q-
Support and Monarch, and the inclusion of Guildsoft's
operating expenses for the period which accounted for
29% of the increase.
As a result of the foregoing, the net income for the
six months ended March 31, 1997 was $508,000, an
increase of $405,000 when compared to the net income of
$103,000 for the six months ended March 31, 1996. The
Company recorded only minimal tax provisions for either
domestic or international operations during both
periods because of its ability to utilize net operating
loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
The Company's management believes that its currently
anticipated capital needs for future operations of the
Company will be satisfied through at least the end of
fiscal 1997 by funds currently available and its unused
$1,500,000 bank line of credit. During the quarter
DATAWATCH paid down its overdraft facilities with a
$1,500,000 term loan which calls for monthly principal
repayments beginning in March 1998 and ending in
February 2001. The Company utilized $868,000 in cash
from operating activities. The primary usage was money
spent on direct mail advertising and prepayments for
tradeshows. This cash usage was offset by borrowings
made pursuant to the term loan described above.
Management believes that the Company's current
operations are not materially impacted by the affects
of inflation.
NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standard
("SFAS") No. 128, "Earnings per Share" which will
become effective during the fourth quarter of fiscal
1998. SFAS No. 128 replaces the presentation of
primary earnings per share with basic earnings per
share, which excludes dilution, and requires dual
presentation of basic and diluted earnings per share.
The Company has evaluated this standard and does not
expect the adoption to have a material effect on the
Company's earnings per share.
<PAGE>
PART II.
Item 4. Submission of Matters to a Vote of Security Holders
A. The annual meeting of stockholders of DATAWATCH CORPORATION was held on
March 19, 1997.
B. No information provided due to inapplicability of item.
C. A vote was proposed to (1) elect a Board of Directors to serve for the
ensuing year or until their respective successors are duly elected and
qualified; (2) to approve the adoption of the Company's 1996 Stock Plan; and
(3) to approve the adoption of the Company's 1996 Non-Employee Director Stock
Option Plan, as amended.
The ballot results are as follows:
Voted Voted Broker
For Against Abstained Non-Votes
(1) Thomas R. Foley 7,767,908 389,527
Bruce R. Gardner 7,767,908 389,527
John A. Blaeser 7,767,908 389,527
Jerome Jacobson 7,767,908 389,527
David T. Riddiford 7,767,908 389,527
(2) To approve the adoption
of the Company's 1996
Stock Plan 2,374,381 995,008 48,907 4,739,139
(3) To approve the adoption
of the Company's 1996
Non-Employee Director
Stock Option Plan,
as amended. 2,908,068 574,294 54,046 4,621,027
D. No information provided due to inapplicability of item.
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
10.1 Amended and Restated Letter Agreement, dated February 12,
1997, by and between DATAWATCH CORPORATION, PERSONICS
CORPORATION and Silicon Valley Bank.
10.2 Promissory Note, dated February 12, 1997, by and between
DATAWATCH CORPORATION, PERSONICS CORPORATION and Silicon Valley
Bank.
11.1 Computation of Net Income per Common Share.
27 Financial Data Schedule (filed with SEC Edgar version only).
B. Reports on Form 8-K
Current Report on Form 8-K/A - Amendment No. 1 to Current Report on Form
8-K dated November 7, 1996 filed with the Securities and Exchange Commission
on January 21, 1997 and relating to the acquisition by the Company of
Guildsoft Holdings Limited and its wholly-owned subsidiary Guildsoft Limited.
<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 thereunto duly authorized on May 14, 1997.
DATAWATCH CORPORATION
/s/ Bruce R. Gardner___________
Bruce R. Gardner
Executive Vice President,
Treasurer and Director
(Principal Financial and
duly authorized officer)
<PAGE>
<TABLE>
Exhibit 11.1
DATAWATCH CORPORATION AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE
Computation of weighted average number of shares outstanding used in
determining income per share was as follows:
Three Months Ended Six Months Ended
March 31, March 31,
1997 1996 1997 1996
COMMON STOCK AND COMMON STOCK EQUIVALENTS:
<S> <C> <C> <C> <C>
Weighted shares outstanding
of common stock 9,100,321 8,634,575 9,071,131 8,632,304
Shares held in treasury (32,052) (25,536)
Common stock equivalent shares
resulting from assumed
conversion of warrants and
assumed exercise of stock
options 81,704 247,172 105,526 250,104
Weighted average of common
and common equivalent
shares-primary 9,149,973 8,881,747 9,151,121 8,882,408
Assumed conversion of warrants
and exercise of stock options
based on higher of average or
closing market price 8,678 4,915
Weighted average of common
and common equivalent
shares-fully diluted 9,149,973 8,890,425 9,151,121 8,887,323
NET INCOME $ 85,777 $ 37,574 $ 508,215 $ 102,742
NET INCOME PER COMMON SHARE:
Primary $ .01 $ .00 $ .06 $ .01
Fully-diluted $ .01 $ .00 $ .06 $ .01
</TABLE>
<PAGE>
EXHIBIT 10.1
February 12, 1997
Mr. Bruce Gardner
Chief Financial Officer
Datawatch Corporation and Personics Corporation
234 Ballardvale Street
Wilmington, MA 01887
Dear Mr. Gardner:
This Amended and Restated Letter Agreement amends and
restates the terms and conditions of that certain
Letter Agreement dated November 1, 1994, as amended.
We are pleased to inform you that Silicon Valley Bank,
a California-chartered bank ("Lender") with its
principal place of business at 3003 Tasman Drive, Santa
Clara, CA 95054 and with a loan production office
located at Wellesley Office Park, 40 William Street,
Suite 350, Wellesley, Massachusetts 02181 doing
business under the name "Silicon Valley East," has
approved an equipment line of credit in the amount of
One Million Five Hundred Thousand and 00/100 Dollars
($1,500,000.00) (the "Equipment Line") for use by
Datawatch Corporation and Personics Corporation
(jointly and severally, the "Borrower"), subject to the
following terms and to the Lender's periodic review.
The Equipment Line shall not become effective unless
and until an executed copy of this Amended and Restated
Letter Agreement together with all necessary
accompanying documentation as well as the facility fee
described below has been returned to the Lender, which
must take place within 30 days from the date of this
letter.
Borrowings under the Equipment Line will be permitted
through February 12, 1998 (the "Draw Period"). During
the Draw Period, Borrower shall pay regular monthly
payments of all accrued unpaid interest due as of each
payment date, beginning March 12, 1997 and all
subsequent interest payments will be due on the same
day of each month thereafter. The Equipment Line shall
convert to a term loan payable in thirty-six (36) even
payments of principal plus interest, due as of each
payment date, beginning March 12, 1998, and all
subsequent payments of principal plus interest will be
due on the same day of each month thereafter. The
final payment, due February 12, 2001, shall be for all
outstanding principal plus all accrued interest not yet
paid.
Borrowings under the Equipment Line shall bear interest
at a rate of one and one half (1.500) percentage points
over Lender's Prime Rate. Prime Rate means the rate
from time to time announced and made effective by
Lender as its Prime Rate. Borrower's interest rate
shall change each time the Prime Rate changes.
Interest will be charged monthly in arrears and shall
be calculated on a 360-day year. Lender shall be
authorized to debit Borrower's principal account or any
other account maintained by Borrower with Lender for
any principal, interest or fees associated with
Borrower's Equipment Line with or without notice to
Borrower. Borrower shall pay to Lender a facility fee
in the amount of Six Thousand and 00/100 Dollars
($6,000.00) for the Equipment Line, as well as all out-
of-pocket expenses incurred by Lender in connection
with the establishment of the Equipment Line, which
must be paid at the time the documents are returned to
Lender.
In addition to the Equipment Line, Lender has
previously approved a working capital line of credit in
the amount of One Million Five Hundred Thousand and
00/100 Dollars ($1,500,000.00) (the "Working Capital
Line" and sometimes referred to herein as the "Loan")
for use by Borrower, subject to the following terms and
to the Lender's periodic review.
Borrowings under the Working Capital Line are permitted
through October 30, 1997. Borrower shall pay regular
monthly payments of all accrued unpaid interest due as
of each payment date, beginning February 28, 1997 and
all subsequent interest payments will be due on the
30th day of each month thereafter. The final payment,
due October 30, 1997, shall be for all outstanding
principal plus all accrued interest not yet paid.
Funds are advanced under the Working Capital Line
according to a borrowing base formula, as determined by
Lender on a monthly basis, defined as follows: The
lesser of $1,500,000.00 or the sum of (a) seventy five
percent (75%) of eligible billed, domestic non-
distributor accounts receivable under 90 days from
invoice date, plus (b) sixty percent (60%) of eligible
foreign accounts receivable (as approved by Lender),
plus (c) fifty percent (50%) of Lender pre-approved
distributor accounts receivable under 60 days from
invoice date. The maximum benefit to be derived from
the distributor accounts receivable cannot exceed forty
percent (40%) of the total borrowing availability.
Eligible accounts receivable shall include, but not be
limited to, those accounts outstanding less than 90
days from the date of invoice, excluding, non-approved
foreign, government, contra, and intercompany accounts;
and exclude accounts wherein 50% or more of the account
is outstanding more than 90 days from the date of
invoice. Any account which alone exceeds 25% of total
accounts will be ineligible to the extent said account
exceeds 25% of total accounts. Also exclude any credit
balances which are aged past 90 days. Also ineligible
are any accounts which Lender in its sole judgment
excludes for valid credit reasons.
Borrowings under the Working Capital Line bear interest
at a rate of one (1.000) percentage point over Lender's
Prime Rate, as defined herein. Borrower's interest
rate changes each time the Prime Rate changes.
Interest is charged monthly in arrears and is
calculated on a 360-day year. Lender is authorized to
debit Borrower's principal account or any other account
maintained by Borrower with Lender for any principal,
interest or fees associated with Borrower's Working
Capital Line with or without notice to Borrower.
Borrowings under the Equipment Line shall be, and
borrowings under the Working Capital Line continue to
be, secured by a first security interest in the
Borrower's accounts receivable, inventory, machinery,
equipment, all other assets, all monies, and all other
property in Lender's possession which Lender may use to
pay Borrower's obligations, pursuant to two Commercial
Security Agreements, each dated November 1, 1994. In
addition, Borrower has agreed to pledge its
intellectual property pursuant to a Collateral
Assignment, Patent Mortgage and Security Agreements,
dated November 1, 1994.
Any advances hereunder or renewal hereof will be made
only if in the opinion of the Lender there exists no
default under any loan documentation executed by you
with the Lender. A default is as defined in the
accompanying Promissory Note and in the Related
Documents of even date herewith. The words "Related
Documents" mean and include without limitation all
promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security
agreements, mortgages, deeds of trust, and all other
instruments, agreements and documents, whether now or
hereafter existing, executed in connection with the
loans.
A. Requirements.
1 . Affirmative Covenants. So long as the
Working Capital Line and the Equipment Line
remain outstanding, Borrower agrees to
maintain the following covenants:
a. To provide the Lender with
duplicate unaudited monthly
financial statements, together with
a Compliance Certificate, prepared
in accordance with generally
accepted accounting principles and
duplicate audited annual
(consolidated and consolidating)
financial statements certified by
public accountants with an
unqualified opinion, to be received
25 and 90 days, respectively after
the close of the period. Monthly
distributor sell-through reports to
be provided to Lender when
submitting the Compliance
Certificate.
b. To provide the Lender with a
Borrowing Base Certificate, together
with an aged list of accounts
receivable, to be received within 25
days after the close of each month.
Prior to any further Advances under
the Working Capital Line or
aggregate Advances greater than
$500,000.00 under the Equipment
Line, an initial accounts receivable
audit, with results satisfactory to
Lender shall be performed by
Lender's agent. Annual accounts
receivable audits shall be performed
by Lender's agent, thereafter.
Borrower's deposit account will be
debited for audit expenses and
notifications will be mailed to
Borrower.
c. Comply with the following Financial
Covenants:
Leverage - (Tested Monthly)
Maintain a ratio of Total
Liabilities less Subordinated
Debt and deferred revenues
divided by TCB not to exceed
1.00 to 1.00 for the months
ending March, June, September
and December, increasing to
1.50 to 1.00 for all other
months.
Tangible Capital Base -
(Tested Monthly) Maintain a
minimum Tangible Capital Base
(TCB) of $4,500,000.00 through
quarter ending December 31, 1996,
increasing to $5,500,000.00
through quarter ending March
31, 1997, increasing to
$6,500,000.00 through quarter
ending June 30, 1997 and
increasing to $7,500,000.00
through quarter ending
September 30, 1997 and
thereafter. TCB is defined as
Stockholder's Equity plus
Subordinated Debt (debt which
is formally subordinated to the
Bank ) less intangibles
(including but not limited to
Goodwill, Capitalized Software
and Excess Purchase Costs).
Quick
Ratio - (Tested Monthly)
Beginning month ending January
31, 1997, maintain a minimum
Quick Ratio of 1.25 to 1.00.
Quick Ratio is defined as cash
and receivables divided by
current liabilities net of
deferred revenues.
Liquidity - (Tested
Monthly) Beginning month ending
January 31, 1997, maintain a
minimum cash plus Working
Capital Line availability,
divided by outstanding term
debt with Lender of 1.75 to
1.00.
d. File all tax returns and to pay
all taxes due.
e. Reimburse the Lender for any
reasonable expenses incurred by the
Lender to enforce the terms of this
obligation.
f. Maintain adequate fire and
liability insurance satisfactory to the
Lender, a copy of which shall be
forwarded to the Lender.
2. Negative Covenants. Borrower covenants and
agrees with Lender that while this Agreement is in
effect, Borrower shall not, without the prior
written consent of Lender:
a. Participate in any merger or
consolidation or to pay any dividends.
b. Dispose of any material assets
other than in the ordinary course of
business.
c. Be in default of any other loan
agreement with any other bank.
d. File for protection under the
Bankruptcy Code.
e. Directly or indirectly pledge,
grant, create or permit to exist any
security interest, lien or other
encumbrance upon any of Borrower's assets
except in favor of the Lender, without
the Lender's prior written consent, which
will not be unreasonably
withheld.
f. Invest in any securities other than
money market instruments acceptable to
the Lender, without the Lender's prior
written consent which will not be
unreasonably withheld.
g. Incur indebtedness for borrowed
money, except for either a) indebtedness
to Silicon Valley Bank or b) indebtedness
incurred for the purchase or lease of
equipment.
If the Lender waives any rights under this Agreement,
it will not affect any future action the Lender may
wish to take. This Agreement shall be binding upon any
of the Borrower's successors in interest. The laws of
the Commonwealth of Massachusetts shall apply to this
Agreement. THE BORROWER ACCEPTS FOR ITSELF AND IN
CONNECTION WITH ITS PROPERTIES, UNCONDITIONALLY, THE
NON-EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL
COURT IN SUFFOLK OR NORFOLK COUNTY IN THE COMMONWEALTH
OF MASSACHUSETTS IN ANY ACTION, SUIT, OR PROCEEDING OF
ANY KIND, AGAINST IT WHICH ARISES OUT OF OR BY REASON
OF THIS LETTER AGREEMENT; PROVIDED, HOWEVER, THAT IF
FOR ANY REASON LENDER CANNOT AVAIL ITSELF OF THE COURTS
OF THE COMMONWEALTH OF MASSACHUSETTS, THEN VENUE SHALL
LIE IN SANTA CLARA COUNTY, CALIFORNIA. (INITIAL HERE
_____) LENDER AND BORROWER HEREBY WAIVE THE RIGHT TO
ANY JURY TRIAL IN ANY ACTION, PROCEEDING, OR
COUNTERCLAIM BROUGHT BY EITHER LENDER OR BORROWER
AGAINST THE OTHER.
Notwithstanding any other provision of this Agreement
or any other Existing Loan Document, each Borrower
irrevocably waives all rights that it may have at law
or in equity (including, without limitation, any law
subrogating the Borrower to the rights of Borrower
under the Existing Loan Documents) to seek
contribution, indemnification, or any other form of
reimbursement from any other Borrower, or any other
person now or hereafter primarily or secondarily liable
for any Indebtedness of Borrower, for any payment made
by the Borrower with respect to the Indebtedness in
connection with this Agreement or the Existing Loan
Documents or otherwise and all rights that it might
have to benefit from, or to participate in, any
security for the Indebtedness as a result of any
payment made by the Borrower with respect to the
Indebtedness in connection with the Existing Loan
Documents or otherwise. Any agreement providing for
indemnification, reimbursement or any other arrangement
prohibited under this Agreement shall be null and void.
If any payment is made to a Borrower in contravention
of this Section, such Borrower shall hold such payment
in trust for Lender and such payment shall be promptly
delivered to Lender for application to the
Indebtedness, whether matured or unmatured.
Each Borrower hereby waives any defense based on
impairment or destruction of its subrogation or other
rights against any other Borrower and waives all
benefits which might otherwise be available to it under
Commonwealth of Massachusetts law now in effect and
hereafter amended, and under any other similar laws now
and hereafter in effect.
It is our understanding that the Borrower will consider
Silicon Valley Bank to be one of its banks. Among
other things, the Borrower agrees to maintain a
reasonable portion of its excess funds in Silicon
Valley Bank.
This Agreement shall become effective only when it
shall have been executed by the Borrower and the Lender
(provided, however, in no event shall this Agreement
become effective until signed by an officer of the
Lender in California).
We are delighted to expand our relationship with
Datawatch Corporation and Personics Corporation and
continue to look forward to many successful years of
working together.
Sincerely,
SILICON VALLEY BANK, doing
business as SILICON VALLEY EAST
By: /s/ James C. Maynard
Name: James C. Maynard
Title: Vice President
SILICON VALLEY BANK
By: /s/ Julie Haga
Name: Julie Haga
Title: Vice President
(Signed at Santa Clara County, CA)
Agreed and Accepted this - day of ,1997.
DATAWATCH CORPORATION PERSONICS CORPORATION
By: /s/ Bruce R. Gardner By: /s/ Bruce R. Gardner
Name: Bruce R. Gardner Name: Bruce R. Gardner
Title: Executive V.P. Title: Treasurer
EXHIBIT 10.2
PROMISSORY NOTE
Borrower: Datawatch Corporation and Personics
Corporation
234 Ballardvale Street
Wilmington, MA 01887
Lender: SILICON VALLEY BANK, a California-chartered
bank
doing business in Massachusetts as Silicon
Valley East
Wellesley Office Park
40 William Street, Suite 350
Wellesley, MA 02181
Principal Amount: $1,500,000.00 Initial Rate: 9.750%
Date of Note: February l2,1997
PROMISE TO PAY. Datawatch Corporation and Personics
Corporation (jointly and severally, the "Borrower")
promises to pay to SILICON VALLEY BANK, a California-
chartered bank, A California bank with a loan production
office in Wellesley, Massachusetts ("Lender"), or order,
in lawful money of the United States of America, the
principal amount of One Million Five Hundred Thousand &
00/100 Dollars ($1,500,000.00) or so much as may be
outstanding, together with interest on the unpaid
outstanding principal balance of each advance. Interest
shall be calculated from the date of each advance until
repayment of each advance.
PAYMENT. Borrower will pay this loan in accordance
with the following payment schedule:
The draw period shall begin as of this date and
will end on February 12, 1998 (the "Draw Period").
During the Draw Period, Borrower will pay regular
monthly payments of all accrued unpaid interest due as
of each payment date, beginning on March 12, 1997,
and all subsequent interest payments will be due on
the same day of each month thereafter. The outstanding
principal balance on February 12,1998 will be payable
in thirty-six (36) even monthly payments of principal
plus interest, due as of each payment date, beginning
March 12, 1998, and all subsequent payments of
principal plus interest will be due on the same day of
each month thereafter. The final payment, due on
February 12, 2001, will be for all outstanding
principal plus all accrued interest not yet paid.
Interest on this Note is computed on a 365/360 simple
interest basis; that is, by applying the ratio of
the annual interest rate over a year of 360 days,
multiplied by the outstanding principal balance,
multiplied by the actual number of days the principal
balance is outstanding. Borrower will pay Lender at
3000 Lakeside Drive, Santa Clara, California 95054.
Unless otherwise agreed or required by applicable law,
payments will be applied first to accrued unpaid
interest, then to principal, and any remaining amount
to any unpaid collection costs and late charges.
VARIABLE INTEREST RATE. The interest rate on this
Note is subject to change from time to time based
on changes in an index which is Lender's Prime Rate
(the "Index"), This is the rate Lender charges, or
would charge, on 90-day unsecured loans to the most
creditworthy corporate customers. This rate may or
may not be the lowest rate available from Lender at
any given time. Lender will tell Borrower the
current Index rate upon Borrowers request. Borrower
understands that Lender may make loans based on other
rates as well. The interest rate change will not
occur more often than each time the prime rate is
adjusted by Silicon Valley Bank. The Index currently
is 8.250% per annum. The interest rate to be applied
to the unpaid principal balance of this Note will be at
a rate of 1.500 percentage points over the Index,
resulting in an initial rate of 9.750% per annum.
NOTICE: Under no circumstances will the interest rate
on this Note be more than the maximum rate allowed by
applicable law.
PREPAYMENT. Borrower agrees that all loan fees and
other prepaid finance charges are earned fully as of
the date of the loan and will not be subject to refund
upon early payment (whether voluntary or as a result of
default), except as otherwise required by law.
Except for the foregoing, Borrower may pay without
penalty all or a portion of the amount owed earlier
than it is due. Early payments will not, unless
agreed to by Lender in writing, relieve Borrower of
Borrower's obligation to continue to make payments of
accrued unpaid interest. Rather, they will reduce
the principal balance due.
DEFAULT. Borrower will be in default if any of the
following happens: (a) Borrower fails to make any
payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to
comply with or to perform when due any other term,
obligation, covenant, or condition contained in this
Note or any agreement related to this Note, or in
any other agreement or loan Borrower has with Lender.
(c) Any representation or statement made or furnished
to Lender by Borrower or on Borrower's behalf is
false or misleading in any material respect either now
or at the time made or furnished. (d) Borrower
becomes insolvent, a receiver is appointed for any
part of Borrowers property, Borrower makes an
assignment for the benefit of creditors, or any
proceeding is commenced either by Borrower or against
Borrower under any bankruptcy or insolvency laws. (e)
Any creditor tries to take any of Borrower's property
on or in which Lender has a lien or security
interest. This includes a garnishment of any of
Borrower's accounts with Lender. (f) Any guarantor
dies or any of the other events described in this
default section occurs with respect to any guarantor
of this Note. (g) A material adverse change occurs
in Borrower's financial condition, or Lender believes
the prospect of payment or performance of the
Indebtedness is impaired.
LENDER'S RIGHTS. Upon default, Lender may declare
the entire unpaid principal balance on this Note and
all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon
default, including failure to pay upon final maturity,
Lender, at its option, may also, if permitted under
applicable law, increase the variable interest rate
on this Note to 6.500 percentage points over the Index.
The interest rate will not exceed the maximum rate
permitted by applicable law. Lender may hire or pay
someone else to help collect this Note if Borrower does
not pay. Borrower also will pay Lender that amount.
This includes, subject to any limits under
applicable law, Lender's attorneys' fees and Lender's
legal expenses whether or not there is a lawsuit,
including attorneys' fees and legal expenses for
bankruptcy proceedings (including efforts to modify or
vacate any automatic stay or injunction), appeals, and
any anticipated post-judgment collection services. If
not prohibited by applicable law, Borrower also
will pay any court costs, in addition to all other
sums provided by law. This Note has been delivered
to Lender and accepted by Lender in the
Commonwealth of Massachusetts. If there is a
lawsuit, Borrower agrees upon Lender's request to
submit to the jurisdiction of the courts of Suffolk
or Norfolk County, the Commonwealth of Massachusetts.
Lender and Borrower hereby waive the right to any jury
trial in any action, proceeding, or counterclaim
brought by either Lender or Borrower against the
other. This Note shall be governed by and construed in
accordance with the laws of the Commonwealth of
Massachusetts.
LINE OF CREDIT. This Note evidences a straight line of
credit through the Draw Period. Once the total
amount of principal has been advanced, Borrower is
not entitled to further loan advances. Advances under
this Note, as well as directions for payment from
Borrower's accounts, may be requested orally or in
writing by Borrower or by an authorized person.
Lender may, but need not, require that all oral
requests be confirmed in writing. Borrower agrees to
be liable for all sums either: (a) advanced in
accordance with the instructions of an authorized
person or (b) credited of any of Borrowers accounts
with Lender. The unpaid principal balance owing on
this Note at any time may be evidenced by endorsements
on this Note or by Lender's internal records,
including daily computer print-outs. Lender will have
no obligation to advance funds under this Note if:
(a) Borrower or any guarantor is in default under the
terms of this Note or any agreement that Borrower or
any guarantor has with Lender, including any agreement
made in connection with the signing of this Note; (b)
Borrower or any guarantor ceases doing business or is
insolvent; (c) any guarantor seeks, claims or
otherwise attempts to limit, modify or revoke such
guarantors guarantee of this Note or any other loan
with Lender; or (d) Borrower has applied funds
provided pursuant to this Note for purposes other
than those authorized by Lender.
PAYMENT OF LOAN FEE. Borrower shall pay to Lender a
fee in the amount of Six Thousand and 00/100
Dollars ($6,000.00) plus all out of pocket
expenses.
AMENDED AND RESTATED LETTER AGREEMENT. This Note is
subject to and shall be governed by all the terms
and conditions of that certain Amended and Restated
Letter Agreement between Borrower and Lender of
even date herewith, as may be amended from time to
time, which Amended and Restated Letter Agreement is
incorporated herein by this reference.
REQUEST TO DEBIT ACCOUNTS. Borrower will regularly
deposit funds received from its business activities
in accounts maintained with Silicon Valley Bank.
Borrower hereby requests and authorizes Lender to
debit any of Borrower's accounts with Lender,
including, without limitation, Account Number
_____________ for payments of principal and interest
owing on the loan and any other obligations owing
by Borrower to Lender. Lender will notify Borrower
of all debits which Lender makes against
Borrower's accounts. Any such debits against
Borrower's accounts shall in no way be deemed a set-
off.
JURISDICTION/VENUE. Borrower accepts for itself and in
connection with its properties, unconditionally, the
jurisdiction of the courts of Norfolk or Suffolk
County in the Commonwealth of Massachusetts in any
action, suit, or proceeding of any kind, against it
which arises out of or by reason of this Note;
provided, however, that if for any reason Lender is
prohibited from availing itself of the courts of the
Commonwealth of Massachusetts, then the venue shall
lie in Santa Clara County, California.
WAIVERS AND GENERAL PROVISIONS. Lender may delay or
forgo enforcing any of its rights or remedies under
this Note without losing them. Borrower and any other
person who signs, guarantees or endorses this Note, to
the extent allowed by law, waive presentment, demand
for payment, protest and notice of dishonor. Upon
any change in the terms of this Note, and unless
otherwise expressly stated in writing, no party who
signs this Note, whether as maker, guarantor,
accommodation maker or endorser, shall be released
from liability. To the extent permitted by
applicable law, all such parties agree that Lender
may renew or extend (repeatedly and for any length of
time) this loan, or release any party or guarantor
or collateral; or impair, fail to realize upon or
perfect Lender's security interest in the collateral;
and take any other action deemed necessary by Lender
without the consent of or notice to anyone. All
such parties also agree that Lender may modify
this loan without the consent of or notice to anyone
other than the party with whom the modification is
made.
PRIOR TO SIGNING THIS NOTE, BORROWER HAS READ AND
UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE,
INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. THIS
NOTE IS EXECUTED UNDER SEAL. BORROWER AGREES TO THE
TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A
COMPLETED COPY OF THE NOTE.
BORROWER:
DATAWATCH CORPORATION
By: /s/ Bruce R. Gardner
Name : Bruce R. Gardner
Title: Executive Vice President
Personics Corporation
By: /s/ Bruce R. Gardner
Name: Bruce R. Gardner
Title: Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> MAR-31-1997
<CASH> 1,478,269
<SECURITIES> 642,883
<RECEIVABLES> 8,850,143
<ALLOWANCES> 0
<INVENTORY> 784,079
<CURRENT-ASSETS> 14,252,864
<PP&E> 4,071,287
<DEPRECIATION> 2,087,131
<TOTAL-ASSETS> 18,217,228
<CURRENT-LIABILITIES> 6,955,265
<BONDS> 0
0
0
<COMMON> 91,002
<OTHER-SE> 9,499,108
<TOTAL-LIABILITY-AND-EQUITY> 18,217,228
<SALES> 8,196,900
<TOTAL-REVENUES> 8,196,900
<CGS> 1,455,046
<TOTAL-COSTS> 6,605,667
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,784
<INCOME-PRETAX> 93,790
<INCOME-TAX> 8,013
<INCOME-CONTINUING> 85,777
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 85,777
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
