FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1996, 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: 33-10943-NY
PHOTON TECHNOLOGY INTERNATIONAL, INC.
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(Exact name of registrant as specified in its charter)
NEW JERSEY 22-2494774
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(State of Incorporation) (I.R.S. Employer Identification No.)
1 Deerpark Drive, Suite F, Monmouth Junction, NJ 08852
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (908) 329-0910
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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 [ ]
The number of shares of the registrants Common Stock, without par value,
outstanding as of December 31, 1996 was 1,237,186
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INDEX
PHOTON TECHNOLOGY INTERNATIONAL, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of December 31, 1996
and June 30, 1996
Consolidated Statements of Operations for the
six months ended December 31, 1996 and 1995
Consolidated Statements of Operations for the
quarter ended December 31, 1996 and 1995
Consolidated Statements of Cash Flows for the
six months ended December 31, 1996 and 1995
Notes to Consolidated Financial Statements
December 31, 1996
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. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
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PHOTON TECHNOLOGY INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
December 31 June 30
1996 1996
----------- -----------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents ..................... $ 116,668 $ 279,041
Trade accounts receivable, less allowance
of $3,280 .................................... 1,652,044 2,224,355
Inventory
Finished goods .............................. 659,282 788,139
Work in process ............................. 727,195 534,750
Raw materials ............................... 775,896 570,450
----------- -----------
2,162,373 1,893,339
Receivables from employees .................... 28,942 20,005
Prepaid expenses and other current assets ..... 535,556 243,957
----------- -----------
TOTAL CURRENT ASSETS ....... 4,495,583 4,660,697
PROPERTY AND EQUIPMENT
Furniture and fixtures ........................ 156,036 143,663
Machinery and equipment ....................... 1,853,768 1,810,678
----------- -----------
2,009,804 1,954,341
LESS: Accumulated depreciation ................. (1,495,930) (1,415,221)
----------- -----------
513,874 539,120
DEFERRED INCOME TAX ASSET ...................... 153,452 153,452
OTHER ASSETS ................................... 1,983,221 2,057,240
----------- -----------
$ 7,146,130 $ 7,410,509
=========== ===========
See Notes to Consolidated Financial Statements
Note: The balance sheet at June 30, 1996 has been derived from audited financial
statements at that date, and does not include all the information and notes
required under generally accepted accounting principles for complete financial
statements.
</TABLE>
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<TABLE>
<CAPTION>
PHOTON TECHNOLOGY INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS - Continued
December 31 June 30
1996 1996
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Bank indebtedness .......................... $ 1,430,364 $ 1,522,397
Accounts payable ........................... 930,686 984,159
Deferred income ............................ 33,124 49,755
Accrued liabilities ........................ 119,979 171,355
Capital lease obligation ................... 9,577 9,624
Current portion of long term debt .......... 192,656 380,781
----------- -----------
TOTAL CURRENT LIABILITIES ..... 2,716,386 3,118,071
DEFERRED INCOME TAX LIABILITY ................ 165,997 176,452
LONG TERM DEBT ............................... 2,013,069 1,938,370
SHAREHOLDERS' EQUITY
Paid in capital .............................. 6,289,391 6,279,118
Accumulated deficit ........................ (3,707,887) (3,710,312)
Treasury stock, at cost .................... (56,433) (56,433)
Cumulative foreign currency
translation adjustment ................... (274,393) (334,757)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY .... 2,250,678 2,177,616
----------- -----------
$ 7,146,130 $ 7,410,509
=========== ===========
See Notes to Consolidated Financial Statements.
Note: The balance sheet at June 30, 1996 has been derived from the audited
financial statements at that date, and does not include all the information and
notes required under generally accepted accounting principles for complete
financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PHOTON TECHNOLOGY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the Six Months Ended December 31,
1996 1995
----------- -----------
<S> <C> <C>
REVENUES
Net sales .................................. $ 4,033,181 $ 4,461,096
Other income ............................... 11,685 37,847
----------- -----------
4,044,866 4,498,943
COSTS AND EXPENSES
Cost of products sold ...................... 1,648,784 1,860,361
Selling, general and administrative ........ 1,634,390 1,692,809
Research and development ................... 449,473 480,740
Interest ................................... 160,168 120,913
Depreciation and amortization .............. 73,869 87,843
Goodwill amortization ...................... 86,352 75,132
Foreign exchange gain ...................... (25) (5,311)
----------- -----------
4,053,011 4,312,487
Income (loss) before income taxes ............ (8,145) 186,456
Benefit for income taxes ..................... (10,572) (26,654)
----------- -----------
Net income ................................... $ 2,427 $ 213,110
=========== ===========
Net income per common share .................. $ .00 $ .18
=========== ===========
Weighted average number of common
shares outstanding .......................... 1,163,329 864,158
=========== ===========
See Notes to Consolidated Financial Statements.
</TABLE>
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<TABLE>
<CAPTION>
PHOTON TECHNOLOGY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the Second Quarter Ended December 31,
1996 1995
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<S> <C> <C>
REVENUES
Net sales .................................. $ 2,131,489 $ 2,512,403
Other income ............................... 640 10,956
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2,132,129 2,523,359
COSTS AND EXPENSES
Cost of products sold ...................... 874,772 1,053,261
Selling, general and administrative ........ 908,155 931,746
Research and development ................... 200,113 264,022
Interest ................................... 78,718 80,913
Depreciation and amortization .............. 36,729 43,918
Goodwill amortization ...................... 39,975 34,670
Foreign exchange (gain) loss ............... (1,419) 2
----------- -----------
2,137,043 2,408,532
Income (loss) before income taxes ............ (4,914) 114,827
Benefit for income taxes ..................... (6,390) (14,515)
----------- -----------
Net income ................................... $ 1,476 $ 129,342
=========== ===========
Net income per common share .................. $ .00 $ .11
=========== ===========
Weighted average number of common
shares outstanding .......................... 1,177,636 907,595
=========== ===========
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PHOTON TECHNOLOGY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Six Months Ended December 31,
OPERATING ACTIVITIES: 1996 1995
----------- -----------
<S> <C> <C>
Net income .............................................. $ 2,427 $ 213,110
Adjustments to reconcile net income
to net cash provided (used)
by operating activities:
Depreciation and amortization ....................... 80,709 87,843
Other amortization .................................. 223,850 203,712
Deferred income tax benefit ......................... (10,572) (26,654)
Changes in operating assets and liabilities:
(Increase) decrease in trade accounts receivable .... 572,311 (492,328)
Increase in inventory ............................... (269,034) (257,752)
(Increase) decrease in receivables from employees ... (8,937) 19,140
Increase in prepaid expenses and other current assets (291,599) (260,855)
Decrease in accounts payable
and accrued liabilities ............................ (104,849) (15,563)
Decrease in deferred income ......................... (16,631) (32,767)
----------- -----------
Net cash provided (used) by operating activities ........ 177,675 (562,114)
INVESTING ACTIVITIES:
Purchase of property and equipment ................... (55,463) (26,549)
Capitalized software ................................. (139,000) --
----------- -----------
Net cash used by investing activities ................ (194,463) (26,549)
FINANCING ACTIVITIES:
Investment in patents ................................. (2,850) --
Financing costs incurred .............................. (7,982) --
(Decrease) increase in bank indebtedness .............. (92,033) 324,152
Repayment of long term debt ............................. (108,503) (48,071)
Increase in long term debt ............................ -- 1,047,228
Payment of capital lease obligation ................... (4,971) (11,954)
Proceeds from issuance of common stock-Employee
Stock Purchase Plan .................................. 10,273 --
----------- -----------
Net cash provided (used) by financing activities ........ (206,066) 1,311,355
Effect of exchange rate changes on cash ............... 60,481 (48,498)
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<CAPTION>
PHOTON TECHNOLOGY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)(continued)
For the Six Months Ended December 31,
OPERATING ACTIVITIES: 1996 1995
----------- -----------
<S> <C> <C>
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS .................................. (162,373) 674,194
CASH AND CASH EQUIVALENTS-BEGINNING ..................... 279,041 46,364
----------- -----------
CASH AND CASH EQUIVALENTS-ENDING ........................ $ 116,668 $ 720,558
=========== ===========
Supplemental disclosure of cash paid
Interest .............................................. $ 146,706 $ 120,837
Income taxes, Canadian Subsidiary ..................... -- $ 15,843
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
PHOTON TECHNOLOGY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Photon Technology International Inc. (the "Company") is engaged in research,
development, manufacturing, sales and marketing of proprietary electro-optical
systems which enable customers in health care, environmental science and
industrial process control to perform advance analysis utilizing light. The
Company's major products are electro-optical and light-based instrumentation
which utilizes fluorescence technology. The primary markets are medical life
sciences, physical sciences, environmental and industrial.
The Company operates in one principal industry segment, the photonics industry.
The Company's products are sold on a worldwide basis to universities, research
hospitals, pharmaceutical companies, bio-tech companies, federal and state
government institutions, environmental companies and commercial business, all of
which are primarily engaged in research activities.
The accompanying consolidated financial statements of Photon Technology
International, Inc. have been prepared in accordance with generally accepted
accounting principles in the United States for interim financial information and
with the instructions to Form 10K and Article 10 of regulation S-X. 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 accruals)
considered necessary for a fair presentation have been included. Operating
results for the six month period ended December 31, 1996 are not necessarily
indicative of the results that may be expected for the year ending June 30,
1997. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's annual report or Form 10K for
the year ended June 30, 1996.
NOTE B -- PREFERRED AND COMMON STOCK
On June 21, 1996, prior to the Company's fiscal year end, the Company amended
its Restated and Amended Certificate of Incorporation to reflect a reverse stock
split whereby one (1) share of common stock was exchanged for every three (3)
shares of common stock. This Reverse Split impacted all authorized common stock
and stock options, including treasury shares, employee and non-employee stock
options. The weighted average shares outstanding are computed on a Reverse Split
basis on both a current and historical basis. As a result, the earnings per
share calculations reflect the impact of the Reverse Split.
Preferred stock, $1,000 par value: authorized 500 shares and no shares issued or
outstanding. Common stock, no par value: authorized 3,333,333 shares and issued
1,292,477 shares, including 55,291 shares in treasury stock.
NOTE C -- COMPARATIVE AMOUNTS
Certain comparative amounts in the prior year have been reclassified to conform
with the presentation adopted in the current fiscal year.
<PAGE>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales for the quarter and six months ended December 31, 1996 of $2.1 million
and $4.0 million, respectively, decreased $381,000 or 15.2% and $428,000 or
9.6%, respectively, compared to the same periods of fiscal 1996. These decreases
primarily were the result of the new product introduction temporarily delayed in
production.
Total revenues for the quarter and six months ended December 31, 1996 of $2.1
million and $4.0 million, respectively, which include net sales and other
income, decreased $391,000 or 15.5% and $454,000 or 10.1%, respectively,
compared to the corresponding prior year periods. This performance reflects both
the sales impact and lower other income. Other income for the first six months
of fiscal 1997 decreased by $26,000 primarily due to a non-recurring insurance
rebate for workers' compensation.
Cost of products sold for the second quarter of fiscal 1997 was $875,000 or
41.0% of net sales, which compares to $1.1 million or 41.9% of net sales in the
same period of fiscal 1996. The decrease of $178,000 or 16.9%, was due both to
lower sales and cost reductions in the plant production operations. The lower
cost of products sold for the six months ended December 31, 1996 of $1.6 million
compared to $1.9 million for the prior year was reflected in the percentage of
net sales which decreased from 41.7% to 40.9%, respectively, as a result of cost
reductions and maintaining production efficiency.
Selling (including marketing), general and administrative expenses of $908,000
for the second quarter and $1.6 million for the six months of fiscal 1997
decreased $24,000 or 2.5% and $58,000 or 3.5%, respectively, for the comparable
periods of fiscal 1996. These expenses as a percentage of net sales increased
from 37.1% to 42.6% in the second quarter and from 37.9% to 40.5% for the six
month period. The percentage of net sales increase in the quarter and six month
periods primarily related to the decrease in sales during fiscal 1997.
Additionally, administrative expenses were higher due to financing related
expenses. The decrease in the dollar amount of the selling, general and
administrative expenses primarily related to volume-sensitive selling expenses
and holding discretionary spending on marketing support programs.
Research and development expenditures for the second quarter of fiscal 1997 were
$200,000 or 9.4% of net sales and for the first six months of fiscal 1997
totaled $449,000 or 11.1% of net sales. In comparison to the prior year, these
expenses were $264,000 or 10.5% for the quarter and $481,000 or 10.8% for the
six month period. An additional $139,000 of software development expenses, which
represents 3.4% of net sales, was capitalized for the six months ended December
31, 1996 and represents incremental spending in comparison to the same prior
year period. These increased expenses year-to-year are due to additional
staffing and level of project activity for new products.
Interest expense for the six months ended December 31, 1996 of $160,000
increased $39,000 or 32.5% in comparison to the prior year periods. This
increase primarily relates to interest on long term debt related to financing
activities in the prior year. Interest expense for the second quarter of fiscal
1997 of $79,000 decreased $2,000 or 2.7% compared to fiscal 1996.
<PAGE>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
RESULTS OF OPERATIONS (continued)
Depreciation and amortization of $37,000 for the second quarter of fiscal 1997
decreased by $7,000 or 1.6% and of $74,000 for the first six months of fiscal
1997 decreased by $14,000 or 15.0% in comparison to the same periods of fiscal
1996. This decrease was primarily due to the impact of lower depreciation and
amortization on equipment located at the Canadian facility.
Goodwill amortization of $40,000 for the second quarter of fiscal year 1997
increased by $5,000 or 15.3% and of $86,000 for the six months ended December
31, 9996, increased by $11,000 or 14.9% compared to the same prior fiscal year
periods. Those increases represent the full incremental effect of additional
capitalized start-up expenses incurred during the second half of fiscal 1996
that are associated with the formation of the German subsidiary in September
1994.
Foreign exchange represented nominal gains of $1,419 and $25 for the quarter and
six months ended December 31, 1996, respectively. The current year gain in
comparison to the gain of $5,000 for the first six months of the prior year was
due to the mix of transactional activity.
Deferred tax benefits of $6,000 for the quarter and $11,000 for the six months
compared to $15,000 and $27,000, respectively for the same prior year periods.
The deferred tax benefits relate to timing differences between book and tax
income related to the Canadian and German subsidiaries. The tax benefits
represent a continuing partial reversal of the liability that was established
during the year ended June 30, 1995.
The Company reported net income of $1,000 for the second quarter of fiscal 1997,
compared to net income of $129,000 for the same prior year quarter. For the six
month period ended December 31, 1996, net income was $2,000 in comparison to
$213,000 for the same prior year six months. The sales decrease, the required
sustained level of investment expense in research and development, interest
expense related to level of overall debt, continued expenses related to
certification of products in Europe, and the recognition of expenses related to
prepaid financing were the major impacts on income.
The resulting earnings per share performance based on the weighted average
number of common shares each year and stated on a "reverse split" basis, was no
earnings per share for the quarter and six months ended December 31, 1996, in
comparison to eleven cents (.11) and eighteen cents (.18), respectively, per
share for the same prior year periods.
LIQUIDITY AND CAPITAL RESOURCES
The working capital of the Company at December 31, 1996 was $1,779,000 compared
to $1,543,000 at June 30, 1996; an increase of $226,000 or 14.7%
Current assets of $4,495,583 decreased $165,000 or 3.5% from the end of fiscal
1996. This change primarily reflected a decrease of $572,000 or 25.7% in trade
accounts receivable which was partially offset by an increase in prepaid
expenses and other current assets of $292,000 or 119.5%. The change in trade
receivables primarily related to strong collection activity and the lower sales
<PAGE>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
LIQUIDITY AND CAPITAL RESOURCES (continued)
volume during the six months ended December 31, 1996. The trade accounts
receivable balance of $1.7 million represents 2.5 months of sales in comparison
to 2.8 months of sales at June 30, 1996. The inventory level of $2.2 million at
December 31, 1996, which is an increase of $269,000 or 14.2% compared to the
inventory balance at June 30, 1996, reflects both a higher level of production
volume to support future sales, the build up of in-transit production shipment
to international locations for completion of orders, which will be billed in the
subsequent quarter, and new product inventory. This inventory balance represents
5.6 months of sales in inventory based on anticipated sales volume and compares
to 5.3 months of sales in inventory at the end of fiscal 1996. The increase in
other current assets mainly related to the timing of: (a) prepaid employee
benefit insurance; (b) prepaid general insurance premiums; (c) reimbursable
value added taxes (VAT) and general goods and services taxes (GST); (d) prepaid
legal services; and (e) prepaid trade show deposits and related marketing costs.
Current liabilities of $2,716,000 decreased $402,000 or 12.9% in comparison to
the prior year end. This decrease was due to: (a) reduction in notes payable to
banks of $92,000 of 6.0% based on pay down of the German subsidiary bank line;
(b) reduction in trade accounts payable of $53,000 or 5.4% based on payment
activity; (c) lower deferred income of $17,000 or 33.4% due to revenue
recognition on customer orders; (d) lower accrued liabilities of $51,000 or
30.0% due to reversal of year end accruals in relation to actual expenses
incurred and primarily related to agent and sales representative commissions;
and (e) a reduction in the current portion of long term debt by $188,000 or
49.4% primarily related to the modification of the working capital line of
credit facility with Silicon Valley Bank of California (see discussion below).
On July 26, 1996 the Company secured a new working capital line of credit
facility with Silicon Valley Bank of California for $2,000,000 (U.S.) and repaid
the Bank of Montreal credit facility in full. This credit facility has a one (1)
year term (expiring June 25, 1997) and carries an interest rate charge at the
prime rate plus 1.5% (approximately 9.75% at December 31, 1996). Interest is due
and payable monthly, and the principal is due at maturity. The collateral for
the line represents a perfected first security interest in all assets of the
Company, its wholly-owned Canadian subsidiary and United Kingdom branch office.
The Company will retain ownership of intellectual property and is restricted on
the pledge of this property to any other party. The advance rate is based on 75%
against eligible domestic and Canadian receivables within 90 days from invoice
date and 90% against incurred or letter of credit backed foreign receivables. No
clean-up period is required during the term. The securities related to the
Covington Capital debenture and the MLTV note are subordinated to the bank debt.
The new line of credit provided $1.3 million to repay the Bank of Montreal
facility. The balance outstanding at December 31, 1996 was $1.2 million. The
Company has not borrowed additional amounts on this line as of December 31,
1996.
<PAGE>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
LIQUIDITY AND CAPITAL RESOURCES (continued)
As of November 27, 1996, the working capital line of credit facility was amended
and restated. The modified Loan and Security Agreement includes the following
amendments: (a) change in bank covenants and waivers; (b) change in definition
of certain terms used in the original loan agreement; (c) modification of the
principal payment terms on the subordinated debt held by MLTV (see discussion
below); and (d) inventory sublimit advances. The inventory sublimit advances are
available through February 14,1997, in an amount equal to 20% of the value of
the "eligible inventory" (the total amount of the advances shall not exceed
$300,000). Interest on the advances is due and payable monthly and bears
interest at the prime rate plus 1.5% (approximately 9.75% at December 31, 1996);
and any outstanding amounts as of February 14, 1997, will be payable in ten
equal monthly installments, including interest, beginning February 14, 1997 and
ending November 15, 1997. As of December 31, 1996, the Company did not request
any inventory sublimit advances.
Bank indebtedness also includes the outstanding balance of $232,000 US (357,000
DM) at December 31, 1996 drawn on a credit facility with the Stadparkasse Bank
of Wedel, Germany. The total line of credit available is 500,000 DM, which was
established in conjunction with the formation of the Germany Subsidiary
(September 1994). Interest is charged on a quarterly basis at the German Federal
Bank's discount rate plus two points.
The Company entered into an agreement with New Court Credit Corporation of
Toronto, Canada in March 1996 to finance the purchase of a CNC milling machine
for the Canadian plant machine shop. The term loan amount was for $90,000
Canadian dollars ($66,000 US). The balance of the debt at June 30, 1996 was
$85,000 Canadian dollars ($62,000 US) with $10,000 classified as the current
portion of the long term debt. The term of the financing is 5.5 years at an
annual interest rate of 10.4%, with a purchase option of $9,000 at the end of
the fifth year. The outstanding balance at December 31, 1996, was $79,000
Canadian dollars ($57,000 US).
The December 1995 MLTV Agreement provided for repayment of subordinated debt in
the amount of $771,000, the purchase of the Company of the technology developed
under the Joint Venture, and the acquisition of MLTV's interest in the Joint
Venture, thereby dissolving the Joint Venture. As it relates to the subordinated
debt, the Company agreed to pay the principal amount of $20,000 per month for a
twenty-four (24) month period for a total of $480,000. The balance of $291,000
is due at the end of the two year term. As of June 30, 1996, the Company has
paid $140,000 and reduced the total outstanding balance to $631,000. The Company
is not required to pay any additional interest on the outstanding balance under
this agreement unless the Company makes a late payment or an event of default
under the terms of the agreement occurs. On June 21, 1996, MLTV agreed to defer
four payments from June 1996 through September 1996. As of December 31, 1996,
the outstanding balance remained at $631,000. The deferred amount will be
subject to interest in accordance with the agreement.
As a result of the modification of the credit facility with Silicon Valley Bank
on November 27, 1996, the Company has agreed to make no payments of principal on
this subordinated debt to MLTV prior to December 1997 unless the Company has
closed a "qualified offering" prior to such date. If a qualified offering has
not closed, the Company will pay MTLV a balloon payment of $631,000. Once a
<PAGE>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
LIQUIDITY AND CAPITAL RESOURCES (continued)
qualified offering has closed, principal payments of the subordinated debt to
MLTV shall resume according to the previous schedule, as provided in the terms
of the subordinated note. The Company purchased the technology and the joint
venture interest by issuing to MTLV 1,000,000 shares of the Company's common
stock. The stock is unregistered and restricted. As of December 8, 1995, the
1,000,000 shares have been recorded in paid-in-capital at the fair market value
of $0.875 per share (prior to reverse split) based on the market bid price. This
$875,000 value has been assigned to the technology as an intangible asset under
the "other assets" classification and will be amortized over a five (5) year
period. As of June 30, 1996, the asset balance was $831,000, net of amortization
of $44,000 during the fiscal year. As of December 31, 1996, the asset balance
was $787,000, net of accumulated amortization of $88,000. Amortization was
$44,000 for the six months ended December 31, 1996. This agreement was a
strategic one for the Company, since the Company now owns the technology rights,
and no future liability for royalties exists.
On October 31, 1995, the Company entered into a Debenture agreement for $1.5
million Canadian dollars ($1.1 million US) through C.I.-C.P.A. Business Ventures
Fund, Inc., a venture capital fund of Covington Capital Corporation ("Covington
Capital") (the "Covington Agreement"). This subordinated debt has a term of five
(5) years at an interest rate of 12% per annum. Interest payments are payable
only in the first twelve (12) months. This Covington Agreement includes a first
option to purchase 83,333 shares of the Company's common stock at a purchase
price of $3.75 per share for a term of five (5) years and a second option to
purchase 133,333 shares of the Company's common stock at purchase price of $7.50
per share until October 1996. After October 31, 1996 the purchase price
increased to $9.75 per share and this option expires on October 1, 1997. (The
share amounts and price per share are stated on a "reverse split" basis). This
debt is classified primarily as long term debt with principal payments of
$36,500 due in fiscal 1997 recorded as current debt. The balance outstanding as
of June 30, 1996 was $1,100,000 ($1.5 million Canadian dollars). The balance
outstanding at December 31, 1996 remained at $1.1 million. Payments of principal
commenced on November 30, 1996 in the amount of $6,250 Canadian dollars ($4,500
US) per month for a period of forty-eight (48) months with the balance due at
the end of the term. This financing was an important source of funds during
fiscal 1996 which provided for investment to expand sales territory coverage
through addition of personnel, to increase marketing support, and to continue
research and development efforts in both hardware and software for new products
and product cost reductions. No exercise of options has occurred through
December 31, 1996.
Long term debt also includes a 400,000 DM loan ($ 291,000 US) by a private
individual to the Company's wholly owned German subsidiary, which was made on
October 1, 1994. The Company began making payments of principal and interest of
10,000 German marks per month at the end of April 1995.
<PAGE>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
LIQUIDITY AND CAPITAL RESOURCES (continued)
Interest accrues from October 1, 1994 through the start date of the payments at
an interest rate of 5.25% plus the prevailing German bank discount rate. The
loan has clauses which would allow both slower and/or faster payments contingent
upon the cash flow of the German subsidiary's operations and upon agreement with
the individual. As of June 30, 1996, the principal amount of 353,000 German
marks ($231,000 US) was outstanding, and as of December 31, 1996, the principal
amount outstanding was 277,000 DM ($180,000 US). A portion of this outstanding
amount ($58,000 US) has been classified as a current liability and represents an
estimated twelve payments of principal. The balance ($122,000 US) has been
reported as long term debt.
In July 1994, documents were fully executed between the Ontario Development
Corporation ("ODC") and the Company for a term loan facility in the amount of
$500,000 Canadian dollars. The loan credit facility was established to allow
advance requests for equipment, inventory, and training expenditures associated
with moving the production operation from the New Jersey plant to the London,
Ontario, Canadian plant. This loan was a "carve out" from the original ODC
credit facility of $900,000 Canadian dollar limit, prior to the full payment of
the outstanding balance from the Bank of Montreal credit facility in May 1995.
The balance outstanding as of June 30, 1996 on the ODC fixed loan was $415,000
Canadian dollars ($304,000 US) based on specific advance requests approved
through this date. Payment of principal was scheduled to start August 15, 1995
(fiscal year 1996) in that full disbursement had not occurred by June 30, 1995.
The Company had been granted an extension by ODC until June 30, 1996 with
principal payments in the amount of $11,597 Canadian dollars ($8,500 US) having
started on July 15, 1996. The outstanding balance at December 31, 1996 was
$358,000 Canadian dollars ($262,000 US). The term of repayment is forty (40)
months and includes an interest rate of 6.75%. Interest has been charged on a
monthly basis since the first disbursements were made in July 1994. The Company
may not draw additional funds on the facility for capital equipment up to
$500,000, the original facility amount, due to Ontario government budgetary
constraints. This term loan is classified as long term debt with the current
portion equal to twelve months of principal payments.
Overall, the amount of cash provided by operating activities allowed the Company
to meet working capital requirements during this quarter, which included support
of all financing and investing activities, and payments on debt obligations.
In the area of operating activities, the Company's collections on trade
receivables and continued reduction in cost of sales (on a percentage of net
sales basis) during this period provided a strong contribution to working
capital. This contribution supported continued: (a) investments in sales,
marketing, research and development; (b) meeting regulatory obligations to sell
into the European Community ("EC"); and (c) payment of fees, interest, and
principal related to financing agreements.
The investments in the operating areas of sales, marketing, and research and
development are strategic to future growth and have an impact on income results
due to the time that is required for these investments to be leveraged or
provide a contribution.
<PAGE>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
LIQUIDITY AND CAPITAL RESOURCES (continued)
The expenses associated with meeting regulatory requirements for our products
are necessary to be able to sell into the EC, and the Company will incur
additional expenses going forward to complete certification of its current
product line and to certify our new products at time of introduction to the
marketplace. This certification could provide a competitive advantage if our
competitors have not or cannot comply. If the
Company does not comply, there could be risks to the Company's ability to sell
into the EC and be a potential competitive disadvantage.
The payment of interest, principal and fees have been increasing as the Company
completes new financing agreements and maximizes the use of the available short
term credit lines to support working capital requirements. The Company's
financing to date has been primarily debt through operating short term lines of
credit, term loans, and subordinated debt. The Company's bank lines of credit,
which are supported by sales generated trade accounts receivable, have limited
borrowing capacity at this time because these lines of credit are close to the
maximum qualified borrowing levels. The term loans, which had deferred principal
payments are now under scheduled payment agreements. The subordinated debt --
MLTV ($600,000) and Covington Capital ($1.1 million) -- totals $1.7 million, and
will require payments of $400,000 on an annual basis (with interest and
principal as applicable) until the end of the respective terms when balloon
payments come due -- MLTV in December 1997 (fiscal year 1998) and Covington
Capital in October 2000 (fiscal year 2001).
These investments and expenses have continued to put downward pressure on the
bottom line/income, and operating cash flow in that our investment exceeded the
sales growth contribution to date. These investments and expenses are necessary
and important to the future performance of the Company and must continue at a
level which our financial resources can support.
The Company will continue to manage within its financial resources and attempt
to balance its working capital needs with cash flow generated from operations
and available current financing. It will continue cost reductions to improve
sales margin contributions. The Company will consider additional financing
through the form of equity to accelerate and support growth in sales, and to
increase the investment levels in research and development for new products.
However, the Company cannot be certain that it will be successful in its efforts
to raise additional funds.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Neither the Company nor any of its subsidiaries is currently a party to
nor is any of their property the subject of any legal proceedings which would be
material to the business or financial condition of the Company on a consolidated
basis.
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.
The Company held its annual meeting of shareholders on Monday, December
9, 1996. The only matters considered and voted upon at the meeting were the
election of three directors for a three-year term, and approval of an Amendment
to the Stock Option Plan.
The voting for three directors: Franklin J. Iris, M. Grant Brown, and
Robert E. Curry was 1,145,021 for and 12,765 withheld.
The voting for the Amendment to the Stock Option Plan was 884,373 for,
18,065 against, and 255,348 withheld.
Item 5. Other Information.
On July 26, 1996 the Company secured a new working capital line of credit
facility with Silicon Valley Bank of California for $2,000,000 (U.S.) and repaid
the Bank of Montreal credit facility in full. This credit facility has a one (1)
year term (expiring June 25, 1997) and carries an interest rate charge at the
prime rate plus 1.5%. Interest is due and payable monthly, and the principal is
due at maturity. The collateral for the line represents a perfected first
security interest in all assets of the Company, its wholly-owned Canadian
subsidiary and United Kingdom branch office. The Company will retain ownership
of intellectual property and is restricted on the pledge of this property to any
other party. The advance rate is based on 75% against eligible domestic and
Canadian receivables within 90 days from invoice date and 90% against incurred
or letter of credit backed foreign receivables. No clean-up period is required
during the term. The securities related to the Covington Capital debenture and
the MLTV note are subordinated to the bank debt. The new line of credit provided
$1.3 million to repay the Bank of Montreal facility.
<PAGE>
PART II - OTHER INFORMATION (continued)
Item 5. Other Information. (continued)
As of November 27, 1996, the working capital line of credit facility was amended
and restated. The modified Loan and Security Agreement includes the following
amendments: (a) change in bank covenants and waivers; (b) change in definition
of certain terms used in the original loan agreement; (c) modification of the
principal payment terms on the subordinated debt held by MLTV (see below); and
(d) inventory sublimit advances. The inventory sublimit advances are available
through February 14,1997, in an amount equal to 20% of the value of the
"eligible inventory" (the total amount of the advances shall not exceed
$300,000). Interest on the advances is due and payable monthly and bears
interest at the prime rate plus 1.5%. Any outstanding amounts as of February 14,
1997, will be payable in ten equal monthly installments, including interest,
beginning February 14, 1997 and ending November 15, 1997
The December 1995 MLTV Agreement provided for repayment of subordinated debt in
the amount of $771,000, the purchase of the Company of the technology developed
under the Joint Venture, and the acquisition of MLTV's interest in the Joint
Venture, thereby dissolving the Joint Venture. As it relates to the subordinated
debt, the Company agreed to pay the principal amount of $20,000 per month for a
twenty-four (24) month period for a total of $480,000. The balance of $291,000
is due at the end of the two year term. The Company is not required to pay any
additional interest on the outstanding balance under this agreement unless the
Company makes a late payment or an event of default under the terms of the
agreement occurs. On June 21, 1996, MLTV agreed to defer four payments from June
1996 through September 1996. The deferred amount will be subject to interest in
accordance with the agreement.
As a result of the modification of the credit facility with Silicon Valley Bank
on November 27, 1996, the Company has agreed to make no payments of principal on
this subordinated debt to MLTV prior to December 1997 unless the Company has
closed a "qualified offering" prior to such date. If a qualified offering has
not closed, the Company will pay MTLV a balloon payment of $631,000. Once a
qualified offering has closed, principal payments of the subordinated debt to
MLTV shall resume according to the previous schedule, as provided in the terms
of the subordinated note. The Company purchased the technology and the joint
venture interest by issuing to MTLV 1,000,000 shares of the Company's common
stock. The stock is unregistered and restricted. As of December 8, 1995, the
1,000,000 shares have been recorded in paid-in-capital at the fair market value
of $0.875 per share (prior to reverse split) based on the market bid price. This
$875,000 value has been assigned to the technology as an intangible asset under
the "other assets" classification and will be amortized over a five (5) year
period.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibit is included herewith: Loan Document
Modificaton Agreement No. 1, dated as of November 27, 1996, by
and between Photon Technology International, Inc. and Silicon
Valley Bank.
(b) Reports on Form 8-K
None
<PAGE>
LOAN DOCUMENT MODIFICATION AGREEMENT
(No. 1: dated as of November 27, 1996)
LOAN DOCUMENT MODIFICATION AGREEMENT dated as of November 27, 1996 by
and between PHOTON TECHNOLOGY INTERNATIONAL, INC., a New Jersey corporation with
its principal place of business at 1 Deerpark Drive, Suite F, South Brunswick
New Jersey 08852, (the "Borrower") and SILICON VALLEY BANK (the "Bank"), a
California charter bank with its principal place of business at 3003 Tasman
Drive, Santa Clara, California 95054, and with a loan production office located
at Wellesley Office Park, 40 William Street, Suite 350, Wellesley, MA 02181,
doing business under the name "Silicon Valley East".
1. Reference to Existing Loan Documents.
Reference is hereby made to that Loan and Security Agreement, dated as
of June 26, 1996, by and between the Bank and the Borrower (with the attached
schedules and exhibits, the "Loan and Security Agreement") and the Loan
Documents referred to therein, including without limitation that certain
Promissory Note of the Borrower, dated as of June 26, 1996, in the principal
amount of Two Million Dollars ($2,000,000) (the "Note"). Unless otherwise
defined herein, capitalized terms used in this Agreement shall have the same
respective meanings as set forth in the Loan and Security Agreement.
2. Effective Date.
This Agreement shall become effective as of November 27, 1996 (the
"Effective Date"), provided that the Bank shall have received the following on
or before December 10, 1996 and provided further, however, in no event shall
this Agreement become effective until signed by an officer of the Bank in
California:
a. two copies of this Agreement, duly executed by the
Borrower;
b. an amended and restated promissory note in the form
enclosed herewith (the "Amended Note"), duly executed by the Borrower;
c. a Warrant to Purchase Stock in the form enclosed herewith
(the "Warranty"), duly executed by the Borrower;
d. the Consent of Photon Technology International (Canada),
Inc in the form enclosed, duly executed by such entity;
e. a letter agreement duly executed by ML Technology
Ventures, L.P. in the form enclosed;
f. evidence of the approval by your Board of Directors of
this Agreement, the Amended Note and the Warrant; and
g. a check in the amount of $2,250 in payment of the fees of
Sullivan & Worcester LLP, special counsel to the Bank.
<PAGE>
By the signature of its authorized officer below, the Borrower is
hereby representing that, except as modified in Schedule A attached hereto, the
representations of the Borrower set forth in the Loan Documents (including those
contained in the Loan and Security Agreement, as amended by this Agreement) are
true and correct as of the Effective Date as if made on and as of such date.
Finally, the borrower agrees that, as of the Effective Date, it has no defenses
against its obligations to pay any amounts under the Loan and Security Agreement
and the other Loan Documents.
3. Description of Change in Terms.
As of the Effective Date, the Loan and Security Agreement is modified
in the following respects:
a. Section 1 of the Loan and Security Agreement is hereby
amended by inserting in alphabetical order, the following new definitions:
"`Eligible Inventory' shall mean at the time of determination
the dollar costs determined in accordance with GAAP of the aggregated
of all Inventory which meets the following specifications at the time
of such determination:
(a) such Inventory is owned solely by the Borrower
or by PTI-Canada and is not subject to any assignment, claim,
lien or security interest, other than a security interest in
favor of Bank;
(b) if such Inventory is represented or covered by a
document, Borrower is the owner of the document and such
document is not subject o any assignment, claim, lien or
security interest, other than a security interest in favor of
Bank;
(c) such Inventory is in all material respects of
good and merchantable quality, free form all material defects,
not obsolete, unusable or defective;
(d) such Inventory is located at Borrower's
principal place of business, at PTI-Canada's principal place
of business, or such other locations as are permitted under
Section 7.10, and is in the possession of Borrower or
PTI-Canada.
(e) such Inventory is a finished good or raw
material which has not been specifically manufactured or
processed for the use of Borrower which (i) in each case in
accordance with GAAP is properly classified as inventory and
(ii) is not packaging supplies, promotional literature, used
or surplus goods, or goods held on consignment. Property shall
immediately lose the status of Eligible Inventory if and when
it is sold or otherwise disposed of in the ordinary course of
business;
(f) Bank has not notified Borrower that Bank has
determined that such Inventory is not Eligible Inventory for
the purposes of this Agreement; and
<PAGE>
(g) such Inventory is subject to a perfected first
priority security interest in favor of Bank, subject only to
Permitted Liens."
"`Interest Expense' shall mean, for any period, the aggregate
amount of interest paid or accrued by the borrower and its Subsidiaries
in accordance with GAAP."
"`Inventory Borrowing Base' shall have the meaning given to
such term in Section 2.1(b)."
"`Inventory Sublimit Advance' and `Inventory Sublimit
Advances' shall have the meanings given to such terms in Section
2.1(b)."
"`Operating Cash Flow' shall have the meaning given to such
term in Section 6.15."
"`Qualified Offering' shall have the meaning given to such
term in Section 6.14."
"`Unutilized availability' shall have the meaning given to
such term in Section 6.14."
b. Section 2.1 of the Loan and Security Agreement is hereby
amended by inserting the letter "(a)" between the section number "2.1" and the
work Advances" and by inserting the following new subparagraph (b) immediately
following the third paragraph of Section 2.1:
"(b) Inventory Sublimit Advances. Subject to the terms and
conditions of this Agreement, at any time from the date here
of through February 14, 1997, Borrower may from item to time
request advanced (each an "Inventory Sublimit Advance" and
collectively the "Inventory Sublimit Advances") from the Bank
in an aggregate amount not to exceed the lesser of (i) the
Committed Revolving Line minus the then outstanding principal
balance of the Advances and all Letters of Credit (including
drawn but unreimbursed Letters of Credit) or (ii) the
Inventory Borrowing Base, provided that the aggregate amount
of outstanding Inventory Sublimit Advances shall not in any
case exceed Three Hundred Thousand Dollars ($300,000). The
proceeds of Inventory Sublimit Advances shall be used only to
finance the purchase of Eligible Inventory. Fro the purposes
of this Agreement, "Inventory Borrowing Base" shall mean
through February 14, 1997 an amount equal to twenty percent
(20%) of the value of Borrower's Eligible Inventory (valued at
the lower of cost of wholesale fair market value).
Interest shall accrue from the date of each Inventory
Sublimit Advance at the rate specified in Section 2.3(a), and
shall be payable monthly for each month through February 1997.
Any Inventory Sublimit Advances that are outstanding as of 1
p.m. Pacific Time on February 14, 1997 will be payable in ten
(10) equal installments, plus accrued and unpaid interest,
commencing February 15, 1997 and ending November 15, 1997 by
which date any and all such Inventory Sublimit Advances and
interest accrued thereon shall have been paid in full by
Borrower to Bank.
<PAGE>
When Borrower desires to obtain an Inventory Sublimit
Advance, Borrower shall notify Bank (which notice shall be
irrevocable) by facsimile transmission to be received no later
than 3:00 p.m. Pacific time one (1) Business Day before the
day on which the Inventory Sublimit Advance is to be made.
Such notice shall be substantially in the form of Exhibit B
hereto, and shall specifically indicate that the advance being
requested is an Inventory Sublimit Advance. The notice shall
be signed by a Responsible Officer and include a copy of the
invoice for the Inventory which shall be Eligible Inventory,
to be financed."
c. Section 2.2 of the Loan and Security Agreement is hereby
amended by inserting immediately following the words "Borrowing Base" appearing
on the third line thereof the following:
"or (iii) as long as it is in effect, the Inventory Borrowing
Base"
d. Section 2.3(a) of the Loan and Security Agreement is
hereby amended and restated in its entirety to read as follows:
"(a) Interest Rate. Except as set forth in Section 2.3(b), (i)
advances shall bear interest, on the average Daily Balance, at
a rate equal to one and one half (1-1/2) percentage points
above the Prime Rate and (ii) all Inventory Sublimit Advances
shall bear interest, on the average Daily Balance, at a rate
equal to two (2) percentage points above the Prime Rate. Any
amounts prepaid shall be subject to a Prepayment Penalty,
payable on the ate of prepayment (the "Prepayment Date")."
e. Sections 6.8 through 6.11 of the Loan and Security
Agreement are amended and restated in their entirety to read as follows:
"6.8 Quick Ratio. Borrower shall maintain, as of the
last day of each fiscal quarter, a ratio of Quick Assets to
Current Liabilities less Deferred Revenues of at lease 0.60 to
1.0.
6.9 Debt-Net Worth Ratio. Borrower shall maintain,
as of the last day of each fiscal quarter, a ratio of Total
Liabilities less Subordinated Debt less Deferred Revenues to
Tangible Net Worth plus Subordinated Debt of not more than
1.70 to 1.0
6.10 Tangible New Worth. Borrower shall maintain, as
of the last day of each fiscal quarter, Tangible New Worth of
not less than One Million Nine Hundred Thousand Dollars
($1,900,000) (the "Base Amount") plus (a) 100% of the Net
Income (with no offsets for quarterly Net Losses) earned, and
80% of the cash proceeds of any shares of capital stock of the
Company issued by the Borrower, in each case after September
30, 1996.
6.11 Minimum Profitability. Borrower shall have, as
of the last day of each fiscal quarter, a minimum profit of
One Dollar ($1.00)."
<PAGE>
f. There is inserted immediately following Section 6.13 of
the Loan and Security Agreement the following new Sections 6.14 and 6.15 to read
as follows:
"6.14 Liquidity. Borrower shall maintain, as of the
last day of each calendar month, a ratio of unrestricted cash
plus Unutilized Availability under the Committed Revolving
Line to the then outstanding aggregated principal amount of
advances plus the face amount of all outstanding Inventory
Sublimit Advances issued pursuant to Section 2.1.1 of at least
2.0 to 1.0, provided, however, that this covenant shall apply
only if Borrower closes a transaction in which it received
gross proceeds of at least $5,000,000 from the issuance of
additional shares of its capital stock (a "Qualified
Offering") on or prior to March 30, 1997. For purposes hereof,
"Unutilized Availability" shall mean at the time of
determination the lesser of the Committed Revolving Line or
then existing Borrowing Base and in no event including the
Inventory Borrowing Base, less the then aggregated principal
amount of Advances.
6.15 Debt Service Coverage. Borrower shall maintain,
as of the last day of each quarter, a ratio of Operating Cash
Flow to the current portion of borrower's long-term
Indebtedness under GAAP (including long-term Indebtedness to
Bank, but excluding long-term Indebtedness to ML Technology
Ventures L.P.) plus Interest Expense of at lease 1.25 to 1.0,
provided, however that this covenant shall not commence until
March 31, 1997 and then only if the Borrower has not closed a
Qualified Offering by such date. For purposes of this Section,
"Operating Cash Flow" is defined a Net Income calculated in
accordance with GAAP after taxes, plus (a) depreciation, (b)
amortization and (c) Interest Expense deducted in determining
Net Income.
g. Section 7.9 of the Loan and Security Agreement is hereby
amended by inserting at the end hereof the following new sentences:
"The Borrower shall make no payments of principal pursuant on
its Subordinated Debt held by ML Technology Ventures, L.P.
prior to December 1, 1997 unless and until Borrower has closed
a Qualified Offering. Borrower shall pay ML Technology
Ventures, L.P. a balloon payment of $631,000 on December 1,
1997 if Borrower has not closed a Qualified Offering prior to
such date. Once a Qualified Offering has closed principal
payments of such Subordinated Debt shall resume according to
their previous schedule."
h. The form of the Compliance Certificate attached to the
Loan and Security Agreement in the From of Exhibit D thereto is hereby amended
and restated in the form of Exhibit D hereto.
i. The form of the Promissory Note attached to the Loan and
Security Agreement in the form of Exhibit E thereto is hereby amended and
restated in the form of Exhibit E. hereto.
j. The Loan and Security Agreement and the other Loan
Documents are hereby amended wherever necessary or appropriate to reflect the
foregoing changes.
<PAGE>
4. Waiver of Events of Default.
The Bank hereby waives the following Events of Default arising from the
Borrower's failure to comply with the specified covenants contained Loan and
Security Agreement, but only for the periods indicated:
a. The Borrower's breach of its covenant maintain a ratio of
Total Liabilities less Subordinated Debt less Deferred Revenues to Tangible Net
Worth plus Subordinated Debt of not more than 1.5 to 1.0, as set forth in former
Section 6.9 of the Loan and Security Agreement, for the fiscal quarter ended
June 30, 1996;
b. The Borrower's breach of its covenant to maintain Tangible
Net Worth of not less than Two Million Two Hundred Thousand Dollars ($2,200,000)
plus (a) 100% of the Net Income (with no offsets for quarterly Net Losses)
earned, and 100% of the cash proceeds of any shares of capital stock of the
Company issued by the Borrower, in each case after March 31, 1996, as set forth
in former Section 6.10 of the Loan and Security Agreement, for the fiscal
quarter ended June 30, 1996; and
c. The Borrower's breach of its covenant to have a minimum
profit of One Hundred Fifty Thousand Dollars ($150,000), as set forth in former
Section 6.11 of the Loan and Security Agreement, for the fiscal quarter ended
June 30, 1996.
No other waiver is hereby given or intended.
5. Continuing Validity.
Upon the effectiveness hereof, each reference in each Security
Instrument of other Loan Document to "the Loan and Security Agreement",
"thereunder", "thereof", "therein", or words like import referring to the Loan
and Security Agreement, shall mean and be a reference to the Loan and Security
Agreement, as amended hereby. Except as specifically set forth above, the Loan
and Security Agreement shall remain in full force and effect and is hereby
ratified and confirmed. Each of the other Loan Documents is in full force and
effect and is hereby ratified and confirmed. The amendments set for the above
(i) do not institute a waiver or modification of any term, condition or covenant
of the Loan and Security Agreement or any other Loan Document, other than as
expressly set forth herein, and (ii) shall not prejudice any rights which the
Bank may now or hereafter have under or in connection with the Loan and Security
Agreement, as modified hereby, or the other Loan Documents and shall not
obligate the Bank to assent to any further modifications.
6. Miscellaneous.
a. This Agreement may be signed in one or more counterparts
each of which taken together shall constitute one and the same document.
b. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS.
c. THE BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS
PROPERTIES, UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF ANY STATE OR
FEDERAL COURT OF COMPETENT JURISDICTION 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 LOAN MODIFICATION 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.
<PAGE>
d. The Borrower agrees to promptly pay on demand all costs
and expenses of the Bank in connection with the preparation, reproduction,
execution and delivery of this letter amendment and the other instruments and
documents to be delivered hereunder, including the reasonable fees and
out-of-pocket expenses of Sullivan * Worcester LLP, special counsel for the Bank
with respect thereto.
IN WITNESS WHEREOF, the Bank and the borrower have caused this
Agreement to be signed under seal by their respective duly authorized officers
as of the date set forth above.
Sincerely,
SILICON VALLEY EAST, a Division
of Silicon Valley Bank
By:/s/Jane A. Braun
----------------
Name: Jane A. Braun
Title: Vice President
SILICON VALLEY BANK
By:/s/Christine Ware
-----------------
Name: Christine Ware
Title: Vice President
(signed in Santa Clara, CA)
PHOTON TECHNOLOGY INTERNATIONAL,
INC.
By:/s/William D. Looney
--------------------
Name: William D. Looney
Title: V.P. Controller & Treasurer
<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.
PHOTON TECHNOLOGY INTERNATIONAL, INC.
Date: February 13, 1997 By: /s/Charles G. Marianik
----------------------
Charles G. Marianik
President, Chief Executive Officer
and Chairman of the Board
(Principal Executive Officer)
Date: February 13, 1997 By: /s/Ronald J. Kovach
-------------------
Ronald J. Kovach
Senior Vice President, Corporate
Secretary, and Director
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> DEC-31-1996
<CASH> 116,668
<SECURITIES> 0
<RECEIVABLES> 1,655,324
<ALLOWANCES> (3,280)
<INVENTORY> 2,162,373
<CURRENT-ASSETS> 4,495,583
<PP&E> 2,009,804
<DEPRECIATION> (1,495,930)
<TOTAL-ASSETS> 7,146,130
<CURRENT-LIABILITIES> 2,716,386
<BONDS> 0
0
0
<COMMON> 6,289,391
<OTHER-SE> (4,038,713)
<TOTAL-LIABILITY-AND-EQUITY> 7,146,130
<SALES> 4,033,181
<TOTAL-REVENUES> 4,044,866
<CGS> 1,648,784
<TOTAL-COSTS> 1,634,390
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</TABLE>
