FORM 10 - Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 0-25942________________________
SWEETWATER, INC._____________________________
(Exact name of registrant as specified in its charter)
Delaware 84-1167603_____________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2505 Trade Centre Avenue, Suite D, Longmont, CO 80503___________
(Address of principal executive offices) (Zip Code)
(303) 530-2715_____________________
(Registrant's telephone number, including area code)
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
As of June 30, 1996, 3,068,728 shares of Registrant's Common
Stock, par value $.001 per share, were outstanding.
<PAGE>
SweetWater, Inc.
Table of Contents
Page
Part I. Financial Information
Item 1. Financial Statements
Balance Sheets- 2
June 30, 1996 and December 31, 1995
Statements of Operations- 4
Three and Six months ended June 30, 1996 and 1995
Statements of Cash Flows 5
Six months ended June 30, 1996 and 1995
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Part II. Other Information 11
<PAGE>
<TABLE>
SWEETWATER, INC.
BALANCE SHEETS
<CAPTION>
June 30,
1996 December 31,
(Unaudited) 1995
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 371,809 $ 511,331
Short-term investments 2,589,966 4,460,897
Accounts receivable - net 316,113 57,822
Inventory 1,371,791 1,120,063
Prepaids and other current assets 114,280 105,418
Total current assets 4,763,959 6,255,531
Fixed Assets, at cost 2,131,834 1,829,352
Less: Accumulated depreciation (863,948) (661,564)
Fixed assets, net 1,267,886 1,167,788
Other Assets:
Deposits and other 236,488 82,373
TOTAL ASSETS $6,268,333 $7,505,692
The accompanying notes to financial statements are an integral
part of these financial statements
</TABLE>
<PAGE>
<TABLE>
SWEETWATER, INC.
BALANCE SHEETS
<CAPTION>
June 30,
1996 December 31,
(Unaudited) 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Trade accounts payable and
other accrued liabilities $ 454,546 $ 258,165
Accrued salaries 34,213 26,682
Accrued warranty 26,471 15,106
Current portion of term loan
payable 114,159 108,125
Total current liabilities 629,389 408,078
LONG TERM DEBT 149,469 207,799
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value;
8,000,000 shares authorized;
3,068,728 and 3,064,529 shares
issued and outstanding at June
30, 1996 and December 31, 1995,
after deducting 125,911 and
129,459 shares held in treasury,
respectively 3,069 3,065
Deferred Compensation (20,610) (28,854)
Additional paid-in capital 12,409,735 12,407,300
Accumulated deficit (6,902,719) (5,491,696)
Total stockholders' equity 5,489,475 6,889,815
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $6,268,333 $7,505,692
The accompanying notes to financial statements are an integral
part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
SWEETWATER, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
For the Three For the Six
Months Ended Months Ended
June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
SALES $546,718 $882,901 $1,021,237 $1,305,111
COST OF GOODS SOLD 385,294 560,104 692,758 1,007,149
GROSS MARGIN 161,424 322,797 328,479 297,962
OPERATING EXPENSES
Sales and Marketing 437,283 371,929 786,397 666,098
Research and
Development 298,353 155,309 512,056 290,611
General and
Administrative 282,135 357,008 536,195 607,005
Total operating
expenses 1,017,771 884,246 1,834,648 1,563,714
LOSS FROM OPERATIONS (856,347) (561,449) (1,506,169) (1,265,752)
OTHER INCOME, NET 40,191 4,445 95,147 25,175
NET LOSS (816,156) (557,004) (1,411,022) (1,240,577)
LOSS PER COMMON SHARE ($.27) ($0.31) ($0.46) ($0.69)
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 3,067,621 1,796,102 3,066,075 1,807,235
The accompanying notes to financial statements are an integral
part of these statements.
</TABLE>
<PAGE>
<TABLE>
SWEETWATER, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
For the Six Months Ended
June 30,
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(1,411,022) $(1,240,577)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization 202,384 148,275
Amortization of deferred
compensation 8,244 8,874
Amortization of trademarks and
patents 2,711 ---
Changes in assets and liabilities:
Increase in net accounts
receivable (258,291) (228,480)
Increase in inventory (251,727) (809,628)
Increase in prepaids and other
current assets (8,862) (5,262)
Increase in deposits and other
assets (156,826) (14,939)
(Decrease) increase in accounts
payable and accrued liabilities (5,886) 138,892
Increase in accrued salaries and
other current liabilities 221,161 94,145
Net cash used in operating activities (1,658,115) (1,907,700)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of furniture, fixtures
and equipment (302,482) (474,070)
Purchases of short-term
investments (4,866,689) (941,396)
Proceeds from the sales of short
term investments 6,737,620 3,156,776
Repurchase of Treasury Stock --- (15,984)
Sale of Treasury Stock --- 1,725
Net cash provided by investing
activities 1,568,449 1,727,051
CASH FLOWS FROM FINANCING ACTIVITIES
Capital Contributions 2,439 13,361
Increases in notes payable --- 237,899
Payments on notes payable (52,296) (57,880)
Net cash (used in) provided by
financing activities (49,857) 193,380
Net (decrease) increase in Cash and
Cash Equivalents (139,522) 12,731
CASH AND CASH EQUIVALENTS, beginning
of period 511,331 687,261
CASH AND CASH EQUIVALENTS, end of
period $371,809 $699,992
SUPPLEMENTAL DISCLOSURE OF CASHFLOW
INFORMATION:
CASH PAID FOR INTEREST $16,430 $33,982
The accompanying notes to financial statements are an integral part
of these financial statements.
</TABLE>
<PAGE>
SweetWater, Inc.
Notes To Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited
balance sheets, statements of operations and cash flows
contain all adjustments, consisting only of normal recurring
items, necessary to present fairly the financial position of
SweetWater, Inc. (the "Company") as of June 30, 1996 and the
results of operations and cash flows for the three and six
months ended June 30, 1996 and 1995.
The unaudited financial statements presented herein have been
prepared in accordance with Securities and Exchange Commission
regulations and do not include all the information and note
disclosures required by generally accepted accounting
principles. These financial statements should be read in
conjunction with the audited financial statements and notes
thereto contained in the Company's annual report on Form 10 - K
for the year ending December 31, 1995.
INVENTORY
Inventory includes costs of materials, direct labor and
manufacturing overhead. Inventory is priced at the lower of
cost (using the first-in, first-out method of valuation) or
market. Inventory consists of the following components:
June 30,
1996 December 31,
(Unaudited) 1995
Raw materials $708,368 $388,686
Finished goods 663,423 731,377
$1,371,791 $1,120,063
<PAGE>
SweetWater, Inc.
Notes To Financial Statements
(Unaudited)
INCOME TAXES
SFAS No. 109 requires recognition of deferred tax assets for
the expected future effects of all deductible temporary
differences, loss carryforwards and tax credit carryforwards.
Deferred tax assets are then reduced, if deemed necessary, by
a valuation allowance for the amount of any tax benefits
which, more likely than not, based on current circumstances,
are not expected to be realized. The Company has determined
that under SFAS 109, any previously unrecognized tax benefits
do not satisfy the realization criteria set forth therein.
Therefore, a valuation allowance has been recorded against the
entire net deferred tax asset.
NET LOSS PER COMMON SHARE
Net loss per common share is computed by dividing net loss by
the weighted average number of shares of common stock
outstanding during each period presented. At June 30, 1996
and 1995, options on 25,834 and 27,501 shares, respectively,
have been treated as outstanding common stock equivalents.
5. PROFIT SHARING PLAN AND TRUST
Pursuant to the Company's 401(k) Profit Sharing Plan and Trust
(the "401(k) Plan"), which was established effective January
1, 1995, the Company has agreed to contribute matching
contributions in the form of Company common stock at the rate
of 50% of the first 8% of employees salary deferral. Under
the 401(K) Plan, the Company may also elect to make
discretionary contributions. Employees vest in Company
contributions over six years of service with the Company.
Forfeitures of the unvested prorated portion are allocated to
the remaining employees in the plan proportionately, based
upon current years compensation.
6. LONG TERM DEBT
Under the Loan and Security Agreement dated November 23, 1994,
as amended, (the "Loan Agreement"), by and between the Company
and Silicon Valley Bank (the "Bank"), the Company may borrow
up to $350,000 under a term loan facility, as long as the
Company is in compliance with certain covenants including,
among others, a covenant that its quarterly loss will not
exceed $600,000. For the quarter ended June 30, 1996, the
Company was not in compliance with the covenant on quarterly
losses. In August 1996, the Bank amended the Loan Agreement
to eliminate the covenant on quarterly losses, to waive the
Company's non-compliance with the quarterly loss covenant for
the quarter ended June 30, 1996, and to increase the amount of
the net worth which the Company is required to maintain from
$2,250,000 to $4,000,000. The amendment also extends and
increases a revolving credit facility which permits the
Company to borrow up to $1,000,000 at the prime rate plus 1.5%
until the facility matures in April 1997.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion contains, in addition to
historical information, forward-looking statements. The
Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors
that could cause or contribute to such differences include, but
are not limited to, those discussed below and in the Company's
1995 Annual Report on Form 10-K.
Results of Operations for the three months ended June 30, 1996
and 1995
During the three-month period ended June 30, 1996, the
Company had sales of $547,000, a decrease of 38%, compared to
sales in the three-month period ended June 30, 1995 of $883,000.
The decrease in sales was due to lower Guardian unit sales
partially offset by both a higher selling price for the Guardian,
and initial shipments late in the quarter of the new WalkAbout(trademark)
microfilter. The Company believes that overall sales of portable
water filtration products in the outdoor specialty sporting goods
market has declined during the quarter as a result of the
maturation of such market. The Company believes that any future
sales growth for these products will depend on the ability of the
Company and other manufacturers to expand the market and to
develop larger distribution channels, such as general sporting
goods stores and mass merchants. As general sporting goods
stores and mass merchants have only recently begun to sell the
product category, there can be no assurance that the market for
such products will expand.
The gross margin of $161,000 or 30% of sales for the three
month period ended June 30, 1996 was lower than the prior year
gross margin of $323,000 or 37% of sales, primarily due to the
lower volume of sales offset by lower production spending and a
higher Guardian selling price.
Sales and marketing expenses for the three-month period
ended June 30, 1996 were $437,000, an increase of 17%, compared
to $372,000 for the three-month period ended March 31, 1996. This
increase was due to increased market research and staffing costs
in connection with the development of the home drinking water
treatment product and sales commissions to the sales force for
the portable outdoor product line.
Research and development expenses for the three-month period
ended June 30, 1996 were $298,000, an increase of 92% compared to
$155,000 for the three-month period ended June 30, 1995. This
increase was due primarily to the Company's increased investment
in research and development associated with new products for the
home drinking water treatment market.
General and administrative expenses for the three-month
period ended June 30, 1996 were $282,000, a decrease of 21%
compared to $357,000 for the three-month period ended June 30,
1995, which was primarily the result of lower corporate legal
expenses.
Other income for the three month period ended June 30, 1996
was $40,000 compared to $4,000 for the three month period ended
June 30, 1995 as a result of higher cash balances available to
invest in 1996, and lower interest expense than in 1995 on the
Company's indebtedness.
Results of Operations for the six months ended June 30, 1996 and
1995
During the six-month period ended June 30, 1996, the Company
had sales of $1,021,000, a decrease of 22%, compared to sales in
the six-month period ended June 30, 1995 of $1,305,000. The
decrease in sales was due to lower Guardian unit sales partially
offset both by a higher selling price for the Guardian and
additional sales of three new products, the ViralGuardr and
Guardian+Plusr introduced in April 1995 and the WalkAbout
introduced in May 1996.
The gross margin of $328,000 or 32% of sales for the six
month period ended June 30, 1996 was higher than the prior year
gross margin of $298,000 or 23% of sales, primarily due to a
higher Guardian selling price and lower production spending
offset by a lower Guardian unit sales volume.
Sales and marketing expenses for the six-month period ended
June 30, 1996 were $786,000, an increase of 18%, compared to
$666,000 for the six-month period ended June 30, 1996. This
increase was due to increased market research and staffing costs
in connection with the development of the home drinking water
treatment product and sales commissions to the sales force for
the portable outdoor product line.
Research and development expenses for the six-month period
ended June 30, 1996 were $512,000, an increase of 76% compared to
$291,000 for the six-month period ended June 30, 1995. This
increase was due primarily to the Company's increased investment
in research and development associated with new products for the
home drinking water treatment market.
General and administrative expenses for the six-month period
ended June 30, 1996 were $536,000, a decrease of 12% compared to
$607,000 for the six-month period ended June 30, 1995, which was
primarily the result of decreased corporate legal expenses.
Other income for the six month period ended June 30, 1996
was $95,000 compared to $25,000 for the six month period ended
June 30, 1995 as a result of higher cash balances available to
invest in 1996, and lower interest expense than in 1995 on the
Company's indebtedness.
The Company's operating expenses have increased as a result
of the expansion of sales and marketing, manufacturing and new
product research and development. The Company expects to
continue to incur operating losses until the Company generates
sufficient revenue from sales of existing products and new home
drinking water treatment products and their accessories to cover
expenses. The attainment of positive cashflow will depend on
numerous factors, many of which are difficult to predict. No
assurances can be given that this will be achieved.
<PAGE>
Liquidity and Capital Resources
Cash, cash equivalents, and short term investments decreased
by 40% from $4,972,000 at December 31, 1995 to $2,962,000 at June
30, 1996 primarily due to operating losses, purchases of property
and equipment of $302,000, additional accounts receivable of
$258,000 and net inventory purchases of $251,000.
The Company has entered into a Loan and Security Agreement
dated November 23, 1994, as amended, (the "Loan Agreement"), with
Silicon Valley Bank (the "Bank"), which provides for maximum
borrowing of $350,000 under a term loan facility at an interest
rate of 10.97%. The Company currently has borrowings outstanding
on this facility of $264,000 which mature over a period of 36
months with a final due date in August 1998. For the quarter
ended June 30, 1996, the Company was not in compliance with a
covenant in the Loan Agreement which requires that its quarterly
losses not exceed $600,000. In August 1996, the Bank amended the
Loan Agreement to eliminate the covenant on quarterly losses, to
waive the Company's non-compliance with the quarterly loss
covenant for the quarter ended June 30, 1996, and to increase the
amount of net worth which the Company is required to maintain
from $2,250,000 to $4,000,000. The amendment also extends and
increases a revolving credit facility which permits the Company
to borrow up to $1,000,000 at the prime rate plus 1.5% until the
facility matures in April 1997.
Although the Company is currently in compliance with the net
worth covenant, as amended, if the Company continues to incur
operating losses and is not successful in completing a strategic
alliance or otherwise obtaining additional capital, the Company
may not be in compliance with the net worth covenant at December
31, 1996. If the Company is not in compliance with this or other
financial covenants in the future and cannot obtain a waiver from
the Bank, the Bank would be entitled to require immediate payment
of the outstanding indebtedness (currently approximately
$264,000), to refuse further advances and to exercise various
rights against the Company and its assets at any time. In such
event, the Company would repay the outstanding indebtedness out
of its cash and the proceeds of its short-term investments, which
would reduce amounts available to finance its operations in the
future.
The Company believes that cash and short term investments
will be sufficient to meet working capital requirements and
support its existing operations for the next nine (9) months.
Additional funds will be required to manufacture and market its
new home use product and to support its operations after the
expiration of such nine month period. The Company has retained
Dillon, Read & Co. as its exclusive agent to arrange a joint
strategic alliance which may involve new equity investments in
the Company or the acquisition of stock or assets of the Company.
There can be no assurance that the Company will be successful in
completing any such alliance or otherwise obtaining the
additional capital which will be required to support its existing
and planned operations.
<PAGE>
PART II OTHER INFORMATION
Items 1-2 None
Item 3 Defaults Upon Senior Securities
Under the Loan and Security Agreement dated
November 23, 1994, as amended, (the "Loan Agreement"),
by and between the Company and Silicon Valley Bank (the
"Bank"), the Company may borrow up to $350,000 under a
term loan facility, as long as the Company is in
compliance with certain covenants including, among
others, a covenant that its quarterly loss will not
exceed $600,000. For the quarter ended June 30, 1996,
the Company was not in compliance with the covenant on
quarterly losses. In August 1996, the Bank amended the
Loan Agreement to eliminate the covenant on quarterly
losses, to waive the Company's non-compliance with the
quarterly loss covenant for the quarter ended June 30,
1996, and to increase the amount of the net worth which
the Company is required to maintain from $2,250,000 to
$4,000,000. The amendment also extends and increases a
revolving credit facility which permits the Company to
borrow up to $1,000,000 at the prime rate plus 1.5%
until the facility matures in April 1997.
Although the Company is currently in compliance
with the net worth covenant, as amended, if the Company
continues to incur operating losses and is not
successful in completing a strategic alliance or
otherwise obtaining additional capital, the Company may
not be in compliance with the net worth covenant at
December 31, 1996. If the Company is not in compliance
with this or other financial covenants in the future
and cannot obtain a waiver from the Bank, the Bank
would be entitled to require immediate payment of the
outstanding indebtedness (currently approximately
$264,000), to refuse further advances and to exercise
various rights against the Company and its assets at
any time. In such event, the Company would repay the
outstanding indebtedness out of its cash and the
proceeds of its short-term investments, which would
reduce amounts available to finance its operations in
the future.
<PAGE>
Item 4 Submission of Matters to a Vote of Security Holders
The Annual Meeting of the Shareholders of the
Company was held on May 24, 1996 pursuant to notice, at
which the following persons were elected directors of
the Company to serve until the next annual meeting of
the shareholders or until their successors are elected
and qualify:
Brokers
Name For Against Abstain Non-Votes
A. Clinton Allen 2,668,629 --- 61,038 334,862
Thomas A. Barron 2,668,629 --- 61,038 334,862
Blair W. Effron 2,668,629 --- 61,038 334,862
Peter W. Gilson 2,666,629 --- 63,038 334,862
Randall A. Hack 2,668,629 --- 61,038 334,862
Keith R. Lively 2,668,629 --- 61,038 334,862
Eric M. Reynolds 2,648,004 --- 81,663 334,862
Juan A. Rodriquez 2,668,629 --- 61,038 334,862
Ralph Z. Sorenson 2,668,629 --- 61,038 334,862
In addition, the following proposals were approved
by the shareholders:
The proposal to amend the 1993 Stock Option Plan
to increase the number of shares available for options
to be issued thereunder to 400,000 shares of the
Company's Common Stock was passed with 2,648,404 votes
in favor, 74,230 votes against, 7,033 abstentions and
334,862 broker non-votes.
The proposal to ratify the selection by the
Company's Board of Directors of Arthur Anderson LLP as
independent auditors for the Company for the 1996
calendar year was passed with 2,652,204 votes in favor,
20,625 votes against, 56,838 abstentions, and 334,862
broker non-votes.
Item 5 None
Item 6 Exhibits and Reports on Form 8 - K
A) Reports on Form 8 - K - There were no reports filed on
Form 8 - K for the quarter ended June 30, 1996
(B) Exhibits
11. Material Contracts
(B) Amendment to Loan and Security Agreement
dated August 2, 1996
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
SweetWater, Inc.
(Registrant)
Dated: August 12, 1996 By:Patrick E.Thomas
Patrick E. Thomas
Vice President of Finance and
Administration,
Chief Financial Officer
(principal financial officer
and chief accounting officer)
1.
AMENDMENT
TO
LOAN AND SECURITY AGREEMENT
This Amendment to Loan and Security Agreement is entered
into as of August 2, 1996, by and between Silicon Valley Bank
("Bank") and Sweetwater, Inc. ("Borrower").
RECITALS
Borrower and Bank are parties to that certain Loan and
Security Agreement dated as of November 24, 1994, as amended from
time to time (the "Agreement"). The parties desire to amend the
Agreement in accordance with the terms of this Amendment.
NOW, THEREFORE, the parties agree as follows:
1. The following terms are revised or added as defined
terms in Section 1.1, as follows:
"Committed Line" means One Million Dollars
($1,000,000).
"Commitment Termination Date" means, with respect to
the Revolving Facility, April 15, 1997.
2. Section 6.12 is of the Agreement is amended and
restated to read as follows:
6.12 Tangible Net Worth. Borrower shall maintain as of
the last day of each calendar month a Tangible Net Worth plus
Subordinated Debt of not less than Four Million Dollars
($4,000,000).
3. Bank waives compliance by Borrower of the profitability
covenant for the fiscal quarter ending June 30, 1996. Section 6.13 is
hereby deleted from the agreement.
4. The Compliance Certificate shall be in the form of
attached Schedule 6.3(d).
5. In connection with this Amendment, Borrower shall pay
Bank a fee of Two Thousand Nine Hundred Seventy Dollars ($2,970),
plus all Bank Expenses incurred in connection with the preparation of
this Amendment.
6. Unless otherwise defined, all capitalized terms in this
Amendment shall be as defined in the Agreement. Except as amended, the
Agreement remains in full force and effect.
7. Borrower represents and warrants that the Representations and
Warranties contained in the Agreement are true and correct as of
the date of this Amendment (except such representations and warranties
to be expressly true as of a specific date), and that no Event of
Default has occurred and is continuing.
8. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this
Amendment as of the first date above written.
SWEETWATER, INC.
By: Patrick E. Thomas
Title: VP-CFO
SILICON VALLEY BANK
By: Frank J. Amorsso
Title: Assistant VicePresident
<PAGE>
Schedule 6.3(b)
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: SWEETWATER, INC.
The undersigned authorized officer of Sweetwater, Inc.
hereby certifies that in accordance with the terms and conditions
of the Loan and Security Agreement between Borrower and Bank (the
"Agreement"), (i) Borrower is in complete compliance for the
period ending _________ with all required covenants except as
noted below, and (ii) all representation and warranties of
Borrower stated in the Agreement are true and correct in all
material respects as of the date hereof. Attached herewith are
the required documents supporting the above certification. The
Officer further certifies that these are prepared in accordance
with Generally Accepted Accounting Principles (GAAP) and are
consistently applied from one period to the next except as
explained in an accompanying letter or footnotes.
Please indicate compliance status by circling Yes/No under
"Complies" column.
Reporting Covenant Required Complies
Monthly financial statements Monthly within 30 days Yes No
Annual (CPA Audited) FYE within 90 days Yes No
A/R & A/P Agings Monthly within 15 days Yes No
A/R Audit Initial and Semi-Annual Yes No
Financial Covenant Required Actual Complies
Maintain on a Monthly Basis
Minimum Quick Ratio 1.5:1.0 ____:1.0 Yes No
Minimum Tangible Net Worth $4,000,000 $_______ Yes No
Maximum Debt/Tangible Net Worth 0.75:1.0 ____:1.0 Yes No
Maximum Liquidity 2.0:1.0 ____:1.0 Yes No
Minimum Debt Service 1.5:1.0* ____:1.0 Yes No
* After two consecutive quarters
Comments Regarding Exceptions: See Attached
Sincerely,
_________________________________________
SIGNATURE
_________________________________________
TITLE
_________________________________________
DATE
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 371,809
<SECURITIES> 2,589,966
<RECEIVABLES> 316,113
<ALLOWANCES> 0
<INVENTORY> 1,371,791
<CURRENT-ASSETS> 4,763,959
<PP&E> 2,131,834
<DEPRECIATION> 863,948
<TOTAL-ASSETS> 6,268,333
<CURRENT-LIABILITIES> 629,389
<BONDS> 0
0
0
<COMMON> 3,069
<OTHER-SE> 5,486,406
<TOTAL-LIABILITY-AND-EQUITY> 6,268,333
<SALES> 1,021,237
<TOTAL-REVENUES> 1,021,237
<CGS> 692,758
<TOTAL-COSTS> 692,758
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,430
<INCOME-PRETAX> (1,411,022)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
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</TABLE>
