UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC. 20549
FORM 10-Q
(Mark one)
[X] Quarterly report pursuant to section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended April 30, 1996
[ ] Transition report pursuant to section 13 or 15(d) of the
Securities and Exchange Act of 1934
For the transition period from _______ to ________
Commission file number 0-8419
SBE, INC.
______________________________________________________
(Exact name of registrant as specified in its charter)
California 94-1517641
_______________________________ __________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4550 Norris Canyon Road, San Ramon, California 94583
_____________________________________________________
(Address of principal executive offices and zip code)
(510) 355-2000
____________________________________________________
(Registrant's telephone number, including area code)
Indicate by check mark whether 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 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 Registrant's Common Stock outstanding as of June 3,
1996 was 2,127,890.
SBE, INC.
INDEX TO APRIL 30, 1996 FORM 10-Q
PART I Financial Information
Item 1 Financial Statements
Condensed Consolidated Balance Sheets as of
April 30, 1996 and October 31, 1995 3
Condensed Consolidated Statements of Operations for the
three and six months ended April 30, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows for the
six months ended April 30, 1996 and 1995 5
Notes to Condensed Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II Other Information
Items 1, 2, 3 and 5 13
Item 4 Submission of Matters to a Vote of Security Holders 13
Item 6 Exhibits and Reports on Form 8-K 14
SIGNATURES 15
EXHIBIT 16
Part I. Financial Information
Item 1. Financial Statements
SBE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
April 30, 1996 and October 31, 1995
(In thousands)
April 30, October 31,
1996 1995
-------- --------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 261 $ 857
Trade accounts receivable, net 1,700 3,388
Inventories 3,322 2,611
Income tax receivable 9 1,836
Other 518 603
-------- --------
Total current assets 5,810 9,295
Property, plant and equipment, net 2,968 3,330
Capitalized software costs, net 689 1,656
Other 697 696
-------- --------
Total assets $ 10,164 $ 14,977
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 802 $ 941
Customer advances 997 ---
Other accrued expenses 538 710
-------- --------
Total current liabilities 2,337 1,651
Deferred liabilities 1,320 1,218
-------- --------
Total liabilities 3,657 2,869
-------- --------
Shareholder's equity:
Common stock 7,983 7,680
Retained (deficit) earnings (1,476) 4,428
-------- --------
Total shareholders' equity 6,507 12,108
-------- --------
Total liabilities and shareholders' equity $ 10,164 $ 14,977
======== ========
See accompanying notes
SBE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
for the three and six months ended April 30, 1996 and 1995
(In thousands, except per share amounts)
(Unaudited)
Three months ended Six months ended
April 30, April 30,
1996 1995 1996 1995
-------- -------- -------- --------
Net sales $ 2,662 $ 4,768 $ 6,656 $ 9,883
Cost of sales 1,810 2,350 4,144 4,554
-------- -------- -------- --------
Gross profit 852 2,418 2,512 5,329
Product research and development 1,463 2,343 2,989 3,928
Sales and marketing 1,404 1,229 2,613 1,996
General and administrative 867 1,029 1,787 2,055
Restructuring costs 255 --- 255 ---
Writedown of software costs 794 --- 794 ---
-------- -------- -------- --------
Total operating expenses 4,783 4,601 8,438 7,979
-------- -------- -------- --------
Operating loss (3,931) (2,183) (5,926) (2,650)
Interest income, net 16 17 22 138
-------- -------- -------- --------
Loss before income taxes (3,915) (2,166) (5,904) (2,512)
Income tax benefit --- 583 --- 680
-------- -------- -------- --------
Net loss $ (3,915) $ (1,583) $ (5,904) $ (1,832)
======== ======== ======== ========
Net loss per common share $ (1.85) $ (0.77) $ (2.81) $ (0.90)
======== ======== ======== ========
Weighted average common shares 2,116 2,047 2,102 2,044
======== ======== ======== ========
See accompanying notes
SBE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended April 30, 1996 and 1995
(In thousands)
(Unaudited)
1996 1995
-------- --------
Cash flows from operating activities:
Net loss $ (5,904) $ (1,832)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 904 581
Writedown of capitalized software 794 ---
Other 3 ---
Changes in assets and liabilities:
Decrease in trade accounts receivable 1,688 84
Increase in inventories (711) (426)
Decrease in income tax recoverable 1,827 ---
Increase (decrease) in other assets 84 (814)
Decrease in trade accounts payable (139) (138)
Increase in customer advances 997 ---
(Increase) decrease in other liabilities (70) 119
-------- --------
Net cash used by operating activities (527) (2,426)
-------- --------
Cash flows from investing activities:
Purchases of property and equipment (332) (1,372)
Proceeds from sale of fixed assets 2 ---
Acquisition of capitalized software (42) (349)
Proceeds from sale of investments --- 1,400
-------- --------
Net cash used by investing activities (372) (321)
-------- --------
Cash flows from financing activities:
Proceeds from stock plans 303 76
-------- --------
Net cash provided by financing activities 303 76
-------- --------
Net decrease in cash and cash equivalents (596) (2,671)
Cash and cash equivalents at beginning of period 857 2,566
-------- --------
Cash and cash equivalents at end of period $ 261 $ (105)
======== ========
See accompanying notes
SBE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Interim Period Reporting:
The condensed consolidated financial statements of SBE, Inc. (the "Company")
are unaudited and include all adjustments consisting of normal recurring
adjustments that are, in the opinion of management, necessary for a fair
presentation of the financial position and results of operations and cash flows
for the interim periods. The results of operations for the quarter ended April
30, 1996 are not necessarily indicative of expected results for the full 1996
fiscal year.
Certain information and footnote disclosures normally contained in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These condensed consolidated financial
statements should be read in conjunction with the financial statements and
notes contained in the Company's 1995 Annual Report to Shareholders.
2. Inventories:
Inventories comprise the following (in thousands):
April 30, October 31,
1996 1995
-------- --------
Finished goods $1,160 $ 841
Subassemblies 61 299
Parts and materials 2,101 1,471
-------- --------
$3,322 $2,611
======== ========
3. Net Loss Per Common Share:
Net loss per common share was computed by dividing net loss by the weighted
average number of shares of common stock and dilutive common stock equivalents
outstanding. Common stock equivalents relate to stock options.
4. Bank Facility:
On May 23, 1995, the Company entered into a revolving working capital line of
credit agreement. The agreement was modified on January 17, 1996 and on April
29, 1996. As modified, the agreement allows for a $2.0 million line of credit
and expires on April 30, 1997. Borrowings under the line of credit bear
interest at the bank's prime rate plus one percent and are collateralized by
accounts receivable and other assets. Borrowings are limited to 75 percent of
adjusted accounts receivable balances, and the Company is subject to certain
financial covenants, including the maintenance of minimum tangible net worth of
$4.9 million, a minimum debt ratio of 0.90:1.00, a quick ratio of cash,
investments, and receivables to current liabilities of not less than 0.55:1.00,
and minimum profitability levels. The line of credit agreement also prohibits
the payment of cash dividends without consent of the bank.
As of April 30, 1996, there were no borrowings outstanding under the line of
credit.
5. Writedown of Software Costs:
The Company recorded a writedown of its capitalized software costs of $794,000
in the three months ended April 30, 1996. The carrying value of the asset was
reduced due to the uncertainty of future realization of the asset, due to the
slower than expected sales of netXpand(TM) products.
6. Restructuring Costs:
In the three months ended April 30, 1996, the Company recorded $255,000 of
restructuring costs, principally comprised of severance payment expenses,
in connection with lower than expected sales.
7. Reclassifications:
Certain reclassifications have been made to the 1995 condensed consolidated
financial statements to conform to the 1996 presentation.
SBE, INC.
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations
The Company's sales are dependent upon a customer base that is highly
concentrated, and consequently the timing of significant orders from major
customers causes the Company's operating results to fluctuate. Over the last
six quarters, the Company has invested significant resources in the development
of new products and sales channels, and in September 1995 the Company began
shipping the netXpand family of remote internetworking products. The Company
expects that sales of netXpand products may reduce the concentration of its
customer base and provide significant sales growth as the Company develops its
sales channels. There are numerous risks associated with the sale of netXpand
products, and therefore the Company cannot determine whether or not it will be
successful in the distribution of netXpand products. Primarily as a result of
this investment in netXpand products and due to decreased sales of computer
board communications products attributable to the decline in business with
America Online, the Company has incurred substantial operating losses in the
first six months of fiscal 1996.
The following discussion contains forward-looking statements that involve risks
and uncertainties. The Company's actual results could differ materially from
those discussed here. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in this section,
and those discussed in the Company's Form 10-K for the year ended October 31,
1995.
Results of Operations
The following table sets forth, as a percentage of net sales, certain
consolidated statements of operations data for the three and six months ended
April 30, 1996 and 1995. These operating results are not necessarily
indicative of Company's operating results for any future period.
Three Months Ended Six Months Ended
April 30, April 30,
1996 1995 1996 1995
----- ----- ----- -----
Net sales 100% 100% 100% 100%
Cost of sales 68 49 62 46
----- ----- ----- -----
Gross profit 32 51 38 54
----- ----- ----- -----
Product research and development 55 49 45 40
Sales and marketing 53 26 39 20
General and administrative 33 22 27 21
Restructuring costs 10 --- 4 ---
Writedown of software costs 30 --- 12 ---
----- ----- ----- -----
Total operating expenses 180 97 127 81
----- ----- ----- -----
Operating loss (147) (46) (89) (27)
Interest income, net 0 1 0 2
----- ----- ----- -----
Loss before income taxes (147) (45) (89) (25)
Income tax benefit 0 (12) 0 (5)
----- ----- ----- -----
Net loss (147)% (33)% (89)% (20)%
===== ===== ===== =====
Net Sales
Net sales for the three months ended April 30, 1996 were $2.7 million, a 44
percent decrease from the same period in 1995. This decrease was primarily
attributable to a $1.3 million decrease in sales of board products to America
Online. This decline was not offset by expected sales of netXpand products.
Sales of netXpand products were not significant during the quarter as potential
sales were delayed while the Company took steps to reorganize its sales
organization to better access the small office/home office remote access and
routing channels and markets. Sales for the six months ending April 30, 1996
were $6.7 million, down from $9.9 million for the same period of 1995,
principally due to lower sales to America Online. Sales to PRC, Inc. and
Tandem Computers represented 14 and 12 percent, respectively, of sales in the
second quarter of fiscal 1996. Sales to America Online and Tandem Computers
represented 27 and 14 percent, respectively, of sales in second quarter fiscal
1995. The Company expects to continue to experience fluctuation in computer
board product sales as large customers' needs change.
Gross Profit
Gross profit as a percentage of sales decreased to 32 percent in the three
months ended April 30, 1996 from 51 percent in the same period in 1995. Gross
profit as a percentage of sales for the six months ending April 30, 1996 was 38
percent, down from 54 percent for the same period of 1995. The decreases for
the three- and six-month periods were primarily attributable to higher
manufacturing overhead costs incurred in connection with expanding
manufacturing capacity and additional capitalized software amortization related
to the netXpand products. The manufacturing overhead costs included the cost
of leasing additional high-speed placement and testing equipment. The Company
believes this equipment will significantly increase manufacturing capacity and
reduce production cycle time, leading to lower cost of sales as a percentage of
net sales to the extent production volumes increase for the netXpand product
line. However, there can be no assurance that the Company will be successful
in increasing volume sufficiently to offset the increased overhead costs.
Product Research and Development
Product research and development expenses decreased to $1.5 million for the
three months ended April 30, 1996 from $2.3 million for the same period in
1995. Expenses for the three months ended April 30, 1995 included a $650,000
writedown of software costs previously capitalized. Product research and
development costs for the six months ending April 30, 1996 decreased 24 percent
from the same period of 1995. The decreases in the three and six months of
1996 were attributable to decreased consulting costs and contract professional
expenses related to development of the netXpand product line, as well as lower
development material cost. The Company capitalized no internal software
development costs in the three months ended April 30, 1996 or in the same
period in 1995. Capitalized software costs are amortized over a three-year
period. Software amortization for the six months ended April 30, 1996 and
1995, respectively, was $215,000 and $31,000. Contractual reimbursements under
joint development contracts are accounted for as a reduction of product
research and development expenses. The Company received $57,000 of such
reimbursements in the three months ended April 30, 1996, compared to $137,000
of reimbursements in the same period in 1995. The Company does not expect any
significant reimbursements in the future. The Company expects that product
research and development expenses will continue at a similar level in absolute
dollars as it continues to expand and improve its netXpand product line and
enhance its traditional board-level product lines. If the Company is not
successful in increasing sales of netXpand products, it may be required to
reduce spending for certain product research and development programs.
Sales and Marketing
Sales and marketing expenses for the three months ended April 30, 1996 were
$1.4 million, a 14 percent increase from the same period in fiscal 1995. Sales
and marketing expenses increased 24 percent for the six months ending April 30,
1996 from the same period of 1995. These increases were primarily attributable
to the reorganization of the Company's worldwide sales operations to support
the netXpand product line. The reorganization included recruiting a new vice
president of sales, hiring additional sales and marketing and technical support
personnel and implementing new advertising programs. The Company expects sales
and marketing expenses as a percentage of net sales to decrease to the extent
sales of the netXpand products increase. If the Company is not successful in
increasing sales of netXpand products, it may be required to reduce spending
for certain sales and marketing programs.
General and Administrative
General and administrative expenses for the three months ended April 30, 1996
were $867,000, a 16 percent decrease from the same period in 1995. General and
administrative expenses decreased for the six months ending April 30, 1996 by
13 percent from the same period of 1995. The decreases were a result of staff
reductions to lower overall administration expenses. If the Company is not
successful in increasing sales of netXpand products, it may be required to take
additional steps to reduce general and administrative expenses.
Restructuring Costs
During the three months ended April 30, 1996, the Company recorded $255,000 of
restructuring costs, principally comprised of severance payment expenses,
in connection with lower than expected sales.
Writedown of Software Costs
The Company recorded a writedown of its capitalized software costs of $794,000
in the three months ended April 30, 1996. The carrying value of the asset was
reduced due to the uncertainty of future realization of the asset, due to the
slower than expected sales of netXpand products.
Income Taxes
The Company did not record any provision or benefit for taxes for the three
months ended April 30, 1996, as the Company is unable to carry back and realize
the benefit of current operating losses. The Company has increased its
valuation allowance in the three months ended April 30, 1996 to offset the
deferred tax assets resulting from the second quarter operating losses. In the
event of future taxable income, the Company's effective income tax rate in
future periods could be lower than the statutory rate as such tax assets may be
realized.
Net Loss
As a result of the factors discussed above, the Company recorded a net loss of
$3.9 million in the three months ended April 30, 1996, as compared to a net
loss of $1.6 million for the same period in fiscal 1995. The net loss for the
six months ending April 30, 1996 was $5.9 million, as compared to a net loss of
$1.9 million for same period of 1995.
Liquidity and Capital Resources
At April 30, 1996, the Company had cash and cash equivalents of $261,000, as
compared to $857,000 at October 31, 1995. During the first six months of
fiscal 1996, $527,000 of cash was used in operating activities, principally as
a result of the $5.9 million loss, offset by an $1.8 million refund of federal
income taxes, a $1.6 million reduction in accounts receivable, and a $1.0
million customer advance. Inventories for the first six months of fiscal 1996
increased $711,000, primarily due to increases in netXpand product materials
and finished goods. Working capital at April 30, 1996, was $3.5 million, as
compared to $7.6 million at October 31, 1995.
In the first six months of fiscal 1996 the Company purchased $332,000 of fixed
assets, consisting primarily of computer and testing equipment, compared to
$1.4 million for the same period of fiscal 1995. The Company expects capital
expenditures during fiscal 1996 to decrease significantly from fiscal 1995
levels as the Company directs its resources to sales and marketing programs to
expand netXpand sales.
The Company received $303,000 of proceeds from employee stock option and stock
purchase plans in the first six months of fiscal 1996. Cash flow from employee
stock option exercises and stock purchase plans is subject to significant
fluctuations, depending upon numerous factors, including the market price of
the Company's common stock and the timing of employee stock option expirations.
On May 22, 1995, the Company entered into a revolving working capital line of
credit agreement. The agreement was amended in January and April 1996. As
amended, the agreement allows for a $2.0 million line of credit for working
capital purposes that expires on April 30, 1997. Borrowings under the amended
credit line bear interest at the bank's prime rate plus one percent and are
collateralized by accounts receivable and other assets. Borrowings are limited
to 75 percent of adjusted accounts receivable balances, and the Company is
subject to certain financial covenants, including the maintenance of minimum
tangible net worth of $4.9 million, a minimum debt ratio of 0.90:1.00, a quick
ratio of cash, investments, and receivables to current liabilities of not less
than 0.55:1.00, and minimum profitability levels. The line of credit agreement
also prohibits the payment of cash dividends without consent of the bank. As
of April 30, 1996, the Company had no balance outstanding under its revolving
line of credit. During the third quarter of 1996, the Company may not meet
certain quarterly covenants of the credit line and expects that it may be
required to renegotiate certain terms to maintain the Company's credit
facility. There is no assurance that the Company will be able to renegotiate
the covenants under the credit line.
Based on the current operating plan, the Company anticipates that it will
require additional working capital in excess of the working capital line of
credit to meet short-term operating requirements. The additional working
capital is required to support the expansion of sales of the netXpand product
line through planned sales channel expansion and marketing programs as well as
accounts receivable and inventory growth. The Company is currently seeking
additional capital through the sale of equity securities. If the Company is
unsuccessful in the sale of equity securities it will initially scale back its
efforts to gain additional market penetration for its netXpand products and
reduce its development of netXpand and communications controller products. The
Company may also need to seek alternative sources of financing, including debt.
There can be no assurance that the Company will be successful in obtaining
additional working capital or in expanding its netXpand business.
SBE, INC.
Part II Other information
Items 1, 2, 3 and 5
The above items have been omitted as inapplicable.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The annual meeting of shareholders of the Company was held on
Tuesday, April 16, 1996, at 5:00 p.m. at the Company's corporate offices
located at 4550 Norris Canyon Road, San Ramon, California.
The shareholders approved the following five items:
(i) Elected the following Directors to the Board:
For Withheld
--------- --------
Raimon L. Conlisk 1,878,208 39,004
William R. Gage 1,878,025 39,187
George E. Grega 1,878,506 38,706
Harold T. Hahn 1,878,506 38,706
William B. Heye, Jr. 1,854,547 62,665
(ii) Approved the Company's 1987 Supplemental Stock Option Plan, as
amended and restated, to increase the aggregate number of shares by
200,000 shares, to extend the term to January 17, 2006, and to permit the
issuance of incentive stock options to employees of the Company. (For -
1,011,052; Against - 198,486; Abstain - 9,101; Broker Non-Votes - 698,573)
(iii) Approved an amendment to the Company's Amended and Restated Articles
of Incorporation to (a) increase the authorized number of shares of Common
Stock from 6,000,000 shares to 10,000,000 shares; and (b) increase the
authorized number of shares of Preferred Stock from 50,000 shares to
2,000,000 shares. (For - 1,076,034; Against - 150,900; Abstain - 16,534;
Broker Non-Votes - 673,744)
(iv) Approved the issuance and private sale of up to 1,500,000 shares of a
new series of the Company's Preferred Stock. (For - 937,191; Against -
256,552; Abstain - 17,782; Broker Non-Votes - 705,687)
(v) Ratified the selection of Coopers & Lybrand LLP as the Company's
independent auditors for the fiscal year ending October 31, 1996. (For -
1,883,320; Against - 14,026; Abstain - 19,866)
Item 6. Exhibits and Reports on Form 8-K
The following documents are filed as part of this report:
(a) Exhibits
10.1 Modification to Loan & Security Agreement between the Company and
Comerica Bank - California, dated April 29, 1996
27.1 Financial Data Schedule
(b) The Registrant did not file any reports on Form 8-K during the quarter
ended April 30, 1996.
SBE, INC.
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, as of June 14, 1996.
SBE, Inc.
Registrant
/S/ Timothy J. Repp
-------------------
Timothy J. Repp
Chief Financial Officer, Vice President of
Finance (Principal Financial and Accounting
Officer)
Exhibit 10.1
Comerica Bank - California
1245 South Winchester Boulevard
San Jose, California 95128
(408) 244-1700
MODIFICATION TO LOAN & SECURITY AGREEMENT
This Second Modification to Loan & Security Agreement (this "Modification")
is entered into by and between SBE, INC. ("Borrower") and COMERICA BANK-
CALIFORNIA ("Bank") as of this 29th day of April, 1996, at San Jose,
California.
RECITALS
A. Bank and Borrower have previously entered into or are concurrently
herewith entering into a Loan & Security Agreement (Accounts & Inventory) (the
"Agreement") dated May 23, 1995.
B. Borrower has requested, and Bank has agreed, to modify the Agreement as
set forth below.
AGREEMENT
For good and valuable consideration, the parties agree as set forth below:
Incorporation by Reference. The Agreement as modified hereby and Recitals
are incorporated herein by this reference.
SECTION 1.5 "Borrowing Base" as used in this Agreement means the sum of: (1)
SEVENTY FIVE percent (75.00%) of the net amount of Eligible
Accounts after deducting therefrom all payments, adjustments and
credits applicable thereto (Accounts Receivable Borrowing Base");
and (2) the amount, if any, of the advances against Inventory
agreed to be made pursuant to any Inventory Rider ("Inventory
Borrowing Base"), or other rider, amendment or modification to
this Agreement, that may now or hereafter be entered into by Bank
and Borrower.
SECTION 1.12 "Eligible Accounts" means and includes those accounts of Borrower
which are due and payable within THIRTY (30) days, or less, from
the date of invoice, have been validly assigned to Bank and
strictly comply with all of Borrower's warranties and
representations to Bank. Allow thirty (30%) concentration of
Siemens and Tandem Computers. Allow seventy five (75%) advance on
all foreign receivables covered by foreign credit insurance
(subject to Bank approval of underwriter).
Eligible Accounts shall not include the following: (a) accounts
with respect to which the account debtor is an officer, employee,
partner, joint venturer or agent of Borrower; (b) accounts with
respect to which goods are placed on consignment, guaranteed sale
or other terms by reason of which the payment by the account
debtor may be conditional; (c) accounts with respect to which the
account debtor is not a resident of the United States; (d)
accounts with respect to which the account debtor is the United
States or any department, agency or instrumentality of the United
States; (e) accounts with respect to which the account debtor is
any State of the United States or any city, county, town,
municipality or division thereof; (f) accounts with respect to
which the account debtor is a subsidiary of, related to,
affiliated or has common shareholders, officers or directors with
Borrower; (g) accounts with respect to which Borrower is or may
become liable to the account debtor for goods sold or services
rendered by the account debtor to Borrower; (h) accounts not paid
by an account debtor within ninety (90) days from the date of
invoice; (i) accounts with respect to which account debtors
dispute liability or make any claim, or have any defense,
crossclaim, counterclaim, or offset; (j) accounts with respect to
which any insolvency Proceeding is filed by or against the account
debtor, or if an account debtor becomes insolvent, falls or goes
out of business; and (k) accounts owed by any single account
debtor which exceed twenty percent (20%) of all of the Eligible
Accounts; and (l) accounts with a particular account debtor on
which over twenty-five (25%) of the aggregate amount owing is
greater than ninety (90) days from the date of the invoice.
SECTION 2.1 Upon the request of the Borrower, made at any time and from time
to time during the term hereof, and so long as no Event of Default
has occurred, Bank shall lend to Borrower an amount equal to the
Borrowing Base; provided, however, that in no event shall Bank be
obligated to make advances to Borrower under this Section 2.1
whenever the Daily Balance exceeds, at any one time, either the
Borrowing Base or the sum of TWO MILLION AND NO/100 dollars
($2,000,000.00), such amount being referred to herein as
"Overadvance".
SECTION 3.1 This Agreement shall remain in full force and effect until April
30, 1997, or until terminated by notice by Borrower. Notice of
such termination by Borrower shall be effectuated by mailing of a
registered or certified letter not less than thirty (30) days
prior to the effective date of such termination, addressed to the
Bank at the address set forth herein and the termination shall be
effective as of the date so fixed in such notice. Notwithstanding
the foregoing, should Borrower be in default of one or more of the
provisions of this Agreement, Bank may terminate this Agreement at
any time without notice. Notwithstanding the foregoing, should
either Bank or Borrower become insolvent or unable to meet its
debts as they mature, or fail, suspend, or go out of business, the
other party shall have the right to terminate this Agreement at
any time without notice. On the date of termination all
Obligations shall become immediately due and payable without
notice or demand; no notice of termination by Borrower shall be
effective until Borrower shall have paid all Obligations to Bank
in full. Notwithstanding termination, until all Obligations have
been fully satisfied, Bank shall retain its security interest in
all existing Collateral and Collateral arising thereafter, and
Borrower shall continue to perform all of its Obligations.
SECTION 6.16(c) In addition to the financial statements requested above, the
Borrower agrees to provide Bank the following schedules:
X Accounts Receivable Agings on a Monthly basis within 15 days
of month end. If borrowing, reporting will be required on a
Weekly basis
X Accounts Payable Agings on a Monthly basis within 30 days of
month end
X Borrowing Base Certificate on a Monthly basis within 15 days
of month end. If borrowing, reporting will be required on a
Weekly basis
X Accounts Receivable Audits on a Semi-annual basis
X Covenant Compliance Certificate on a Monthly basis
SECTION 6.17 Borrower shall maintain the following financial ratios and
covenants:
(b) A Tangible Net Worth in an amount not less than
$4,900,000.00 (Defined as minimum Tangible Net Worth less
intangible assets (eg. Capitalized software costs and
software) plus 100% of any new equity raised and 75% of net
quarterly profits).
(d) A quick ratio of cash plus securities plus Receivables to
Current Liabilities of not less than 0.55:1.00 ( Defined as
Cash plus A/R divided by Current Liabilities. Covenant to
step up to 1.00:1.00 for the month ending November 30, 1996
and thereafter).
(e) A ratio of Total Liabilities (less debt subordinated to
Bank) to Tangible Effective Net Worth of less than 0.90:1.00
(Defined as Tangible Net Worth less intangible assets divided
by Total Liabilities).
(g) Maximum Net loss allowed for the third quarter ending
July 31, 1996 is $750,000.00. Maximum net loss allowed for
the fourth quarter ending October 31, 1996 is $150,000.00.
Borrower is to be profitable quarterly on an operating and
after tax basis thereafter with one loss quarter allowed per
fiscal year not to exceed $250,000.00.
Legal Effect. Except as specifically set forth in this Modification, all of
the terms and conditions of the Agreement remain in full force and effect.
Integration. This is an integrated Modification and supersedes all prior
negotiations and agreements regarding the subject matter hereof. All
amendments hereto must be in writing and signed by the parties.
IN WITNESS WHEREOF, the parties have agreed as of the date first set forth
above.
SBE, INC. COMERICA BANK - CALIFORNIA
By: /s/ Timothy J. Repp By: /s/ Mary Beth Suhr
Mary Beth Suhr
Title: CFO, Vice President Finance Title: Vice President
By: /s/ Wm. B. Heye
Title: President, CEO