-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GviX6A5aGYXEV/x8S2s71W5rGI9Dw5lJrWUuwUPehhO7OCiZMRvQ6gbqzIUceDsm ReWoyanJ7m1RAGJ2LZlnfw== 0000891092-98-000390.txt : 19981113 0000891092-98-000390.hdr.sgml : 19981113 ACCESSION NUMBER: 0000891092-98-000390 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TEL INSTRUMENT ELECTRONICS CORP CENTRAL INDEX KEY: 0000096885 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS & ACCESSORIES [3670] IRS NUMBER: 221441806 STATE OF INCORPORATION: NJ FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-18978 FILM NUMBER: 98744146 BUSINESS ADDRESS: STREET 1: 728 GARDEN ST CITY: CARLSTADT STATE: NJ ZIP: 07072 BUSINESS PHONE: 2019331600 MAIL ADDRESS: STREET 1: 728 GARDEN ST CITY: CARLSTADT STATE: NJ ZIP: 07072 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------------------- FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1998 ___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 33-18978 TEL-INSTRUMENT ELECTRONICS CORP. (Exact name of the Registrant as specified in Charter) New Jersey 22-1441806 (State of Incorporation) (I.R.S. Employer ID Number) 728 Garden Street, Carlstadt, New Jersey 07072 (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone No. including Area Code: 201-933-1600 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ____ Indicate the number of shares outstanding of the issuer's common stock, as of the latest practical date: 2,096,985 shares of Common stock, $.10 par value as of October 28, 1998. TEL-INSTRUMENT ELECTRONICS CORPORATION TABLE OF CONTENTS PAGE ---- Item 1. Financial Statements (Unaudited): Condensed Comparative Balance Sheets September 30, 1998 and March 31, 1998 1 Condensed Comparative Statements of Operations - Three and Six Months Ended September 30, 1998 and 1997 2 Condensed Comparative Statements of Cash Flows - Six Months Ended September 30, 1998 and 1997 3 Notes to Condensed Financial Statements 4-5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6-9 Part II. Other Information 10 SIGNATURES 10 Item 1 - Financial Statements TEL-INSTRUMENT ELECTRONICS CORPORATION CONDENSED COMPARATIVE BALANCE SHEETS (Unaudited) September 30, 1998 and March 31, 1998
ASSETS September 30, March 31, 1998 1998 ------------- ------------ Current assets: Cash $ 79,681 $ 585,281 Accounts receivable, net of allowance for doubtful 399,904 374,506 accounts of $15,923 at September 30,1998 and $16,164 at March 31, 1998 Unbilled revenues (see note 2) 195,272 -- Inventories 462,998 383,030 Prepaid expenses and other current assets 38,333 24,017 Deferred income tax benefit - current 78,300 78,300 ----------- ----------- Total current assets 1,254,488 1,445,134 ----------- ----------- Property, plant, and equipment, net 112,671 79,321 Other assets 120,723 96,067 Deferred income tax benefit 372,415 320,619 ----------- ----------- Total assets 1,860,297 1,941,141 =========== =========== LIABILITIES & STOCKHOLDERS EQUITY Current liabilities: Note payable - related party - current portion 50,000 50,000 Convertible subordinate notes - related party 15,000 15,000 Accrued payroll, vacation pay, deferred wages payroll taxes, and interest on deferred wages 210,592 211,400 Accounts payable and accrued expenses 301,651 304,673 ----------- ----------- Total current liabilities 577,243 581,073 ----------- ----------- Notes payable - related party - non-current portion 300,000 300,000 ----------- ----------- Total liabilities 877,243 881,073 Stockholders' equity Common stock 209,701 209,476 Additional paid-in capital 3,922,288 3,921,670 Accumulated deficit (3,148,935) (3,071,078) ----------- ----------- Total stockholders' equity 983,054 1,060,068 ----------- ----------- Total liabilities and stockholders' equity $ 1,860,297 $ 1,941,141 =========== ===========
See accompanying notes to condensed financial statements TEL-INSTRUMENT ELECTRONICS CORPORATION CONDENSED COMPARATIVE STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Six Months Ended September 30, September 30, September 30, September 30, 1998 1997 1998 1997 ------------- ------------- ------------- ------------- Sales Government, net $ 418,472 567,191 $ 801,212 1,124,705 Commercial, net 607,204 276,850 889,657 590,159 ----------- ----------- ----------- ----------- Total Sales 1,025,676 844,041 1,690,869 1,714,864 Cost of sales 425,504 351,674 764,810 687,894 ----------- ----------- ----------- ----------- Gross Margin 600,172 492,367 926,059 1,026,970 Operating expenses Selling, general & administrative 258,704 184,245 473,228 403,175 Engineering, research, & development 327,532 205,981 569,544 363,926 ----------- ----------- ----------- ----------- Total operating expenses 586,236 390,226 1,042,772 767,101 Income/ (Loss) from operations 13,936 102,141 (116,713) 259,869 Other income (expense): Interest income 2,484 5,651 8,554 11,733 Interest expense (9,611) (19,849) (21,494) (37,592) ----------- ----------- ----------- ----------- Income/ (Loss) before taxes 6,809 87,943 (129,653) 234,010 Provision/(Benefit) for income taxes 2,720 35,125 (51,796) 93,464 ----------- ----------- ----------- ----------- (Loss)/net income $ 4,089 52,818 $ (77,857) 140,546 =========== =========== =========== =========== Basic and diluted income (loss) per common share $ 0.00 0.03 $ (0.04) 0.07 Dividends per share None None None None Weighted average shares outstanding Basic 2,095,298 2,034,123 2,095,056 2,032,762 Diluted 2,118,317 2,101,731 2,118,075 2,100,370
See accompanying notes to condensed financial statements 2 TEL-INSTRUMENT ELECTRONICS CORPORATION CONDENSED COMPARATIVE STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended September 30, 1998 1997 ---------- --------- (Decrease) increase in cash: Cash flows from operating activities Net (loss) income $ (77,857) $ 140,546 Adjustments to reconcile net (loss) income to cash used in operating activities: Deferred income taxes (51,796) 93,464 Depreciation 20,339 12,535 Changes in operating assets or liabilities: Increase in accounts receivable and unbilled revenues (220,670) (251,434) Increase in inventories (79,968) (93,993) Increase in prepaid expenses and other current assets (14,316) (14,132) Increase in other assets (24,656) (15,000) (Decrease) increase in accrued payroll, deferred wages and and vacation pay (808) 14,279 Decrease in accounts payable and accrued expenses (3,022) (26,725) --------- --------- Net cash used in operations (452,754) (140,460) --------- --------- Cash flows from investing activities: Cash purchases of property, plant and equipment (53,689) (41,790) --------- --------- Net cash used in investing activities (53,689) (41,790) --------- --------- Cash flows from financing activities: Proceeds from exercise of stock options 843 1,588 Proceeds from issuance of common stock -- -- --------- --------- Net cash provided by financing activities 843 1,588 --------- --------- Net decrease in cash (505,600) (180,662) Cash at beginning of period 585,281 528,636 --------- --------- Cash at end of period $ 79,681 $ 347,974 ========= ========= Interest paid $ 19,786 $ 25,864 ========= =========
See accompanying notes to condensed financial statements 3 TEL-INSTRUMENT ELECTRONICS CORP. NOTES TO CONDENSED FINANCIAL STATEMENTS Note 1 Basis of Presentation In the opinion of management, the accompanying unaudited condensed financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position of Tel-Instrument Electronics Corp. as of September 30, 1998, the results of operations for the three and six months ended September 30, 1998 and September 30, 1997, and statements of cash flows for the six months ended September 30, 1998 and September 30, 1997. These results are not necessarily indicative of the results to be expected for the full year. The financial statements have been prepared in accordance with the requirements of Form 10-Q and consequently do not include disclosures normally made in an Annual Report on Form 10-K. The March 31, 1998 results included herein have been derived from the audited financial statements included in the Company's annual report on Form 10-K. Accordingly, the financial statements included herein should be reviewed in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1998. Note 2 Unbilled Revenue Sales are recognized primarily upon shipment of products, except in the case of long-term contracts wherein sales are recognized on the percentage-of-completion method. Sales under the U.S. Navy contract have been recorded on the percentage-of-completion method. Under this approach, sales and gross margin are recognized based on the ratio of costs incurred to date to total estimated contract costs. Unbilled revenues of $195,272 represent recoverable costs and accrued profit not billed resulting from the application of percentage-of-completion accounting. Actual billing of these amounts will be based upon contractual billing terms. Note 3 Inventories Inventories consist of: September 30, March 31, 1998 1998 -------------------------------- Purchased parts $ 282,409 $ 253,616 Work-in-process 216,209 165,034 Less: Reserve for obsolescence (35,620) (35,620) -------------------------------- $ 462,998 $ 383,030 ================================ Note 4 Income Taxes The Company, in accordance with SFAS 109, has recognized a deferred income tax benefit based upon the expected utilization of net operating loss carryforwards as the Company believes that it is more likely than not that it will realize a portion of its operating losses before they expire. For the six months ended September 30, 1998, the Company recorded a deferred income tax benefit of $51,796, which represents the effective federal and state tax rate on the Company's net loss before taxes of $129,653. This tax benefit reduced the loss for the period. The $51,796 increased the Company's deferred income tax asset by the same amount in the accompanying balance sheet. The Company expects to utilize this deferred income tax benefit in the future for tax reporting purposes. 4 TEL-INSTRUMENT ELECTRONICS CORP. NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued) Note 5 Reclassifications Certain reclassifications have been made to the fiscal year 1998 financial statements to be consistent with the fiscal year 1999 presentation. Note 6 Earnings Per Share In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 128 "Earnings Per Share" (SFAS 128). SFAS 128 supersedes Accounting Principles Board Opinion No. 15, Earnings Per Share and specifies the computation, presentation and disclosure requirements for earnings per share for entities with publicly held common stock. SFAS 128 is effective for financial statements relating to both interim and annual periods ending after December 15, 1997. Basic income (loss) per share is based on net income (loss) for the relevant period, divided by the weighted average number of common shares outstanding during the period. Diluted income (loss) per share for September 30, 1998 is based on net income (loss), divided by the weighted average number of common shares outstanding, including common share equivalents such as outstanding stock options and warrants during the period. Common share equivalents, such as outstanding stock options, are not included in the calculation for the six months ended September 30, 1998 since the effect would be antidilutive. Note 7 Credit Facility On July 22, 1998, the Company entered into a credit agreement with Summit Bank for $350,000, which extends for one year and is thereafter renewable on an annual basis. The Company has not borrowed against this line. The Company pays no commitment fee and the rate of interest borrowings is the Lender's Prevailing Base Rate plus 1%. 5 Item 2 MANAGEMENT DISCUSSION OF RESULTS OF OPERATIONS AND ANALYSIS OF FINANCIAL POSITION Results of Operations A number of the statements made by the Company in this report may be regarded as "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, among others, statements concerning the Company's outlook, pricing trends and forces within the industry, the completion dates of capital projects, expected sales growth, cost reduction strategies and their results, long-term goals of the Company and other statements of expectations, beliefs, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. All predictions as to future results contain a measure of uncertainty and accordingly, actual results could differ materially. Among the factors that could cause a difference are: changes in the general economy; changes in the demand for the Company's products or in the cost and availability of its raw materials; the actions of its competitors; the success of our customers; technological change; changes in employee relations; government regulations; litigation, including its inherent uncertainty; difficulties in plant operations and materials; transportation, environmental matters; and other unforeseen circumstances. A number of these factors are discussed in the Company's filings with the Securities and Exchange Commission. Overview The Company invested heavily in product development and expenditures increased $205,618 (57%) for the first six months of the current fiscal year as compared to the same period in the prior fiscal year. The total expenditure of $569,544 represents 34% of total sales. The principal effort resulted from the U.S. Navy exercising its option to incorporate a collision avoidance (TCAS) test capability into the T-47M test set design. Eight T-47M prototypes have been fabricated and these units have begun several months of environmental and functional testing. Several tests have been successfully completed. Field evaluation by the U.S. Navy is anticipated to begin early in the fourth quarter of the current fiscal year. Assuming field evaluations are satisfactory and the U.S. Navy exercises production options later in the fourth quarter, deliveries could begin in the first quarter of the next fiscal year. This contract can be a source of significant revenues, with options for up to 1,300 units which the U.S. Navy can exercise through calendar year 2001. However, there can be no assurance that field evaluations will be favorable and that the U.S. Navy will exercise its options under this contract. In addition, the Company continues the development of the T-36M, under a U.S. Army contract, and new products for other markets. In June 1998, the Company signed an exclusive agreement with Muirhead Avionics, based in the United Kingdom, to represent the Company in parts of Europe. The Company also signed an exclusive agreement with Milspec Services Pty. Ltd. in August 1998 to represent the Company in Australia and New Zealand, and an agreement with M.P.G. Instruments s.r.l. in September 1998 to represent the Company in Europe to obtain a contract for a new military product which would be based on the Company's technology. The Company continues to believe that the foreign commercial market is larger than the domestic market, because many foreign airlines are upgrading to meet U.S. requirements, and that foreign government sales will grow, particularly as the result of our growing reputation in IFF testing. 6 Item 2 MANAGEMENT DISCUSSION OF RESULTS OF OPERATIONS AND ANALYSIS OF FINANCIAL POSITION (Continued) Overview (Continued) As previously reported, during fiscal year 1998 the Company fulfilled its obligation and delivered the final units of the T-30CM ILS test set to the U.S. Air Force. As a result of completing this contract, it was anticipated that the Company would have lower sales during the first half of fiscal year 1999. The Company continues to believe that this decline is temporary and new contracts can be obtained to increase sales and earnings. In this regard, management is encouraged by the dollar value of its backlog, by the second quarter revenues which included a large and unexpected increase in commercial sales, by the progress on the U.S. Navy contract, and by the efforts of its new offshore distributors. Sales For the three months ended September 30, 1998 sales increased $181,635 (21.5%) to $1,025,676, as compared to the same period ending September 30, 1997. Commercial sales increased $330,354 (119.3%) to $607,204 for the three months ended September 30, 1998, as compared to the same period ending September 30, 1997. This increase in commercial sales is attributed to decisions by several large fleet owners to upgrade their test equipment and may not be continued. The Company had a commercial backlog of $297,090 at September 30, 1998. Government sales decreased $148,719 (26.2%), as compared to the same period ending September 30, 1997. This decrease is primarily attributed to the completion of the U.S. Air Force T-30CM contract for which there were no sales in the current fiscal year. This decrease was partially offset by revenues of $195,242 for fabrication of the initial prototypes and certain documentation and testing related to the U.S. Navy T-47M IFF test set contract. The Company had a government backlog of $2,043,307 at September 30, 1998. For the six months ended September 30, 1998 sales declined $23,995 (1.4%), as compared to the same period ending September 30, 1997. The decline in government sales related to the completion of the contract with the U.S. Air Force was mostly offset by the increase in commercial sales during the second quarter and the sales related to the contract with the U.S. Navy. There can be no assurance that the increase in commercial sales will continue. Gross Margin For the three months ended September 30, 1998 gross margin increased $107,805 (21.9%), as compared to the same period ending September 30, 1997. This increase is primarily attributed to the higher sales in the second quarter. The gross margin percentage was 58.5% for the three months ended September 30, 1998 as compared to 58.3% for the three months ended September 30, 1997. For the six months ended September 30, 1998 gross margin decreased $100,911 (9.8%), as compared to the same period ended September 30, 1997. This decrease is primarily attributed to the lower gross margin associated with the U.S. Navy T-47M contract. The gross margin percentage was 54.8% for the six months ended September 30, 1998 as compared to 59.9% for the six months ended September 30, 1997. 7 Item 2 MANAGEMENT DISCUSSION OF RESULTS OF OPERATIONS AND ANALYSIS OF FINANCIAL POSITION (Continued) Operating Expenses Selling, general and administrative expenses increased $74,459 (40.4%) for the three months ended September 30, 1998 as compared to the same period last year. This increase is associated with an increase in selling expenses, mostly attributed to higher commissions based upon the increase in commercial sales and to higher administrative salaries. In fiscal year 1998 the Company's President devoted a percentage of his time to research and development to ensure that such activities were properly conducted. In fiscal year 1999, the Company hired a Director of Engineering, thus minimizing the President's time in overseeing the research and development function and allowing him to concentrate on Company growth. Selling, general and administrative expenses increased $70,053 (17.4%) for the six months ended September 30, 1998 as compared to the same period last year. This increase is primarily attributed to the increase for the three months ended September 30, 1998, as discussed above. Engineering, research and development increased $121,551 (59.0%) and $205,618 (56.5%) for the three and six months ended September 30, 1998, respectively, as compared to the same periods last year. This increase reflects the Company's ongoing commitment to developing new products and finalizing of the design of the U.S. Navy T-47M test sets, as described in the Overview. As this work is completed, the rate of engineering expenditures should be reduced. Income Taxes In accordance with SFAS 109, a provision for income taxes was recognized in the amount of $93,464 for the six months ended September 30, 1997. For the six months ended September 30, 1998 the Company recorded an income tax benefit of $51,796, which represents the effective federal and state tax rate on the Company's net loss before taxes of $129,653. (See Note 4 to Notes to Condensed Financial Statements). Liquidity and Capital Resources At September 30, 1998 the Company had positive working capital of $677,245 as compared to $864,061 at March 31, 1998. For the six months ended September 30, 1998, cash used in operations was $452,754 as compared to $140,460 for the six months ended September 30, 1997. This increase in cash used in operations is primarily associated with the Company's loss from operations and increases in accounts receivable, unbilled revenues, and inventories. The total decrease in cash of $505,600 was also impacted by purchases of equipment in the amount of $53,689. The Company continues to invest heavily in research and development. The Company expects these investments will finalize the designs for the T-47M, T-47N, T-36M, and T-48IC, and begin to ship these units for which there are current orders in the backlog. While this would increase sales, cash flow, and profits, there is no assurance that these increases will occur. Based upon the current backlog and available working capital, the Company believes that it has sufficient working capital to fund its plans for the next twelve months. At present, the Company does not expect to incur significant long-term needs for capital outside of its normal operating activities. 8 Item 2 MANAGEMENT DISCUSSION OF RESULTS OF OPERATIONS AND ANALYSIS OF FINANCIAL POSITION (Continued) Liquidity and Capital Resources (Continued) On July 22, 1998, the Company received from Summit Bank a credit line of $350,000. The Company has not borrowed against this line as of September 30, 1998. There was no significant impact on the Company's operations as a result of inflation for the six months ended September 30, 1998. These financial statements should be read in conjunction with the Company's Annual Report on Form 10-K to the Securities and Exchange Commission for the fiscal year ended March 31, 1998. Year 2000 Issue Many existing computer programs use only two digits to identify a year in the date field. These programs were designed and developed without considering the impact of the upcoming change in the year 2000. Some older computer systems stored dates with only a two-digit year with an assumed prefix of "19". Consequently, this limits those systems to dates between 1900 and 1999. If not corrected, many computer systems and applications could fail or create erroneous results by or at the year 2000. The Company has reviewed the potential impact of the Year 2000 issue. This assessment included a review of the impact of the issue in four areas: products, manufacturing systems, business systems and other areas. The Company does not anticipate that the Year 2000 issue will impact operations or operating results. The Company relies on its customers, suppliers, utility service providers, financial institutions and other partners in order to continue normal business relations. At this time, it is impossible to assess the impact of Year 2000 issue on each of these organizations. There can be no guarantee that the systems of other unrelated entities on which the Company relies will be corrected on a timely basis and will not have a material adverse effect on the Company. New Accounting Pronouncements Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities was issued in June 1998 and is effective for all fiscal quarters beginning after June 15, 1999. This statement establishes accounting and reporting standards for derivative instruments and hedging activities. The Company does not expect its implementation will have a material effect on the Company's financial statements. Statement of Financial Accounting Standards No. 134, Accounting for Certain Mortgage Banking Activities was issued in October 1998 and is effective for all fiscal quarters beginning after December 15, 1998. This statement establishes reporting standards for certain banking activities of mortgage banking enterprises and other enterprises that conduct operations that are substantially similar to the primary operations of a mortgage banking enterprise. The Company does not expect its implementation will have a material effect on the Company's financial statements as currently presented. 9 Part II. Other Information Item 6. Exhibits and Reports on Form 10-Q. The exhibits filed or incorporated by reference as part of the Quarterly Report on Form 10-Q are listed in the attached Index to Exhibits. 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. TEL-INSTRUMENT ELECTRONICS CORP. Date: 11/10/98 By: /s/ Harold K. Fletcher -------------------------------- /s/ Harold K. Fletcher Chairman and President 10 INDEX TO EXHIBITS 1 Loan agreement with Summit Bank dated July 22, 1998 27 Financial data schedule which is submitted electronically to the Securities and Exchange Commission for information only and is not filed. 11 EX-1.1 2 LOAN AGREEMENT WITH SUMMIT BANK BUSINESS PROMISSORY/CREDIT NOTE (for loans in the principal amount greater than $250,000) Borrower: Name: Tel-instrument Lender: [X] SUMMIT BANK [ ] SUMMIT BANK Electronics Corp. ("Lender") ("Lender") 210 MAIN STREET ONE BETHLEHEM PLAZA HACKENSACK, NJ BETHLEHEM, PA 18018 07602 (individually and collectively, jointly and severally, the "Borrower") Address: 728 Garden Street Carlstadt, N.J. 07072 Name: (individually and collectively, jointly and severally, the "Borrower") Address: Principal Amount: $ 350,000.00 Date of Note: July 22, 1998 FOR VALUE RECEIVED, Borrower unconditionally promises to pay to the order of Lender the above principal amount in U.S. Dollars or, if a line of credit, such lesser amount of advances made but not repaid (including the face amount of any letter of credit issued and such other financial accommodations as may have been made), together with interest at the rate and on the terms provided in this Business Promissory/Credit Note (including all renewals, extensions and/or modifications, this "Note"). Any advance(s) shall be conclusively presumed to have been made at the request of Borrower when (1) deposited or credited to an account of Borrower with Lender, or (2) made in accordance with the oral or written instructions of Borrower, or of anyone on behalf of Borrower. Any such sums borrowed or reborrowed must be in multiples of 5% of the Principal Amount. This Note and all documents executed in connection with this Note are referred to herein as the "Loan Documents." [ ] Borrower authorizes Lender to effect payment of sums due hereunder by debiting Borrower's bank accounts maintained at Lender. If this line is not checked, Borrower shall pay Lender at Lender's address shown above or at such other place as Lender may designate in writing. - -------------------------------------------------------------------------------- INTEREST RATE. Interest will be calculated on the basis of the actual number of days elapsed over a year of 360 days, unless prohibited by law. Interest shall accrue on the unpaid principal balance of this Note from the date hereof at [ ] Fixed Rate. The rate of ________ percent per annum. [X] Lender's Prevailing Base Rate. Lender's Prevailing Base Rate plus 1.00 percent. Lender's Prevailing Base Rate is the rate announced by Lender from time to time and is subject to change without prior notice to Borrower. Lender lends at rates both above and below Lender's Prevailing Base Rate, and Borrower acknowledges that Lender's Prevailing Base Rate is not represented or intended to be the lowest or most favorable rate of interest offered by Lender. [ ] The rate of __________. - -------------------------------------------------------------------------------- PAYMENT SCHEDULE. All payments received hereunder will be applied first to the payment of accrued interest, any expenses or charges payable hereunder and the balance only applied to principal. Borrower shall pay in accordance with the following payment schedule: OPTION 1: Principal and Interest shall be paid: [ ] Principal shall be paid on demand. [X] Principal shall be paid in a single payment on July l5, 1999. [ ] Principal shall be paid in equal [ ] monthly [ ] quarterly installments of $ each, commencing on ___, _____, and continuing on the same day of each successive month quarter thereafter, with a final payment of all unpaid principal, interest and all other amounts recoverable under the Loan Documents on ________, _____. [ ] Interest shall be paid in [X] monthly [ ] quarterly installments commencing on August 15, 1998, and continuing on the same day of each successive [X] month [ ] quarter thereafter with a final payment of all unpaid interest and all other amounts recoverable under the Loan Documents at the time of final payment of unpaid principal. OPTION 2: Principal and interest shall be paid: [ ] [ ] monthly [ ] quarterly in installments of $ each, commencing on _______, ______,and continuing on the same day of each successive [ ] month [ ] quarter thereafter, with a final payment of all unpaid principal, interest and all other amounts recoverable under the Loan Documents on _______, _______. LATE CHARGES. If any payment is not received by Lender within TEN (10) days after its due date, Borrower shall, to the extent permitted by law, pay Lender a late charge of 5% of the overdue payment (in no event to be less than $25.00 nor more than $2,500.00). Any such late charge assessed is immediately due and payable. REPRESENTATIONS AND WARRANTIES. Borrower continually represents and warrants to Lender that the execution, delivery, and performance of the Loan Documents by Borrower and any other parties thereto do not require the consent or approval of any other party; and do not conflict with, result in a violation of, or constitute a default under any agreement or other instrument binding upon such parties or any law, regulation, court decree, or order applicable to such parties. The Loan Documents constitute legal, valid and binding obligations of the parties thereto enforceable in accordance with their respective terms. Borrower shall use all loan proceeds solely for business or commercial purposes. AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, at all times any amounts owing to Lender exist, Borrower shall (i) furnish such information (including, without limitation, tax returns and financial information) with respect to Borrower's financial condition and business operations as Lender may request from time to time and cooperate and join with Lender in taking all such further actions as Lender deems necessary to effectuate the provisions of the Loan Documents; and (ii) permit employees or agents of Lender full and complete access to any or all of Borrower's properties and financial records, to make extracts from and/or audit such records and to examine and discuss Borrower's properties, business, finances and affairs with Borrower's officers and outside accountants, all at Borrower's expense. NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that, at all times any amounts owing to Lender exist, Borrower shall not, without the prior written consent of Lender: (a) engage in any business activities substantially different than those in which Borrower is presently engaged; (b) cease operations, liquidate, merge, transfer, acquire or consolidate with any other entity, change ownership, change name, dissolve or transfer or sell Lender's collateral outside of the ordinary course of business; or (c) loan, invest in or advance money or assets to any other person or entity, or purchase, create or acquire any interest in any other enterprise or entity- EVENTS OF DEFAULT AND EFFECT THEREOF. Each of the following shall constitute an event of default ("Event of Default") under this Note: (a) failure of Borrower to make any payment when due hereunder; (b) failure of Borrower to comply with or to perform any term or condition contained in the Loan Documents; (c) default by Borrower under any other loan agreement with any other creditor; (d) any warranty, representation or statement made to Lender by or on behalf of Borrower is false or misleading; (e) the dissolution or termination of Borrower's existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower; (f) the filing, entry or issuance of any judgment, execution, garnishment, attachment, distraint, or lien against Borrower or any of Borrower's property, or the entry of any order enjoining or restraining Borrower and/or restraining or seizing any property of Borrower; (g) failure of Borrower to furnish any information requested by Lender or to permit Lender to inspect Borrower's books and records or property; (h) a material adverse change in Borrower's financial condition; or (i) any of the preceding events occurs with respect to any guarantor of any of the amounts owed to Lender, or any guarantor dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any guaranty of the amounts owed to Lender. Upon the occurrence of an Event of Default, all commitments and obligations of Lender under the Loan Documents immediately will terminate and, at Lender's option, all amounts owing to Lender will become due and payable immediately, all without notice of any kind to Borrower. In addition, Lender shall have all the rights and remedies provided in the Loan Documents or available at law, in equity, or otherwise. All of Lender's rights and remedies shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or take action to perform any obligation of Borrower or of any guarantor shall not affect Lender's right to declare an Event of Default and to exercise its rights and remedies. RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security interest in, and hereby assigns, conveys, delivers, pledges, and transfers to Lender all of Borrower's right, title and interest in and to, Borrower's present and future bank accounts. Borrower authorizes Lender to charge or set off all sums owing to Lender against any and all such accounts and, at Lender's option, to administratively freeze all such accounts to allow Lender to protect Lender's charge and setoff rights provided in this paragraph. EXPENSES. Borrower agrees to pay to Lender, at closing and otherwise upon demand, all reasonable costs and expenses incurred by Lender (including the fees and expenses of in-house and outside counsel) in connection with (1) the preparation, negotiation, execution, delivery and administration of this Note and the other related loan documents and instruments, and any modifications thereto, and (2) collection of amounts due Lender under the Note or any other related loan documents and instruments, or the enforcement or preservation of Lender's rights under this Note and other related loan document and instruments, whether by judicial proceeding or otherwise, including, without limitation, any court proceeding, bankruptcy or insolvency case, appeal, or post-judgment collection services. In the absence of proof by Lender of actual fees and expenses of a greater amount, Borrower agrees that for any enforcement of Lender's rights under the Note and other related loan documents and instruments, 25% of the outstanding balance of the Note is a reasonable amount for Lender's fees and expenses. GENERAL PROVISIONS. Borrower waives presentment, demand for payment, protest, notice of dishonor, and notice of default. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, Borrower shall not be released from liability- Borrower agrees that Lender may renew or extend this Note, or release any party, guarantor or collateral; or impair, fail to realize upon or perfect Lender's security interest in any collateral; and take any other action deemed necessary by Lender without the consent of or notice to anyone- MISCELLANEOUS PROVISIONS. Severability. If any provision of the Loan Documents is found to be invalid or unenforceable, such provision shall be stricken and all remaining provisions of the Loan Documents shall remain valid and enforceable. Waiver; Amendments. No amendment of the Loan Documents, and no waiver of any one or more of the provisions hereof and thereof, shall be effective unless set forth in writing prepared by Borrower and signed by Lender; provided, however, that any such waiver shall be restricted to the matters specified in such writing. Entire Agreement- The Loan Documents constitute the sole agreement of the parties regarding the subject matter hereof and thereof and supersede all oral negotiations and prior writings regarding the subject matter hereof and thereof. Waiver Of Jury Trial. Borrower and Lender acknowledge and agree that each party knowingly, voluntarily and intentionally waives the right to trial by jury with respect to any matter relating to, arising from or in connection with the Loan Documents. Further Assurances. Borrower agrees to cooperate and take all necessary steps as reasonably requested by Lender to carry out the spirit and intent of the Loan Documents, including, without limitation, executing or reexecuting any of the Loan Documents. Successors and Assigns. The Loan Documents shall be binding upon Borrower and its successors and assigns and shall inure to the benefit of Lender, its successors and assigns. Borrower may not assign or transfer Borrower's rights under the Loan Documents without the prior written consent of Lender. In witness whereof, Borrower, intending to be legally bound, has executed this Note as of the date above. BORROWER: Tel-instrument Electronics Corp. ATTEST: By: Name: Harold K. Fletcher Name: Donald S. Bab Title: President Title: Secretary BORROWER: ATTEST: By: Name: Name: Title: Title DOLORES McGUIRE NOTARY PUBLIC OF NEW JERSEY MY COMMISSION EXPIRES SEPT. 20, 1998 BUSINESS COMMERCIAL SECURITY AGREEMENT Debtor: Name: Tel-instrument Lender: [X] SUMMIT BANK [ ] SUMMIT BANK Electronics Corp. ("Lender") ("Lender") 210 MAIN STREET ONE BETHLEHEM PLAZA HACKENSACK, NJ BETHLEHEM, PA 18018 07602 (individually and collectively, jointly and severally, the "Borrower") Address: 728 Garden Street Carlstadt, N.J. 07072 Name: If Debtor is not the Borrower, the Borrower is: (individually and collectively, jointly and severally, the "Debtor") Address: DATE OF AGREEMENT: July 22, 1998 DEFINITIONS. Capitalized terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Business Promissory/Credit Note or BLOC Credit Note, whichever is executed in connection with this Agreement (the "Note") and if not define - d in the Note, then the Uniform Commercial Code in effect from time to time in the state or states in which the Collateral is located. The word "Indebtedness" shall mean all amounts owed by Debtor (as primary obligor or guarantor) to Lender, including any outstanding principal, accrued and unpaid interest thereon, Lender's expenses and any other sums recoverable by Lender. The word "Collateral" means the following described property of Debtor (and as more fully described in the attachments to the UCC-1 financing statements executed in connection herewith), whether now owned or hereafter acquired, whether now existing or hereafter arising, and wherever located, together with all Proceeds thereof and all insurance proceeds pertaining thereto: [X] Inventory [X] Equipment [X] Accounts [X] General Intangibles GRANT OF SECURITY INTEREST. In order to secure the payment of the Indebtedness and performance of Debtor's obligations to Lender, Debtor hereby grants to Lender a continuing security interest in and lien upon its right, title, and interest in the Collateral. If Debtor has granted any security interest(s) to Lender in any or all of the Collateral prior to the date of this Agreement, this Agreement shall be deemed to be a reaffirmation of the previously granted security interest(s). REPRESENTATIONS AND COVENANTS. Debtor warrants and covenants to Lender as follows: Perfection of Security Interest. Debtor agrees to execute such financing statements and to take whatever other actions are requested by Lender to evidence, perfect and continue Lender's security interest in the Collateral. Debtor hereby appoints Lender as its irrevocable attorney-in-fact for the purpose of executing any documents necessary to perfect or to continue the security interest granted in this Agreement or otherwise carry out the terms of this Agreement. Lender may at any time, and without further authorization from Debtor, file a carbon, photographic or other reproduction of any financing statement or of this Agreement for use as a financing statement. Debtor will reimburse Lender for all expenses for the perfection and the continuation of the perfection of Lender's security interest in the Collateral. Debtor will promptly notify Lender before any change in Debtor's name or use of fictitious or trade names not otherwise disclosed in writing to Lender. Location of and Transactions Involving the Collateral. All Collateral is located at Debtor's address shown above. Debtor shall not remove the Collateral from its existing locations without the prior written consent of Lender. Except for inventory sold or accounts collected in the ordinary course of Debtor's business, Debtor shall not sell, offer to sell, or otherwise transfer or dispose of the Collateral. Debtor shall not pledge, mortgage, encumber or otherwise permit the Collateral to be subject to any lien, security interest, encumbrance, or charge, other than the security interest provided for in this Agreement, without the prior written consent of Lender. Unless waived by Lender, all proceeds from any disposition of the Collateral shall be held in trust for Lender, shall not be commingled with any other funds, and shall immediately be delivered to Lender. This requirement, however, does not constitute consent by Lender to any such disposition. Collateral Schedules and Locations. At Lender's request, Debtor shall deliver to Lender (i) schedules of accounts and general intangibles, in form and substance satisfactory to Lender, and (ii) such lists, descriptions, and designations of inventory and equipment as Lender may request. Such information shall be submitted for Debtor and each of its subsidiaries or related companies. Maintenance and Inspection of Collateral. Debtor shall maintain all tangible Collateral in good-condition and repair. Debtor will not commit or permit damage to or destruction of any part of the Collateral. Lender and its designated representatives and agents shall have the right at all reasonable times to examine, inspect, and audit the collateral wherever located. Debtor shall immediately notify Lender of all cases involving the return, rejection, repossession, loss or damage of or to any Collateral; of any request for credit or adjustment or of any other dispute arising with respect to the Collateral; and generally of all happenings or events affecting the Collateral or the value or the amount of the Collateral. Taxes, Assessments and Liens. Debtor will complete and file all necessary federal, state and local tax returns and will pay when due all taxes, assessments, levies and liens upon the Collateral and provide evidence of such payments to Lender upon request. Insurance. Debtor shall procure and maintain such insurance as Lender may require with respect to the Collateral, in form, amounts and coverages reasonably acceptable to Lender and issued by a company reasonably acceptable to Lender. Debtor, upon request of Lender, will deliver to Lender from time to time the policies or certificates of insurance, which shall contain provisions that the coverages will not be canceled or diminished without at least thirty (30) days' prior written notice to Lender. Each insurance policy shall also include an endorsement providing that coverage in favor of Lender will not be impaired in any way by any act, omission or default of Debtor or any other person. Each such policy shall also name Lender as loss payee. If Debtor at any time fails to obtain or maintain any insurance as required under this Agreement, Lender may obtain such insurance as Lender deems appropriate and the costs incurred by Lender shall be added to the Indebtedness. Debtor shall promptly notify Lender of any loss or damage to the Collateral. EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but shall not be obligated to) discharge or pay any amounts required to be discharged or paid by Debtor under this Agreement, including without limitation all taxes, liens, security interests, encumbrances, and other claims, at any time levied or placed on the Collateral. Lender also may (but shall not be obligated to) pay all costs for insuring, maintaining and preserving the Collateral. All such expenditures incurred or paid by Lender for such purposes will then bear interest at the rate charged under the Loan Documents from the date incurred or paid by Lender to the date of repayment by Debtor. This Agreement also will secure the payment of these amounts. This right shall be in addition to all other rights and remedies to which Lender may be entitled upon the occurrence of an Event of Default. RIGHTS AND REMEDIES. Upon the occurrence of an Event of Default, Lender shall have the following rights and remedies, in addition to the rights and remedies available to Lender under the other Loan Documents: Assemble Collateral. Lender may require Debtor to assemble the Collateral and make it available to Lender at a place to be designated by Lender. Lender also shall have full power to enter upon the property of Debtor to take possession of and remove the Collateral. If the Collateral contains other goods not covered by this Agreement at any time of repossession, Debtor agrees that Lender may take such other goods, provided that Lender makes reasonable efforts to return them to Debtor after repossession. Sell the Collateral- Lender shall have full power to sell, lease, transfer, or otherwise deal with the Collateral or proceeds thereof in its own name or in the name of Debtor. Lender may sell the Collateral at public auction or private sale. Unless the Collateral threatens to decline speedily in value or is of a type customarily sold on a recognized market, Lender may give Debtor five (5) business days' prior notice of the time after which any private sale or any other intended disposition of the Collateral is to be made, which Debtor agrees is commercially reasonable. All expenses relating to the disposition of the Collateral, including, without limitation, the expenses of retaking, holding, insuring, preparing for sale and selling the Collateral, shall become a part of the Indebtedness and secured hereby. Collection of Accounts. Lender may exercise its rights to collect the Accounts and to notify account debtors to make payments directly to Lender for application to the Indebtedness. Power of Attorney. Debtor hereby appoints Lender as its true and lawful attorney-in-fact, irrevocably, with full power of substitution, to do the following: (a) to demand, collect, receive, receipt for, sue and recover all sums of money or other property which may now or hereafter become due, owing or payable from the Collateral; (b) to execute, sign endorse any and all claims, instruments, receipts, checks, drafts or warrants issued in payment for the Collateral; (c) to settle or compromise any and all claims arising under the Collateral, and, in the place and stead of Debtor, to execute and deliver its release and settlement for such claims; and (d) to file any claim or to take any action or institute or take part in any proceedings, either in its own name or in the name of Debtor, or otherwise, which in the discretion of Lender may seem to be necessary or advisable. This power is given as security for the payment and performance obligations of Debtor to Lender, and is irrevocable and shall remain in full force and effect until renounced by Lender. IN WITNESS WHEREOF, DEBTOR AND LENDER, INTENDING TO BE LEGALLY BOUND, HAVE EXECUTED THIS AGREEMENT AS OF THE DAY AND YEAR FIRST ABOVE WRITTEN. DEBTOR: Tel-instrument Electronics Corp. ATTEST: By: Name: Harold K. Fetcher Name: Donald S. Bab Title: President Title: Secretary By: Name: Name: Title: Title: LENDER: Summit Bank BY: Authorized Representative Jaclynn Da Costa, Assistant Vice President EX-27 3 FDS --
5 1,000 6-MOS MAR-31-1999 APR-01-1998 SEP-30-1998 80 0 416 (16) 463 1,254 731 (618) 113 577 0 0 0 210 773 1,860 1,691 1,691 765 765 1,043 0 (13) (130) (52) (78) 0 0 0 (78) (0.04) (0.04)
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