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.
<PAGE>
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
<PAGE>
Item 1 - Financial Statements
TEL-INSTRUMENT ELECTRONICS CORPORATION
CONDENSED COMPARATIVE BALANCE SHEETS
(Unaudited)
September 30, 1998 and March 31, 1998
<TABLE>
<CAPTION>
ASSETS September 30, March 31,
1998 1998
------------- ------------
<S> <C> <C>
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
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements
<PAGE>
TEL-INSTRUMENT ELECTRONICS CORPORATION
CONDENSED COMPARATIVE STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
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
</TABLE>
See accompanying notes to condensed financial statements
2
<PAGE>
TEL-INSTRUMENT ELECTRONICS CORPORATION
CONDENSED COMPARATIVE STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
September 30,
1998 1997
---------- ---------
<S> <C> <C>
(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
========= =========
</TABLE>
See accompanying notes to condensed financial statements
3
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
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.
<PAGE>
[ ] 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
<PAGE>
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.
<PAGE>
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
<PAGE>
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.
<PAGE>
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.
<PAGE>
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
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 80
<SECURITIES> 0
<RECEIVABLES> 416
<ALLOWANCES> (16)
<INVENTORY> 463
<CURRENT-ASSETS> 1,254
<PP&E> 731
<DEPRECIATION> (618)
<TOTAL-ASSETS> 113
<CURRENT-LIABILITIES> 577
<BONDS> 0
0
0
<COMMON> 210
<OTHER-SE> 773
<TOTAL-LIABILITY-AND-EQUITY> 1,860
<SALES> 1,691
<TOTAL-REVENUES> 1,691
<CGS> 765
<TOTAL-COSTS> 765
<OTHER-EXPENSES> 1,043
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (13)
<INCOME-PRETAX> (130)
<INCOME-TAX> (52)
<INCOME-CONTINUING> (78)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (78)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
