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To: dumbmoney who wrote (926)	3/16/1998 3:31:00 AM
From: Q.	Respond to of 2506

Here are more interesting things from the 10k. The co's primary subsidiary, the contract manufacturer called Tandon, has some credit problems. Its credit line is maxed out, and it is not in compliance with covenants. moreover, the terms of the credit line prohibit Tandon turning over any cash from operations to the parent, which probably doesn't help anything at all, considering that working capital is negative. The co. indicates it doesn't expect its shareholders equity to improve in 1998, which basically means they don't expect to be profitable. None of these problems means the co. is in danger of going out of business soon, but it is worth knowing about them. Here are the excerpts: The Company's primary credit facility is an asset based credit facility provided by IBJ Schroder Bank & Trust Company ("Schroder") ("Schroder Loan Facility") to Tanon. Advances under the Schroder Loan Facility can only be used to fund the operations of Tanon and are secured by substantially all of the assets of Tanon and a guarantee by the Company. At December 31, 1997, $8,654,000 was outstanding under the Schroder Loan Facility which represented approximately 80% of the available funds, calculated in accordance with the availability formula of the Schroder Loan Facility. The agreement with Schroder requires Tanon to maintain certain financial ratios, including current assets to current liabilities and earnings to fixed charges, and to maintain a minimum net worth. At December 31, 1997, Tanon was in compliance with all of these requirements, except the required minimum net worth. Schroder has agreed to waive such requirement for December 31,1997. Based on the Company's current projections, the Company would not be able to meet this requirement on December 31, 1998, however, management has had discussions with Schroder and has requested that Schroder adjust the required minimum net worth ratio to reflect the results of operations of Tanon contained in the current business plan of Tanon for 1998. =============== Liquidity, as measured by cash and cash equivalents, increased to $595,000 at December 31, 1997 from $461,000 at December 31, 1996. Liquidity as measured by working capital was a negative $16,787,000 at 17 December 31, 1997 as compared with a negative working capital of $9,166,000 at December 31, 1996. The decrease in working capital was primarily a result of the reclassification of an aggregate of $8,335,000 in convertible notes as current liabilities based on the right of the note holders to demand immediate repayment of these notes, as well as capital expenditures and losses from contract manufacturing during 1997, offset by the issuance of $7,750,000 of promissory notes and convertible notes (net of repayments) and the sale of the Aydin Shares. The Company's ability to generate internal cash flows results primarily from the sales of its contract electronic manufacturing services. The Schroder Loan Facility prohibits Tanon from distributing or loaning cash generated by contract manufacturing to EAI, except in certain very limited circumstances.