FORM 10-QSB FOR ELECSYS CORPORATION

-----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, KbvKSrjXG5GRMoFRt/HtqXoHLhw+x5YfxQcVyA4lRSBxEA1Rgu0UCap8tFiSeXrR lSKnOIdT+XdgV3lX9avgoQ== 0000922907-02-000293.txt : 20020913 0000922907-02-000293.hdr.sgml : 20020913 20020913121646 ACCESSION NUMBER: 0000922907-02-000293 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020731 FILED AS OF DATE: 20020913 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ELECSYS CORP CENTRAL INDEX KEY: 0000914398 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS, NEC [3679] IRS NUMBER: 481099142 STATE OF INCORPORATION: KS FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 001-15057 FILM NUMBER: 02763270 BUSINESS ADDRESS: STREET 1: 15301 W. 109TH STREET CITY: LENEXA STATE: KS ZIP: 66219 BUSINESS PHONE: 9136470158 MAIL ADDRESS: STREET 1: 15301 W. 109TH STREET CITY: LENEXA STATE: KS ZIP: 66219 FORMER COMPANY: FORMER CONFORMED NAME: AIRPORT SYSTEMS INTERNATIONAL INC DATE OF NAME CHANGE: 19931103 10QSB 1 form10qsb_091202.htm FORM 10-QSB FOR ELECSYS CORPORATION

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-QSB

(X)QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 
for the period ended July 31, 2002.

( )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 
for the transition period from _____________ to ______________.

Commission file number  0-22760

                               ELECSYS CORPORATION
        (Exact name of small business issuer as specified in its charter)

        Kansas                                    48-1099142

 (State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
               or organization)

                             15301 West 109th Street
                              Lenexa, Kansas 66219
                    (address of principal executive offices)

                                 (913) 647-0158
                           (Issuer's telephone number)

Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the previous
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 ( )


State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date:

Common stock, $0.01 par value - 2,791,331 shares outstanding as of September 12,
2002.

Transitional Small Business Disclosure format (check one):

                                 Yes ( ) No (X)



                      ELECSYS CORPORATION AND SUBSIDIARIES
                                   FORM 10-QSB
                           Quarter Ended July 31, 2002


                                      INDEX

                                                                            Page

PART I - FINANCIAL INFORMATION

ITEM I.  Consolidated Financial Statements

Condensed Consolidated Statements of Operations -
         Three months ended July 31, 2002 and 2001 (Unaudited)                3

Condensed Consolidated Balance Sheets -
         July 31, 2002 (Unaudited) and April 30, 2002                         4

Condensed Consolidated Statements of Cash Flows -
         Three months ended July 31, 2002 and 2001 (Unaudited)                6

Notes to Condensed Consolidated Financial Statements (Unaudited)              8

ITEM 2.  Management's Discussion and Analysis of Financial Condition
               and Results of Operations                                      11

PART II - OTHER INFORMATION

ITEM 1.  Legal Proceedings                                                    17

ITEM 6.  Exhibits and Reports on Form 8-K                                     17

Signatures                                                                    18


                         PART I - FINANCIAL INFORMATION

ITEM 1.  Consolidated Financial Statements.


                      Elecsys Corporation and Subsidiaries
                      Consolidated Statement of Operations
                        (In thousands, except share data)
                                 (Unaudited)




                                                     Three Months Ended
                                                 July 31, 2002  July 31, 2001
                                                 -------------  -------------
Sales                                               $ 2,844       $ 1,658
Cost of products sold                                 1,973         1,122
                                                    -------         -----
Gross margin                                            871           536
Selling, general and administrative expenses            743           678
                                                    -------         -----

Operating income (loss)                                 128          (142)

Other income (expense):
  Interest expense                                      (38)         (113)
  Other income, net                                       1           --
                                                    -------         -----
Income (loss) from continuing operations and
  before cumulative effect of accounting change          91          (255)

Loss from discontinued operations                      --             (30)
                                                    -------       -------
Income (loss) before cumulative effect of
  accounting change                                      91          (285)
                                                    -------       -------
Cumulative effect of accounting change               (1,618)         --
                                                    -------       -------

Net loss                                            $(1,527)      $  (285)
                                                    =======       =======

Income (loss) per share information:
  Basic and diluted
         Continuing operations before the
           cumulative effect of accounting change   $  0.03     ($  0.10)
         Discontinued operations                         --     (   0.01)
         Cumulative effect of accounting change     $ (0.58)       --
                                                    -------     --------
         Net loss per share                         $ (0.55)    ($  0.11)
                                                    =======     ========

Weighted average common shares outstanding:
Basic and diluted                                     2,788       2,693
                                                    =======     =======


                                     Page 3




                      Elecsys Corporation and Subsidiaries
                           Consolidated Balance Sheets
                        (In thousands, except share data)

                                                         July 31, 2002  April 30, 2002
                                                         -------------  --------------
                                                           (Unaudited)

ASSETS
   Current assets:
      Cash and cash equivalents                             $   697      $   778
      Accounts receivable, less allowances of $53
         and $43, respectively                                1,317        1,099
      Inventories                                             1,747        1,786
      Prepaid expenses                                           65           63
                                                            -------      -------
   Total current assets                                       3,826        3,726

   Property and equipment, at cost:
      Land                                                      637          637
      Building and improvements                               1,065        1,063
      Equipment                                               1,706        1,654
                                                            -------      -------
                                                              3,408        3,354
      Accumulated depreciation and amortization                (731)        (640)
                                                            -------      -------
   Total property and equipment, net                          2,677        2,714

   Other assets, net                                             69           72
   Goodwill                                                    --          1,618
                                                            -------      -------
Total assets                                                $ 6,572      $ 8,130
                                                            =======      =======


                                     Page 4



                      Elecsys Corporation and Subsidiaries
                           Consolidated Balance Sheets
                        (In thousands, except share data)

                                                            July 31, 2002  April 30, 2002
                                                            -------------  --------------
                                                             (Unaudited)

LIABILITIES AND STOCKHOLDERS' EQUITY
   Current liabilities:
      Accounts payable                                         $   776     $    974
      Accrued expenses                                             592          427
                                                               -------      -------
   Total current liabilities                                     1,368        1,401

   Long-term debt, less current portion                          2,317        2,317

   Stockholders' equity:
      Preferred stock, $.01 par value:
         Authorized shares - 5,000,000;
         Issued and outstanding shares - none                     --            --
      Common stock, $.01 par value:
         Authorized shares - 10,000,000;
         Issued and outstanding shares - 2,791,331 and
              2,786,081 at July 31, 2002 and
              April 30, 2002 , respectively                         28           28
      Additional paid-in capital                                 8,140        8,138
      Accumulated deficit                                       (5,281)      (3,754)
                                                               -------      -------
   Total stockholders' equity                                    2,887        4,412
                                                               -------      -------
Total liabilities and stockholders' equity                     $ 6,572      $ 8,130
                                                               =======      =======

      See Notes to Consolidated Financial Statements.



                                     Page 5



                      Elecsys Corporation and Subsidiaries
                      Consolidated Statements of Cash Flows
                                 (In thousands)
                                   (Unaudited)

                                                             Three Months Ended July 31,
                                                                 2002        2001
                                                                 ----        ----

Cash Flows from Operating Activities:
Loss from continuing operations                                $(1,527)   $  (255)
Adjustments to reconcile net loss from
  continuing operations to net cash provided by (used in)
  operating activities:
   Depreciation                                                     91         73
   Amortization                                                      3         39
   Provision for doubtful accounts                                  13          2
   Cumulative effect of accounting change                        1,618       --
   Changes in operating assets and liabilities:
      Accounts receivable                                         (232)      (263)
      Inventories                                                   39       (155)
      Accounts payable                                            (199)       (34)
      Accrued expenses                                             164       --
      Other                                                       --           50
                                                               -------    -------
Net cash used in continuing operations                             (29)      (543)
Net cash provided by discontinued operations                      --          678
                                                               -------    -------
Net cash (used in) provided by operating activities                (29)       135

Cash Flows from Investing Activities:
Purchases of property and equipment                                (54)      (121)
                                                               -------    -------
Net cash used in investing activities                              (54)      (121)



                                     Page 6



                      Elecsys Corporation and Subsidiaries
                      Consolidated Statements of Cash Flows
                                 (In thousands)
                                   (Unaudited)




                                                    Three Month Ended July 31,
                                                        2002      2001
                                                        ----      ----

Cash Flows from Financing Activities:
Principal payments on long-term debt                $      --   $ (81)
Net borrowings on note payable to bank                     --      38
Payments on notes receivables from officers                --       9
Proceeds from exercise of stock options                    2       38
Change in restricted cash                                  --      20
                                                        -----   -----
Net cash provided by financing activities                  2       24
                                                        -----   -----

Net increase (decrease) in cash and cash equivalents     (81)      38
Cash and cash equivalents, beginning of period           778       26
                                                       -----    -----
Cash and cash equivalents, end of period               $ 697    $  64
                                                       =====    =====

Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest                                               $  29    $  76
                                                       =====    =====

See Notes to Consolidated Financial Statements.



                                     Page 7




                      Elecsys Corporation and Subsidiaries
                   Notes to Consolidated Financial Statements
                                  July 31, 2002
                                   (Unaudited)

NOTE 1.  NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
         ACCOUNTING POLICIES

Nature of Operations
         Elecsys Corporation (the "Company") is a designer and manufacturer of
electronic sub-assemblies and systems, and a provider of electronic
manufacturing services ("EMS") and custom liquid crystal displays. The Company
operates a single business segment through its wholly owned subsidiary, DCI,
Inc. ("DCI"). The Company sold its navaids business in September 2001, as
described in Note 3.

Comprehensive Income
         The Company has no components of other comprehensive income, therefore
comprehensive income equals net income.

Recent Accounting Pronouncements
         In October 2001, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 modifies the
financial accounting and reporting for long-lived assets to be disposed of by
sale and it broadens the presentation of discontinued operations to include more
disposal transactions. The Company's adoption of this standard as of May 1, 2002
did not have a material effect on the Company's financial position, results of
operations or cash flows.

Revenue Recognition
         The Company records revenue upon shipment of product to its customers.

Reclassification
         Certain reclassifications have been made to the prior years' interim
financial statements to conform to the current period's financial statement
presentation.

NOTE 2.  BASIS OF PRESENTATION

         The accompanying unaudited condensed consolidated financial statements
of the Company include the accounts of the Company and its wholly owned
subsidiary, DCI, Inc. All significant intercompany balances and transactions
have been eliminated. The condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB



                                     Page 8



and Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three-month period
ended July 31, 2002 are not necessarily indicative of the results that may be
expected for the year ending April 30, 2003.

         The balance sheet at April 30, 2002 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.

         For further information, refer to the consolidated financial statements
and footnotes included in the Elecsys Corporation and Subsidiaries' annual
report on Form 10-KSB for the year ended April 30, 2002.

NOTE 3.  DISCONTINUED OPERATIONS

In September 2001, the Company sold substantially all of the assets and
operations and transferred certain liabilities of its navaids business to a
European joint venture. Proceeds received from the sale of the navaids business
amounted to $8.0 million of which $5.6 million was used to retire the note
payable to the bank, $362,000 of the proceeds were used to retire an installment
note payable to the bank, and $68,000 was used to pay accrued interest on
subordinated debt. The operations of the Company's navaids business are included
within discontinued operations.

The operating results of discontinued operations are as follows (in thousands):

                                      Three Months
                                          Ended
                                      July 31, 2001
                                      -------------
              Sales                       $4,509
                                           =====
              Loss before income taxes    $  (30)
                                           =====
              Net loss                    $  (30)
                                           =====

A portion of the Company's interest expense has been allocated to discontinued
operations in accordance with EITF 87-24, Allocation of Interest to Discontinued
Operations. The total interest expense that was allocated to discontinued
operations totaled approximately $40,000 for the three-month period ended July
31, 2001.


                                     Page 9







NOTE 4.  NET INCOME PER SHARE

         Basic net income per share is computed based on the weighted average
number of common shares outstanding during each period. Diluted income per share
is computed using the weighted average common shares and all potentially
dilutive common share equivalents outstanding during the period.
         Options to purchase 223,750 and 326,750 shares of common stock for the
three-month periods ending July 31, 2002 and 2001, respectively were not
included in the computation of diluted net income per share because the exercise
price exceeded the average market price.

NOTE 5.  GOODWILL

         Effective May 1, 2002, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible Assets. As
required by SFAS No. 142, goodwill is no longer amortized into the statement of
operations over an estimated life but rather is tested at least annually for
impairment based on specific guidance included in SFAS No. 142. Based on an
impairment test performed as of May 1, 2002, the Company determined that the
amount of previously recorded goodwill related to the Company's acquisition of
its DCI subsidiary in February 2000 was entirely impaired. The amount of the
impairment was $1,618,000 and is recognized in the financial statements as the
cumulative effect of an accounting change.

         Results from continuing operations for the three months ended July 31,
2001 include goodwill amortization expense of $39,000. Had SFAS No. 142 been in
effect for that period, the Company would have reported a loss from continuing
operations of $216,000. Net loss and net loss per share for the three-month
period ended July 31, 2001 adjusted to exclude the goodwill amortization expense
is as follows (in thousands, except per share data):
                                                           Three Months
                                                               Ended
                                                           July 31, 2001
                                                        --------------------
      Reported loss from continuing operations          $             (255)
      Goodwill amortization                                              39
                                                        --------------------
      Adjusted loss from continuing operations                        (216)
      Loss from discontinued operations                                (30)
                                                        --------------------
      Adjusted net loss                                 $             (246)
                                                        ====================

      Basic and diluted loss per share:
      Loss from continuing operations                   $            (0.10)
      Goodwill amortization                                            0.02
                                                        --------------------
      Adjusted loss from continuing operations                       (0.08)
      Adjusted loss from discontinued operations                     (0.01)
                                                        --------------------
      Adjusted basic and diluted net loss per share     $            (0.09)
                                                        ====================


                                    Page 10



NOTE 6.  LINE OF CREDIT

         On July 18, 2002, the Company signed a $1,000,000 one year revolving
line of credit facility, secured by accounts receivable and inventory, that is
available for working capital. The line of credit accrues interest at a variable
rate, revised daily, equal to the bank's Prime Rate (5.75% at July 31, 2002) and
contains certain financial covenants pertaining to the maintenance of debt to
net worth and minimum net worth ratios. There were no borrowings outstanding on
this credit facility as of July 31, 2002.



ITEM 2.  Management's Discussion and Analysis of Financial Condition and Results
             of Operations.

Overview

         Elecsys Corporation ("Elecsys," the "Company," or "we"), through its
subsidiary DCI, designs and manufactures custom electronic assemblies and
integrated electronic displays for numerous original equipment manufacturers
(OEMs). Elecsys was incorporated in Kansas in 1991, and from 1991 through
February 2000, the company designed, manufactured and sold aircraft navigational
aids (the "Navaids Business"). In February 2000, the Company acquired DCI. On
September 11, 2001, we exited the Navaids Business when we sold substantially
all of the assets and operations, and transferred certain liabilities to a
European joint venture and we are now focused solely on growing the sales and
profits of DCI.

         DCI provides a unique range of design, manufacturing and test services
to OEMs that are focused on custom display technology, automated electronic
production and miniaturization. We design, manufacture and test electronic
assemblies, including circuit boards, integrated electronic display modules and
full turn-key products, along with custom liquid crystal display (LCD) devices.
We excel where the customer requires the integration of both custom LCDs and
electronics, which we define as our hybrid electronics capabilities. The
electronic assemblies and LCD's we produce, or import, are used in medical,
aerospace, industrial and consumer product applications. Our sales are made
primarily to customers within the United States.

                                     Page 11




Results of Operations

         The following table sets forth, for the periods presented, certain
statement of operations data (in thousands) for the continuing operations of the
Company (excluding the Navaids Business sold in September 2001):


                                                Three Months Ended
                                        July 31, 2002       July 31, 2001
                                        -------------       -------------
Sales                                $ 2,844      100.0%  $ 1,658      100.0%
Cost of products sold                  1,973       69.4%    1,122       67.7%
                                     -------    --------  -------    --------
Gross margin                             871       30.6%      536       32.3%
Selling, general and
  administrative expenses                743       26.1%      678       40.9%
                                     -------    --------  -------    --------
Operating income (loss)                  128        4.5%     (142)      (8.6%)
Interest expense                         (38)      (1.3%)    (113)      (6.8%)
Other income, net                          1        0.0%      --          --
                                     -------    --------  -------    --------
Income (loss) from continuing
  operations and before cumulative
  effect of accounting change             91        3.2%     (255)     (15.4%)
Loss from discontinued operations       --          0.0%      (30)      (1.8%)
                                     -------    --------   -------    --------
Income (loss) before cumulative
  effect of accounting change             91        3.2%     (285)     (17.2%)
Cumulative effect of
  accounting change                   (1,618)     (56.9%)      --          --
                                     -------      -------   -------     -------
Net loss                             $(1,527)     (53.4%) $  (285)     (17.2%)
                                     =======      ======    =======     =======

         Sales for the three months ended July 31, 2002 were approximately
$2,844,000, an increase of $1,186,000 or 71.5% from $1,658,000 in the prior
year's quarter. The increase was fueled by increases in orders from existing
customers as well as new customer growth. These existing customer sales were
especially strong in electronic assembly and LCD/Electronic hybrid orders.
Although we can make no assurances, we fully expect that these trends will
continue over the near term, driven by the success of our recently implemented
marketing and sales strategies despite the difficult economic climate.

         Gross margin fluctuates from period to period due to a variety of
factors including sales




                                    Page 12


volume, product mix, and plant efficiency, among other things. Gross margin for
the three-month period ended July 31, 2002, was 30.6%, or $871,000, compared to
32.3%, or $536,000, for the three-month period ended July 31, 2001. The gross
margin for the current period reflected a favorable product mix and strategic
pricing opportunities. The slight decrease in margin percentage from the same
period last year was partially due to a continuing shift, as a result of our
focused sales activities, to higher volume orders.

         Selling, general and administrative ("SG&A") expenses decreased to
26.1% of sales for the three-month period ended July 31, 2002 from 40.9% of
sales for the three-month period ended July 31, 2001. SG&A expenses increased
$65,000, or 9.6% to $743,000 in the three-month period ended July 31, 2002
compared to $678,000 in the three-month period ended July 31, 2001. The increase
was mainly due to increased sales commission expenses resulting from higher
sales volumes, increases in engineering charges due to efforts to convert one of
our larger customers from a consignment-build to a turnkey process, and to a
lesser extent, increased professional fees related to the adoption of SFAS No.
142. We believe that SG&A expenses will continue at or near their current
levels, as a percentage of sales, as we continue our efforts to minimize holding
company expenditures and manage operating costs.

         Interest expense was $38,000 and $113,000 for the three-month period
ended July 31, 2002 and 2001, respectively. This decrease of $75,000 or 66.4%
was due to lower weighted average borrowings outstanding and lower interest
rates over the comparable periods.

         Effective May 1, 2002, we adopted SFAS No. 142 which requires, among
other things, the discontinuance of amortization of goodwill and the evaluation
of goodwill for potential impairment. As a result of the tests required under
SFAS No. 142, we incurred an impairment loss of the entire recorded goodwill
that was the result of the acquisition of DCI in February 2000. We hired a third
party independent firm to conduct the valuation analysis. The independent firm
provided a valuation opinion based on historical quoted market prices of our
common stock, comparison of market value of comparable businesses, and a market
value calculated from discounted future cash flows. The effect of the impairment
loss was approximately $1,618,000 which is shown as a cumulative effect of an
accounting change for the period.

         We recorded no operating income or loss from discontinued operations
for the three-month period ended July 31, 2002 compared to our operating loss
from discontinued operations of approximately $30,000 for the three-month period
ended July 31, 2001. This resulted from our sale of substantially all of the
assets and operations of the Navaids Business in September 2001.

         No income tax provision or benefit was recorded for the three-month
periods ended July 31, 2002 or 2001 due primarily to net operating loss carry
forwards available which have been fully reserved due to the continued
uncertainty of their utilization.



                                    Page 13

         As a result of the above, net loss was $1,527,000 for the three-month
period ended July 31, 2002 as compared to a net loss of $285,000 reported for
the three-month period ended July 31, 2001.


Liquidity and Capital Resources

         Cash and cash equivalents decreased $81,000 to $697,000 as of July 31,
2002 compared to $778,000 at April 30, 2002. This decrease was mainly
attributable to the cash used by operating activities and purchases of equipment
during the period.

         We used cash of $29,000 and $543,000 from continuing operations for the
three months ended July 31, 2002 and 2001, respectively. The cash flow used in
operating activities was primarily due to the increase in accounts receivable of
$232,000 and a decrease in accounts payable of $199,000, partially offset by an
increase in accrued expenses of $164,000. Cash used in continuing operations for
the three-month period ended July 31, 2001, was $543,000 which was the result of
a net loss of $255,000, increases in accounts receivable and inventory of
$263,000 and $155,000, respectively, offset by depreciation and amortization of
$112,000. Additionally, no cash was provided by discontinued operations for the
three-month period ended July 31, 2002, compared to $678,000 for the three-month
period ended July 31, 2001.

         Net cash used in investing activities totaled $54,000 for the
three-month period ended July 31, 2002 compared to $121,000 used in investing
activities during the three-month period ended July 31, 2001 reflecting
equipment purchases in each respective period.

         Net cash provided by financing activities totaled $2,000 and $24,000
for the three-months ended July 31, 2002 and 2001, respectively. During the
three-month period ended July 31, 2002, the exercise of stock options resulted
in the increase of cash from financing activities. Net cash provided by
financing activities during the three-month period ended July 31, 2001 was due
to the proceeds from the exercise of stock options, payments received on notes
receivable from officers, and borrowings on a note payable from a bank. These
increases in cash provided by financing activities were offset by the payments
of principal on long-term debt during the period.

         On July 18, 2002, we entered into a $1,000,000 one year revolving line
of credit facility, secured by accounts receivable and inventory, that is
available for working capital. The line of credit accrues interest at a variable
rate, revised daily, equal to the bank's Prime Rate (5.75% at July 31, 2002) and
contains certain financial covenants pertaining to the maintenance of debt to
net worth and minimum net worth ratios. There were no borrowings outstanding on
this credit facility as of July 31, 2002.

         We have a letter of credit with a bank related to the Industrial
Revenue Bonds for our Lenexa, Kansas facility. The letter of credit has an
original expiration date of September 15, 2002. In July 2002, we were notified
that the bank does not intend to renew the letter of credit

                                    Page 14



for the remaining term of the bonds. We were able to secure a 90-day extension
to the current letter of credit to December 15, 2002. We are actively pursuing a
replacement letter of credit with another financial institution and expect that
we will be able to do so prior to the expiration of the current letter of credit
extension, although no assurances can be made in this regard.

         The Company believes that existing cash, the cash expected to be
generated from the operations of DCI plus amounts available under our line of
credit, together with trade credit, will be sufficient to finance our currently
anticipated working capital needs and capital expenditures for at least the next
twelve months.

Critical Accounting Policies

         The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and related disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. We cannot assure you that actual results
will not differ from those estimates. We believe the following critical
accounting policies affect our more significant judgments and estimates used in
the preparation of our consolidated financial statements.

         Inventory Valuation. Our inventories are stated at the lower of cost,
using the first-in, first-out (FIFO) method, or market. Our industry is
characterized by rapid technological change, short-term customer commitments and
rapid changes in demand, as well as other market considerations. We make
provisions for estimated excess and obsolete inventory based on our regular
reviews of inventory quantities on hand and the latest forecasts of product
demand and production requirements from our customers. If actual market
conditions or our customers' product demands are less than favorable than those
projected, additional inventory write-downs may be required.

         Allowance for Doubtful Accounts. We perform ongoing credit evaluations
of our customers' financial condition and make provisions for doubtful accounts
based on the outcome of our credit evaluations. We also evaluate the
collectibility of our accounts receivable based on specific customer
circumstances, current economic trends, historical experience and the age of
past due receivables. Unanticipated changes in our customers' liquidity or
financial position, which results in an impairment of their ability to make
payments, may require additional provisions for doubtful accounts.

Forward Looking Statements

         This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. In addition, from time to time, the
Company or its representatives have made or

                                    Page 15


may make forward-looking statements, orally or in writing. Such forward-looking
statements may be included in, but are not limited to, various filings made by
the Company with the Securities and Exchange Commission, press releases or oral
statements made by or with the approval of an authorized executive officer of
the Company. Forward-looking statements consist of any statement other than a
recitation of historical fact and can be identified by the use of
forward-looking terminology such as "may," "expect," "anticipate," "estimate,"
or "continue" or the negative thereof or other variations thereon or comparable
terminology. Actual results could differ materially from those projected or
suggested in any forward-looking statements as a result of a wide variety of
factors and conditions, including, but not limited to, the factors summarized
above and the factors and conditions described in the discussion of "Results of
Operations" and "Liquidity and Capital Resources" as contained in Management's
Discussion and Analysis of Financial Condition and Results of Operations of this
report, as well as those included in other documents the Company files from time
to time with the Securities and Exchange Commission, including the Company's
quarterly reports on Form 10-QSB, the annual report on Form 10-KSB, and current
reports on Form 8-K. Holders of the Company's securities are specifically
referred to these documents with regard to the factors and conditions that may
affect future results. The reader is cautioned that the Company does not have a
policy of updating or revising forward-looking statements and thus he or she
should not assume that silence by management of the Company over time means that
actual events are bearing out as estimated in such forward-looking statements.

                                    Page 16


                           PART II - OTHER INFORMATION


ITEM 1.  Legal Proceedings.

                  None.

ITEM 6.  Exhibits and Reports on Form 8-K.

     (a)      Exhibits:


               10.1 Commercial Loan Agreement dated July 18, 2002 between the
                    Company and Gold Bank

               99.1 Certification of Chairman of the Board of Directors
                    (Principal Executive Officer and Principal Financial
                    Officer)

      (b)      Reports on Form 8-K:


       Date of Filing      Item 2
       --------------      ------------------------------------

       August 8, 2002      Form 8K, announcing Elecsys Corporation's year-end
                           results.



                                    Page 17




                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.


                                       ELECSYS CORPORATION
                                         AND SUBSIDIARIES


September 13, 2002                          /s/ Michael J. Meyer
- ------------------------               -----------------------------------
Date                                    Michael J. Meyer
                                        Chairman, Principal Executive Officer,
                                        Principal Financial Officer, and
                                        Principal Accounting Officer


                                    Page 18



                                  EXHIBIT INDEX



  Item      Description
  ----      ---------------------------------------------
  10.1      Commercial Loan Agreement dated July 18, 2002
              between the Company and Gold Bank

  99.1      Certification of Chairman of the Board of Directors
              (Principal Executive Officer and Principal
              Financial Officer)

EX-10 3 form10qsb_091202exh10.htm Exhibit 10.1 to Form 10-QSB for Elecsys Corporation

EXHIBIT 10.1
- -------------- ---------------------- ------------------- ----------------- ----------------
LOAN NUMBER LOAN NAME ACCT. NUMBER AGREEMENT DATE INITIALS
3041000298-501 Elecsys Corporation 07/18/02 RTO
NOTE AMOUNT INDEX (w/Margin) RATE MATURITY DATE LOAN PURPOSE
$1,000,000.00 Gold Bank Prime 5.75% 07/18/03 Commercial
Creditor Use Only
- -------------- ---------------------- -------------------- ---------------- ----------------

COMMERCIAL LOAN AGREEMENT
Accounts Receivable and/or Inventory Financing
- --------------------------------------------------------------------------------------------

DATE AND PARTIES. The date of this Commercial Loan Agreement (Agreement) is July
18, 2002. The parties and their addresses are as follows:

LENDER:
GOLD BANK
800 W 47th Street
Kansas City, Missouri 64112

BORROWER:
ELECSYS CORPORATION
a Kansas Corporation
15301 W. 109th Street
Lenexa, Kansas 66219

DCI, INC.
a Kansas Corporation
15301 W. 109th Street
Lenexa, Kansas 66219

1. DEFINITIONS. For the purpose of this Agreement, the following terms have the
following meanings.

A. Accounting Terms. In this Agreement, any accounting terms that are not
specifically defined will have their customary meanings under generally
accepted accounting principles.

B. Insiders. Insiders include those defined as insiders by the United
States Bankruptcy Code, as amended; or to the extent left undefined,
include without limitation any officer, employee, stockholder or member,
director, partner, or any immediate family member of any of the foregoing,
or any person or entity which, directly or indirectly, controls, is
controlled by or is under common control with me.

C. Loan. The Loan refers to this transaction generally, including
obligations and duties arising from the terms of all documents prepared or
submitted for this transaction.

D. Pronouns. The pronouns "I", "me" and "my" refer to every Borrower
signing this Agreement, individually or together, and their heirs,
successors and assigns. "You" and "your" refers to the Loan's lender, any
participants or syndicators, or any person or company that acquires an
interest in the Loan and their successors and assigns.

E. Property. Property is any property, real, personal or intangible, that
secures my performance of the obligations of this Loan.

F. Asset-Based Financing Definancing Definitions. For the purposes of this
Agreement, the following terms will have the following meanings.

(1) Account Debtors. Account Debtors are persons who are obligated on
the Accounts Receivable.

(2) Account Guarantors. Account Guarantors are persons who have
guarantied certain Accounts Receivable.

(3) Accounts Receivable. Accounts Receivable will include all of the
following,

(a) Accounts and Other Rights to Payment. All rights I have now
or in the future to payments including, but not limited to,
payment for goods and other property sold or leased or for
services rendered, whether or not I have earned such payment by
performance. This includes any rights and interests (including
all guaranties, standby letters of credit, liens and security
interests) which I may have by law or agreement against any
Account Debtor.

(b) Proceeds. All proceeds from the disposition or collection of
Accounts Receivable.

(4) Eligible Accounts Receivable. Eligible Accounts Receivable
include all of my Accounts Receivable that are and continue to be
acceptable to you in all respects. Criteria for eligibility may
be revised by you at any time. Eligible Accounts Receivable
exclude all of the following Accounts Receivable: the entire
balance of any Accounts Receivable that has been due and owing
for more than 90 days from the invoice dates. All Receivables
owed by an Account Debtor owing Receivables for more than 90 days
from the invoice date, if the outstanding dollar amount of such
ineligible Receivables constitutes more than fifty percent (50%)
of the aggregate outstanding dollar amount of all Receivables
owned by such Account Debtor.

(5) Inventory. Inventory includes all inventory which I hold for
ultimate sale or lease, or which has been or will be supplied
under contracts of service, or which are raw materials, work in
process, or materials used or consumed in my business.

(6) Eligible Inventory. Eligible Inventory includes all of my
inventory that is and continues to be acceptable to you in all
respects. Criteria for eligibility may be revised by you at any
time. Eligible Inventory excludes all Inventory that I do not own
or that is subject to a competing claim, lien or encumbrance or
that which you in your sole discretion disqualify as Eligible
Inventory.

(7) Value of Eligible Inventory. The Value of Eligible Inventory
is the lower of the Eligible Inventory's cost or fair market
value as determined by consistently applied generally accepted
accounting principles under the first-in-first-out (FIFO) method
and any additional written valuation guidelines you provide me.

(8) Overadvance. An Overadvance is made when advances exceed the
maximum outstanding Principal balance.

2. ADVANCES. Advances under this Agreement are made according to the following
terms and conditions.

A. Asset Based Financing - Revolving Draw. In accordance with the terms of
this Agreement and other Loan documents, you will provide me with a
revolving draw note and the maximum outstanding principal balance will be
the lesser of $1,000,000.00 (Principal) or the Borrowing Base. The
Borrowing Base is the sum of the following amounts.

(1) 75 percent of Eligible Accounts Receivable.

(2) 35 percent of the Value of Eligible Inventory, not to exceed
$500,000.00.

As long as I owe any amounts to you under the Loan, I will calculate this
Borrowing Base as of the close of my business day at the end of each month,
and within 10 business days, and I will provide you with a Borrowing Base
Certificate containing an assignment of any Accounts Receivable and
Inventory. The Borrowing Base Certificate will be in form and substance
acceptable to you, will contain my Borrowing Base calculation and will be
certified and signed by me or my officer. My calculation of my Borrowing
Base is subject to your confirmation or redetermination. Your calculation
of the Borrowing Base will be the final determination when your calculation
of the Borrowing Base ratio differs from mine.

Page 1 of 5
Initials __,__
Commerical Loan Agreement
Elecsys Corporation
KSehovski Page 1 of 5
Initials ___, ___

Commercial Loan Agreement
Elecsys Corporation
KSehovski

B. Requests for Advances. My requests are a warranty that I am in
compliance with all the Loan documents. When required by you for a
particular method of advance, my requests for an advance must specify the
requested amount and the date and be accompanied with any agreements,
documents, and instruments that you require for the Loan. Any payment by
you of any check, share draft or other charge may, at your option,
constitute an advance on the Loan to me. All advances will be made in
United States dollars. I will indemnify you and hold you harmless for your
reliance on any request for advances that you reasonably believe to be
genuine. To the extent permitted by law, I will indemnify you and hold you
harmless when the person making any request represents that I authorized
this person to request an advance even when this person is unauthorized or
this person's signature is not genuine.

I or anyone I authorize to act on my behalf may request advances by the
following methods.

(1) I make a request in person.

(2) I make a request by mail.

(3) I write a check or share draft.

(4) I make a request by electronic mail.

C. Advance Limitations. In addition to any other Loan conditions, requests for,
and access to, advances are subject to the following limitations.

(1) Obligatory Advances. You will make all Loan advances subject to
this Agreement's terms and conditions.

(2) Advance Amount. Subject to the terms and conditions contained in
this Agreement, advances will be made in exactly the amount I request.

(3) Cut-Off Time. Requests for an advance received before 3:00 PM will
be made on any day that you are open for business, on the day for
which the advance is requested.

(4) Disbursement of Advances. On my fulfillment of this Agreement's
terms and conditions, you will disburse the advance in any manner as
you and I agree.

(5) Credit Limit. I understand that you will not ordinarily grant a
request for an advance that would cause the unpaid principal of my
Loan to be greater than the Principal limit. You may, at your option,
grant such a request without obligating yourselves to do so in the
future.

(6) Records. Your records will be conclusive evidence as to the amount
of advances, the Loan's unpaid principal balances and the accrued
interest.

(7) Repayment of Overadvances. I will pay any Overadvances in addition
to my regularly scheduled payments. I will repay any Overadvance by
repaying you in full within one day after the Overadvance occurs,
except I may repay an Overadvance of $0.00 or less within one days if
the outstanding Principal balance, including the excess, does not
exceed the liquidation value of Accounts Receivable and Inventory and
the Overadvance resulted from you declaring ineligible previously
Eligible Accounts Receivable and Inventory. Otherwise, I will repay
any Overadvance by making periodic payments to you as you request.

D. Conditions. I will satisfy all of the following conditions before you
either issue any promissory notes or make any advances under this
Agreement.

(1) No Default. There has not been a default under this Agreement
or other Loan documents nor would a default result from making
the Loan or any advance.

(2) Information. You have received all documents, information,
certifications and warranties as you may require, all properly
executed, if appropriate, on forms acceptable to you. This
includes, but is not limited to, the documents and other items
listed in the Loan Checklist Report which is hereby incorporated
by reference into this Agreement.

(3) Inspections. You have made all inspections that you consider
necessary and are satisfied with the inspection.

(4) Conditions and Covenants. I will have performed and complied
with all conditions required for an advance and all covenants in
this Agreement and any other Loan documents.

(5) Warranties and Representations. The warranties and
representations contained in this Agreement are true and correct
at the time of making the requested advance.

(6) Financial Statements. My most recent financial statements,
Inventory or Accounts Receivable schedules and other financial
reports, delivered to you, are current, complete, true and
accurate in all material respects and fairly represent my
financial condition.

(7) Bankruptcy Proceedings. No proceeding under the United States
Bankruptcy Code has been commenced by or against me or any of my
affiliates.

3. MATURITY DATE. I agree to fully repay the Loan by July 18, 2003.

4. WARRANTIES AND REPRESENTATIONS. I make to you the following warranties and
representations which will continue as long as this Loan is in effect, except
when this Agreement provides otherwise.

A. Power. I am duly organized, and validly existing and in good standing in
all jurisdictions in which I operate. I have the power and authority to
enter into this transaction and to carry on my business or activity as it
is now being conducted and, as applicable, am qualified to do so in each
jurisdiction in which I operate.

B. Authority. The execution, delivery and performance of this Loan and the
obligation evidenced by the Note are within my powers, have been duly
authorized, have received all necessary governmental approval, will not
violate any provision of law, or order of court or governmental agency, and
will not violate any agreement to which I am a party or to which I am or
any of my property is subject.

C. Name and Place of Business. Other than previously disclosed in writing
to you I have not changed my name or principal place of business within the
last 10 years and have not used any other trade or fictitious name. Without
your prior written consent, I do not and will not use any other name and
will preserve my existing name, trade names and franchises.

D. Loan Purpose. This Loan is for Commercial purposes.

E. No Other Loans. I own or lease all property that I need to conduct my
business and activities. I have good and marketable title to all property
that I own or lease. All of my Property is free and clear of all liens,
security interests, encumbrances and other adverse claims and interests,
except those to you or those you consent to in writing.

F. Compliance With Laws. I am not violating any laws, regulations, rules,
orders, judgments or decrees applicable to me or my property, except for
those which I am challenging in good faith through proper proceedings after
providing adequate reserves to fully pay the claim and its challenge should
I lose.

G. Legal Dispute. There are no pending or threatened lawsuits, arbitrations
or other proceedings against me or my property that singly or together may
materially and adversely affect my property, operations, financial
condition, or business.

H. Adverse Agreements. I am not a party to, nor am I bound by, any
agreement that is now or is likely to become materially adverse to my
business, Property or operations.

I. Other Claims. There are no outstanding claims or rights that would
conflict with the execution, delivery or performance by me of the terms and
conditions of this Agreement or the other Loan documents. No outstanding
claims or rights exist that may result in a lien on the Property, the
Property's proceeds and the proceeds of proceeds, except liens that were
disclosed to and agreed to by you in writing.

J. Solvency. I am able to pay my debts as they mature, my assets exceed my
liabilities and I have sufficient capital for my current and planned
business and other activities. I will not become insolvent by the execution
or performance of this Loan.

5. FINANCIAL STATEMENTS. I will prepare and maintain my financial records using
consistently applied generally accepted accounting principles then in effect. I
will provide you with financial information in a form that you accept and under
the following terms.

Page 2 of 5
Initials __,__
Commerical Loan Agreement
Elecsys Corporation
KSehovski

Page 2 of 5

A. Certification. I represent and warrant that any financial statements
that I provide you fairly represents my financial condition for the stated
periods, is current, complete, true and accurate in all material respects,
includes all of my direct or contingent liabilities and there has been no
material adverse change in my financial condition, operations or business
since the date the financial information was prepared.

B. Frequency. Annually, I will provide to you my financial statements, tax
returns, annual internal audit reports or those prepared by independent
accountants as soon as available or at least within 90 days after the close
of each of my fiscal years. Any annual financial statements that I provide
you will be audited statements.

(1) Interim Financial Reports. Each month, I will provide to you my
financial statements, internal audit reports or those prepared by
independent accountants, tax reports, statements of cash flow, budgets
and forecasts, certificates and schedules of Property as soon as
available or at least within 10 days after the close of this business
period. Any interim financial statements that I provide you will be
prepared statements.

(2) Inventory Schedule. Each fiscal year (reporting period), I will
provide you with an Inventory schedule within 90 days after the end of
this reporting period or with the frequency and promptness you
otherwise request. The Inventory schedule will list the cost and
wholesale value of all Inventory and all Eligible Inventory. The
Inventory schedule will also identify whether a bailee has possession
of the Inventory and whether the Inventory is represented by a
warehouse receipt, bill of lading or similar documents or instruments.
The Inventory schedule will identify the Accountants Receivable,
contracts, collections and property relating to the Inventory.

(3) Accounts Receivable Schedule. Each month (reporting period), I
will provide you with an Accounts Receivable schedule within 10 days
after the end of this reporting period or with the frequency and
promptness you otherwise request. The Accounts Receivable schedule
will assign the Accounts Receivable to you and will list the Account
Debtor's name, address, phone number and amounts and dates due,
documents and instrument evidencing and creating the account and aged
reports of the Accounts Receivable. At your request, I will also
include copies of customers' invoices, evidence of shipment or
delivery and any other information that your request.

C. SEC Reports. I will provide you with true and correct copies of all
reports, notices or statements that I provide to the Securities and
Exchange Commission, any securities exchange or my stockholders, owners, or
the holders of any material indebtedness as soon as available or at least
within 30 days after issuance.

D. Requested Information. I will provide you with any other information
about my operations, financial affairs and condition within 30 days after
your request.

E. Additional Financial Statements Term. I WILL PROVIDE YOU THE FOLLOWING
FINANCIAL INFORMATION: 1.) Monthly Compliance Certificates within 10 days
of month end as long as I owe any amounts to you under the loan.

6. COVENANTS. Until the Loan and all related debts, liabilities and obligations
are paid and discharged, I will comply with the following terms, unless you
waive compliance in writing.

A. Participation. I consent to you participating or syndicating the Loan
and sharing any information that you decide is necessary about me and the
Loan with the other participants or syndicators.

B. Inspection. Upon reasonable notice, I will permit you or your agents to
enter any of my premises and any location where my Property is located
during regular business hours to do the following.

(1) You may inspect, audit, check, review and obtain copies from my
books, records, journals, orders, receipts, and any correspondence and
other business related data.

(2) You may discuss my affairs, finances and business with any one who
claims to be my creditor.

(3) You may inspect my Property, audit for the use and disposition of
the Property's proceeds and proceeds of proceeds; or do whatever you
decide is necessary to preserve and protect the Property and your
interest in the Property.

After prior notice to me, you may discuss my financial condition and
business operations with my independent accountants, if any, or my chief
financial officer and I may be present during these discussions. As long as
the Loan is outstanding, I will direct all of my accountants and auditors
to permit you to examine my records in their possession and to make copies
of these records. You will use your best efforts to maintain the
confidentiality of the information you or your agents obtain, except you
may provide your regulator, if any, with required information about my
financial condition, operation and business or that of my parent,
subsidiaries or affiliates.

C. Business Requirements. I will preserve and maintain my present existence
and good standing in the jurisdiction where I am organized and all of my
rights, privileges and franchises. I will do all that is needed or required
to continue my business or activities as presently conducted, by obtaining
licenses, permits and bonds everywhere I engage in business or activities
or own, lease or locate my property. I will obtain your prior written
consent before I cease my business or before I engage in any new line of
business that is materially different from my present business.

D. Compliance with Laws. I will not violate any laws, regulations, rules,
orders, judgments or decrees applicable to me or my Property, except for
those which I challenge in good faith through proper proceedings after
providing adequate reserves to fully pay the claim and its appeal should I
lose. Laws include without limitation the Federal Fair Labor Standards Act
requirements for producing goods, the federal Employee Retirement Income
Security Act of 1974's requirements for the establishment, funding and
management of qualified deferred compensation plans for employees, health
and safety laws, environmental laws, tax laws, licensing and permit laws.
On your request, I will provide you with written evidence that I have fully
and timely paid my taxes, assessments and other governmental charges levied
or imposed on me, my income or profits and my property. Taxes include
without limitation sales taxes, use taxes, personal property taxes,
documentary stamp taxes, recordation taxes, franchise taxes, income taxes,
withholding taxes, FICA taxes and unemployment taxes. I will adequately
provide for the payment of these taxes, assessments and other charges that
have accrued but are not yet due and payable.

E. New Organizations. I will obtain your written consent and any necessary
changes to the Loan documents before I organize or participate in the
organization of any entity, merge into or consolidate with any one, permit
any one else to merge into me, acquire all or substantially all of the
assets of any one else or otherwise materially change my legal structure,
management, ownership or financial condition.

F. Dealings with Insiders. I will not purchase, acquire or lease any
property or services from, or sell, provide or lease any property or
services to, or permit any outstanding loans or credit extensions to, or
otherwise deal with, any insiders except as required under contracts
existing at the time I applied for the Loan and approved by you or as this
Agreement otherwise permits. I will not change or breach these contracts
existing at Loan application so as to cause an acceleration of or any
increase in any payments due.

G. Other Debts. I will pay when due any and all other debts owned or
guaranteed by me and will faithfully perform, or comply with all the
conditions and obligations imposed on me concerning the debt or guaranty.

H. Other Liabilities. I will not incur, assume or permit any debt evidenced
by notes, bonds or similar obligations, except: debt in existence on the
date of this Agreement and fully disclosed to you; debt subordinated in
payment to you on conditions and terms acceptable to you; accounts payable
incurred in the ordinary course of my business and paid under customary
trade terms or contested in good faith with reserves satisfactory to you.

I. Notice to You. I will promptly notify you of any material change in my
financial condition, of the occurrence of a default under the terms of this
Agreement, or a default by me under any agreement between me and any third
party which materially and adversely affects my property, operations,
financial condition or business.

J. Certification of No Default. On your request, my chief financial officer
or my independent accountant will provide you with a written certification
that to the best of their knowledge no event of default exists under the
terms of this Agreement or the other Loan documents, and that there exists
no other action, condition or event which with the giving of notice or
lapse of time or both would constitute a default. As requested, my chief
financial officer or my independent accountant will also provide you with
computations demonstrating compliance with any financial covenants and
ratios contained in this Agreement. If an action, condition or event of
default does exist, the certificate must accurately and fully disclose the
extent and nature of this action, condition or event and state what must be
done to correct it.

Page 3 of 5
Page 3 of 5
Initials __,__
Commerical Loan Agreement
Elecsys Corporation
KSehovski
Initials ___, ___

Commercial Loan Agreement
Elecsys Corporation
KSehovski

K. Use of Loan Proceeds. I will not permit the loan proceeds to be used to
purchase, carry, reduce, or retire any loan incurred to purchase or carry
any margin stock.

L. Dispose of No Assets. Without your prior written consent or as the Loan
documents permit, I will not sell, lease, assign, transfer, dispose of or
otherwise distribute all or substantially all of my assets to any person
other than in the ordinary course of business for the assets' depreciated
book value or more.

M. No Other Liens. I will not create, permit or suffer any lien or
encumbrance upon any of my properties for or by anyone, other than you,
except for: nonconsensual liens imposed by law arising out of the ordinary
course of business on obligations that are not overdue or which I am
contesting in good faith after making appropriate reserves; valid purchase
money security interests on personal property; or any other liens
specifically agreed to by you in writing.

N. Guaranties. I will not guaranty or become liable in any way as surety,
endorser (other than as endorser of negotiable instruments in the ordinary
course of business) or accommodation endorser or otherwise for the debt or
obligations of any other person or entity, except to you or as you
otherwise specifically agree in writing.

O. No Default Under Other Agreements. I will not allow to occur, or to
continue unremedied, any act, event or condition which constitutes a
default, or which, with the passage of time or giving of notice, or both,
would constitute a default under any agreement, document, instrument or
undertaking to which I am a party or by which I may be bound.

P. Legal Disputes. I will promptly notify you in writing of any threatened
or pending lawsuit, arbitration or other proceeding against me or any of my
property, not identified in my financial statements, or that singly or
together with other proceedings may materially and adversely affect my
property, operations, financial condition or business. I will use my best
efforts to bring about a favorable and speedy result of any of these
lawsuits, arbitrations or other proceedings.

Q. Other Notices. I will immediately provide you with any information that
may materially and adversely affect my ability to perform this Agreement
and of its anticipated effect.

R. No Change in Capital. I will not release, redeem, retire, purchase or
otherwise acquire, directly or indirectly, any of my capital stock or other
equity security or partnership interest, or make any change in my capital
structure, except to the extent required by any agreements signed prior to
this Agreement and disclosed to you or with your prior written consent.

S. Loan Obligations. I will make full and timely payment of all principal
and interest obligations, and comply with the other terms and agreements
contained in this Agreement and in the other Loan documents.

T. Insurance. I will obtain and maintain insurance with insurers, in
amounts and coverages that are acceptable to you and customary with
industry practice. This may include without limitation insurance policies
for public liability, fire, hazard and extended risk, workers compensation,
and, at your request, business interruption and/or rent loss insurance. At
your request, I will deliver to you certified copies of all of these
insurance policies, binders or certificates. I will obtain and maintain a
mortgagee or loss payee endorsement for you when these endorsements are
available. I will immediately notify you of cancellation or termination of
insurance. I will require all insurance policies to provide you with at
least 10 days prior written notice to you of cancellation or modification.
I consent to you using or disclosing information relative to any contract
of insurance required by the Loan for the purpose of replacing this
insurance. I also authorize my insurer and you to exchange all relevant
information related to any contract of insurance required by any document
executed as part of this Loan.

U. Property Maintenance. I will keep all tangible and intangible property
that I consider necessary or useful in my business in good working
condition by making all needed repairs, replacements and improvements and
by making all rental, lease or other payments due on this property.

V. Property Loss. I will immediately notify you, and the insurance company
when appropriate, of any material casualty, loss or depreciation to the
Property or to my other property that affects my business.

W. Accounts Receivable Collection. I will collect and otherwise enforce all
of my unpaid Accounts Receivable at my cost and expense, until you end my
authority to do so, which you may do at any time to protect your best
interests. I will not sell, assign or otherwise dispose of any Accounts
Receivable without your written consent. I will not commingle the Accounts
Receivable proceeds with any of my other property.

X. Loan Balance. I will pay down this revolving draw Loan's outstanding
Principal to $0.00 for a period of thirty days during the term of the loan.

Y. Additional Covenants. 1.) MINIMUM TANGIBLE NET WORTH: DCI, Inc. will
maintain a Total Debt to Tangible Net Worth ratio, determined under
consistently applied generally accepted accounting principles, of 3:1 or
less calculated at my fiscal year end. Total debt will also include
inter-company note. For determining tangible net worth, total assets will
exclude all intangible assets including without limitation goodwill,
patents, trademarks, trade names, copyrights, and franchises, and will also
include the addition of any Subordinated debt. DCI, Inc. will also maintain
a tangible net worth, determined under consistently applied generally
accepted accounting principles, of $2,000,000.00 or more calculated at my
fiscal year end. 2.) Elecsys Corporation will inform and submit for
approval any incurrence of additional indebtedness in excess of $100,000.00
per transaction.

7. DEFAULT. I will be in default if any of the following occur.

A. Payments. I fail to make a payment in full when due.

B. Insolvency or Bankruptcy. I make an assignment for the benefit of
creditors or become insolvent, either because my liabilities exceed my
assets or I am unable to pay my debts as they become due; or I petition for
protection under federal, state or local bankruptcy, insolvency or debtor
relief laws, or am the subject of a petition or action under such laws and
fail to have the petition or action dismissed within a reasonable period of
time not to exceed 60 days.

C. Business Termination. I merger, dissolve, reorganize, end my business or
existence, or a partner or majority owner dies or is declared legally
incompetent.

D. Failure to Perform. I fail to perform any condition or to keep any
promise or covenant of this Agreement.

E. Other Documents. A default occurs under the terms of any other
transaction document.

F. Other Agreements. I am in default on any other debt or agreement I have
with you.

G. Misrepresentation. I make any verbal or written statement or provide any
financial information that is untrue, inaccurate, or conceals a material
fact at the time it is made or provided.

H. Judgment. I fail to satisfy or appeal any judgment against me.

I. Forfeiture. The Property is used in a manner or for a purpose that
threatens confiscation by a legal authority.

J. Name Change. I change my name or assume an additional name without
notifying you before making such a change.

K. Property Transfer. I transfer all or a substantial part of my money or
property.

L. Property Value. The value of the Property declines or is impaired.

M. Material Change. Without first notifying you, there is a material change
in my business, including ownership, management, and financial conditions.

N. Insecurity. You reasonably believe that you are insecure.

8. REMEDIES. After I default, and after you give any legally required notice and
opportunity to cure the default, you may at your option do any one or more of
the following.

A. Acceleration. You may make all or any part of the amount owing by the
terms of the Loan immediately due.

B. Sources. You may use any and all remedies you have under state or
federal law or in any instrument securing the Loan.

C. Insurance Benefits. You may make a claim for any and all insurance
benefits or refunds that may be available on my default.

Page 4 of 5
Page 4 of 5
Initials __,__
Commerical Loan Agreement
Elecsys Corporation
KSehovski
Initials ___, ___

D. Payments Made On My Behalf. Amounts advanced on my behalf will be
immediately due and may be added to the balance owing under the terms of
the Loan, and accrue interest at the highest post-maturity interest rate.

E. Termination. You may terminate my right to obtain advances and may
refuse to make any further extensions of credit.

F. Set-Off. You may use the right of set-off. This means you may set-off
any amount due and payable under the terms of the Loan against any right I
have to receive money from you.

My right to receive money from you includes any deposit or share account
balance I have with you; any money owed to me on an item presented to you
or in your possession for collection of exchange; and any repurchase
agreement or other non-deposit obligation. "Any amount due and payable
under the terms of the Loan" means the total amount to which you are
entitled to demand payment under the terms of the Loan at the time you
set-off.

Subject to any other written contract, if my right to receive money from
you is also owned by someone who has not agreed to pay the Loan, your right
of set-off will apply to my interest in the obligation and to any other
amounts I could withdraw on my sole request or endorsement.

Your right of set-off does not apply to an account or other obligation
where my rights arise only in a representative capacity. It also does not
apply to any Individual Retirement Account or other tax-deferred retirement
account.

You will not be liable for the dishonor of any check when the dishonor
occurs because you set-off against any of my accounts. I agree to hold you
harmless from any such claims arising as a result of your exercise of your
right of set-off.

G. Waiver. Except as otherwise required by law, by choosing any one or more
of these remedies you do not give up your right to use any other remedy.
You do not waive a default if you choose not to use a remedy. By electing
not to use any remedy, you do not waive your right to later consider the
event a default and to use any remedies if the default continues or occurs
again.

9. COLLECTION EXPENSES AND ATTORNEYS' FEES. On or after Default, to the extent
permitted by law, I agree to pay all expenses of collection, enforcement or
protection of your rights and remedies under this Agreement. Expenses include,
but are not limited to, attorneys' fees, court costs and other legal expenses,
as allowed by law. These expenses are due and payable immediately. If not paid
immediately, these expenses will bear interest from the date of payment until
paid in full at the highest interest rate in effect as provided for in the terms
of this Loan. All fees and expenses will be secured by the Property I have
granted to you, if any. To the extent permitted by the United States Bankruptcy
Code, I agree to pay the reasonable attorneys' fees you incur to collect this
debt as awarded by any court exercising jurisdiction under the Bankruptcy Code.

10. APPLICABLE LAW. This Agreement is governed by the laws of Missouri, the
United States of America and to the extent required, by the laws of the
jurisdiction where the Property is located. In the event of a dispute, the
exclusive forum, venue and place of jurisdiction will be in Missouri, unless
otherwise required by law.

11. JOINT AND INDIVIDUAL LIABILITY AND SUCCESSORS. My obligation to pay this
Loan is independent of the obligation of any other person who has also agreed to
pay it. You may sue me alone, or anyone else who is obligated on this Loan, or
any number of us together, to collect this Loan. Extending this Loan or new
obligations under this Loan, will not affect my duty under this Loan and I will
still be obligated to pay this Loan. The duties and benefits of this Loan will
bind and benefit the successors and assigns of you and me.

12. AMENDMENT, INTEGRATION AND SEVERABILITY. This Agreement may not be amended
or modified by oral agreement. No amendment or modification of this Agreement is
effective unless made in writing and executed by you and me. This Agreement is
the complete and final expression of the understanding between you and me. If
any provision of this Agreement is unenforceable, then the unenforceable
provision will be severed and the remaining provisions will still be
enforceable.

13. INTERPRETATION. Whenever used, the singular includes the plural and the
plural includes the singular. The section headings are for convenience only and
are not to be used to interpret or define the terms of this Agreement.

14. NOTICE, FINANCIAL REPORTS AND ADDITIONAL DOCUMENTS. Unless otherwise
required by law, any notice will be given by delivering it or mailing it by
first class mail to the appropriate party's address listed in the DATE AND
PARTIES section, or to any other address designated in writing. Notice to one
party will be deemed to be notice to all parties. I will inform you in writing
of any change in my name, address, or other application information. I will
provide you any financial statement or information you request. All financial
statements and information I give you will be correct and complete. I agree to
sign, deliver, and file any additional documents or certifications that you may
consider necessary to perfect, continue, and preserve my obligations under this
Loan and to confirm your lien status on any Property. Time is of the essence.

- --------------------------------------------------------------------------------
ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FORBEAR FROM
ENFORCING REPAYMENT OF A DEBT INCLUDING PROMISES TO EXTEND OR RENEW SUCH DEBT
ARE NOT ENFORCEABLE. TO PROTECT YOU (BORROWER) AND US (LENDER) FROM
MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS WE REACH COVERING SUCH
MATTERS ARE CONTAINED IN THIS WRITING, WHICH IS THE COMPLETE AND EXCLUSIVE
STATEMENT OF THE AGREEMENT BETWEEN US, EXCEPT AS WE MAY LATER AGREE IN WRITING
TO MODIFY IT.
- --------------------------------------------------------------------------------

15. SIGNATURES. By signing, I agree to the terms contained in this Agreement. I
also acknowledge receipt of a copy of this Agreement.

BORROWER:
Elecsys Corporation

/s/ Michael J. Meyer
-----------------------------------
Michael J. Meyer, Chairman

DCI, Inc.

/s/ Karl B. Gemperli
-----------------------------------
Karl B. Gemperli, President

Page 5 of 5
Initials __,__
Commerical Loan Agreement
Elecsys Corporation
KSehovski
Page 5 of 5
Initials ___, ___

EX-99 4 form10qsb_091202exh99.htm Exhibit 99.1 to Form 10-QSB for Elecsys Corporation

  Exhibit 99.1

                      CERTIFICATION PURSUANT TO SECTION 906
                        OF THE SARBANES-OXLEY ACT OF 2002

            I, Michael J. Meyer, Chairman of the Board of Directors of Elecsys
  Corporation (the "Company"), do hereby certify in accordance with 18 U.S.C.
  Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002, that to my knowledge:

     a)   The Company's Quarterly Report on Form 10-QSB for the quarterly period
          ended July 31, 2002, which this certification accompanies, fully
          complies with the requirements of Section 13(a) or 15(d) of the
          Securities Exchange Act of 1934, as amended; and

     b)   The information contained in the Company's Quarterly Report on Form
          10-QSB for the quarterly period ended July 31, 2002, which this
          certification accompanies, fairly presents, in all material aspects,
          the financial condition and results of operations of the Company.


  Date:  September 13, 2002            /s/ Michael J. Meyer
                                       -----------------------------------------
                                       Michael J. Meyer
                                       Chairman of the Board of Directors
                                       (Principal Executive Officer and
                                       Principal Financial Officer)

-----END PRIVACY-ENHANCED MESSAGE-----