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 June 30, 1996
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 33-18978
TEL INSTRUMENT ELECTRONICS CORPORATION
(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 each of the issuer's classes of
common stock, as of the latest practical date:
1,603,806 shares of Common stock, $.10 par value as of
July 30, 1996.
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TEL-INSTRUMENT ELECTRONICS CORPORATION
TABLE OF CONTENTS
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PAGE
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Financial Statements (Unaudited)
Condensed Comparative Balance Sheets
June 30, 1996 and March 31, 1996 1
Condensed Comparative Statements of Operations -
Three Months Ended - June 30, 1996 and 1995 2
Condensed Comparative Statements of Cash Flows -
Three Months Ended June 30, 1996 and 1995 3 - 4
Notes to Condensed Financial Statements 5
Management's Discussion and Analysis of Financial
Condition and Results of Operations 6 - 7
Signature 8
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TEL-INSTRUMENT ELECTRONICS CORPORATION
CONDENSED COMPARATIVE BALANCE SHEETS
(Unaudited)
June 30, March 31,
1996 1996
-------- ---------
ASSETS
Current assets:
Cash $ 116,378 22,625
Accounts receivable, net 351,245 359,494
Inventories 336,108 346,874
Other current assets 5,054 7,135
----------- -----------
Total current assets 808,785 736,128
Office and manufacturing equipment, net 41,983 41,825
Other assets, net 46,653 46,653
----------- -----------
Total assets 897,421 824,606
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Convertible subordinated note
- related party 30,000 30,000
Convertible subordinated note 35,000 35,000
Accrued payroll, deferred wages
and vacation pay 590,074 590,353
Accounts payable and accrued expenses 643,332 580,974
----------- -----------
Total current liabilities 1,298,406 1,236,327
Note payable - related party 100,000 100,000
Redeemable preferred stock 606,643 606,643
----------- -----------
Total liabilities 2,005,049 1,942,970
----------- -----------
Stockholders' deficiency:
Common stock 160,383 160,383
Additional paid-in capital 3,151,432 3,151,432
Accumulated deficit (4,419,443) (4,430,179)
----------- -----------
Total stockholders' deficiency (1,107,628) (1,118,364)
----------- -----------
Total liabilities and stockholders'
deficiency $ 897,421 824,606
=========== ===========
See accompanying notes to condensed financial statements.
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TEL-INSTRUMENT ELECTRONICS CORPORATION
CONDENSED COMPARATIVE STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
June 30,
1996 1995
----------- -----------
Sales:
Government, net $ 431,039 342,338
Commercial, net 202,568 285,030
----------- -----------
Total sales 633,607 627,368
Cost of sales 279,594 261,338
----------- -----------
Gross margin 354,013 366,030
Operating expenses:
Selling, general and administrative 215,365 202,310
Engineering,research and development 111,251 90,047
----------- -----------
Total operating expenses 326,616 292,357
----------- -----------
Profit from operations 27,397 73,673
Other income (expenses):
Interest income 225 0
Interest expense (16,886) (17,511)
----------- -----------
Net profit $ 10,736 56,162
=========== ===========
Net profit per common share $ 0.01 0.04
=========== ===========
Dividends per share None None
Weighted average shares outstanding 1,603,806 1,603,806
See accompanying notes to condensed
financial statements
-2-
<PAGE>
TEL-INSTRUMENT ELECTRONICS CORPORATION
CONDENSED COMPARATIVE STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
June 30,
1996 1995
---- ----
Increase (decrease) in cash:
Cash flows from operating activities:
Cash received from customers $ 641,856 581,010
Cash paid to vendors and employees (529,123) (563,805)
Interest received 225 --
Interest paid (13,586) (1,328)
----------- -----------
Net cash provided by
operating activities 99,372 15,877
Cash flows from investing activities:
Cash purchases of property, plant and
equipment (5,619) --
----------- -----------
Net cash used in investing activities (5,619) --
----------- -----------
Cash flows from financing activities:
Repurchase of shares -- (12)
Repayment of debt -- (12,500)
----------- -----------
Net cash used in financing activities -- (12,512)
----------- -----------
Net increase (decrease) in cash 93,753 3,365
Cash at beginning of period 22,625 38,768
----------- -----------
Cash at end of period $ 116,378 42,133
=========== ===========
See accompanying notes to condensed financial statements.
-3-
<PAGE>
TEL-INSTRUMENT ELECTRONICS CORPORATION
CONDENSED COMPARATIVE STATEMENTS OF CASH FLOWS, continued
(Unaudited)
Three Months Ended
June 30,
1996 1995
----------- -----------
Net profit $ 10,736 56,162
Adjustments:
Depreciation 5,461 4,097
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 8,249 (85,795)
Decrease (increase) in inventories 10,766 (5,397)
Decrease in other current assets 2,081 5,797
(Increase) decrease in other assets 0 (1,128)
Increase in progress billings 0 35,914
(Decrease)in accrued payroll,
deferred wages and vacation pay (279) (1,185)
Increase in accounts payable
and accrued expenses 62,358 7,412
----------- -----------
Net cash provided by
operating activities $ 99,372 15,877
=========== ===========
Non-cash investing and financing activities:
Redeemable preferred stock dividends
accrued (1) 7,500
Note (1): Company ceased accruing dividends due to negotiations to convert
redeemable preferred stock to common stock.
See accompanying notes to condensed financial statements.
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<PAGE>
TEL-INSTRUMENT ELECTRONICS CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note 1
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 June 30, 1996, the results of operations for the three
months ended June 30, 1996 and June 30, 1995 and statements of cash flows for
the three months ended June 30, 1996 and June 30, 1995. These results are not
necessarily indicative of the results to be expected for the full year.
These statements should be read in conjunction with the Company's Annual Report
to the Securities and Exchange Commission on Form 10-K for the year ended March
31, 1996.
Note 2
Certain reclassifications have been made to the 1996 financial statements to be
consistent with the fiscal year 1997 presentation.
Note 3
If the redemption of the Preferred Stock, as discussed in Liquidity and Capital
Resources on page 7, had occured on June 30, 1996, instead of on or about August
9, 1996, the Company's June 30, 1996 balance sheet would have changed has shown
below:
June 30, 1996
-------------
As Pro Forma
Reported Effect
-------- --------
Current assets $ 808,785 $ 697,085
Total assets 897,421 785,721
Current liabilities 1,298,406 1,193,406
Total liabilities 2,005,049 1,293,406
Total stockholders' deficiency (1,107,628) (507,685)
Total liabilities and stockholders'
deficiency 897,421 785,721
-5-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION
RESULTS OF OPERATIONS
Sales
Net sales increased $6,239 (1%) for the three months ended June 30, 1996 as
compared to the same period in the prior fiscal year. The increase in sales for
the period is primarily attributed to the government segment, particularly
shipments associated with the contract with the United States Air Force. The
uncertainty of the commercial segment continues and resulted in a decline in
commercial sales which offset the increase in government sales. While sales
increased slightly, the stagnant conditions experienced in both the commercial
airline and government segments continue. In fiscal year 1995 the Company was
awarded an open quantity contract by the U.S. Air Force for which firm orders
have been received in the amount of $1,815,305. Shipments against this contract
began in May 1995 and will continue beyond this fiscal year. A contract for
$324,795 has been received from the U.S. Army for the model T-36M and a contract
of $132,000 for the T-49C was received from the U.S. Coast Guard in the first
quarter of fiscal year 1997. The future growth and profitability continue to be
dependent on a turnaround of the commercial airline industry, introduction and
acceptance of new products, and the award of additional government contracts.
Gross Margin
Gross margin decreased $12,017 (3.3%) for the three months ended June 30, 1996
as compared to the corresponding period in the prior fiscal year. This decrease
is attributed to the increased sale of lower margin military products. The gross
margin percentage was 55.9% for the three months ended June 30, 1996 as compared
to 58.3% for the same period last year. The lower percentage gross margin is
expected to continue as Tel continues shipping the lower margin products for the
Air Force contract.
Operating Expenses
Total selling, general and administrative expenses increased $13,055 (6.5%) for
the three months ended June 30, 1996 as compared to the same period in the prior
fiscal year. The increase is attributed to an increase in selling expenses
associated with greater trade show participation and commissions associated with
government sales. Engineering, research and development expenditures increased
$21,204 (23.5%) for the same period due to increased development efforts
associated with the T-36M contract.
The net income for the three months ended June 30, 1996 was $10,736 or $0.01 per
share as compared to a net income of $56,162 or $0.04 per share for the three
months ended June 30, 1995.
-6-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The working capital deficiency decreased $10,578 for the first three months of
fiscal year 1997 to $489,621. The Company's ability to continue is dependent
upon its ability to generate sufficient cash flow from operations or to obtain
additional financing. Since securing financing from traditional sources is
difficult, short term liquidity must continue to be provided by cash generated
from operations.
Management's plans to improve profitability and cash flow are based on cost
reduction measures, continued sales efforts, and incremental revenues derived
from new product developments.
In addition, the Company's liquidity and capital position were improved by the
redemption of the outstanding redeemable preferred stock (the "Preferred
Stock"). In July, 1996 a qroup of the Company's employees and creditor's agreed
to purchase the Preferred Stock from the preferred stockholder for $111,700 and
to exchange the Preferred Stock for common stock.
At June 30, 1996, the Preferred Stock and accrued dividends had a face value of
$606,643, as reflected on the accompanying financials. The effect of the
redemption, which was completed on or about August 9, 1996, was to reduce the
liabilities by approximately $700,000 and the negative net worth by
approximately $600,000, as shown in Note 2 to the financials. Also, as a result
of canceling the Preferred Stock, the annual dividends of $30,000 will no longer
accrue.
The Company's Board of Directors approved the exchange of the Preferred Stock
and dividends for 178,720 shares of newly issued common stock and stock purchase
warrants for an additional 35,744 shares of common stock. The purchase warrants
are exercisable at a price per share of $0.75 until March 31, 1997, $1.50 until
March 31, 1998, and $2.25, until March 31, 1999.
The Board of Directors also authorized the Company to offer all shareholders the
right to purchase an additional 178,720 shares of common stock at $0.75 per
share and to issue, to such paticipating shareholders, up to 35,744 in stock
purchase warrants with the same terms as those described above.
There was no significant impact on the Company's operations as a result of
inflation for the three months ended June 30, 1996.
These statements should be read in conjunction with the Company's annual report
to the Securities and Exchange Commission on Form 10-K for fiscal year ending
March 31, 1996.
-7-
<PAGE>
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 9 August 1996 By:/s/ Harold K. Fletcher
----------------------
/s/ Harold K. Fletcher
Chairman and President
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