SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year Commission File No.
ended March 31, 1997 33-18978
TEL-INSTRUMENT ELECTRONICS CORP.
(Exact name of Registrant as specified in its charter)
New Jersey 22-1441806
(State of incorporation) (IRS Employer Identification Number)
728 Garden Street
Carlstadt, New Jersey 07072
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 933-1600
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by checkmark 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 [ ].
The aggregate market value of the voting Common Stock (par value $.10 per share)
held by non-affiliates on June 19, 1997 was $ 1,008,014.
2,030,948 shares of Common Stock were outstanding as of June 19, 1997.
Total Pages - 35
Exhibit Index - pages 32-33
<PAGE>
PART I
Item 1. Business
General
Tel-Instrument Electronics Corp. ("Tel" or the "Company") designs,
manufactures and sells test equipment to the general aviation and
commercial aviation market and to the government/military aviation market,
both domestically and internationally. The Company has been in business
since 1947.
Tel's instruments are used to test navigation and communications equipment
installed in aircraft and range in list price from $7,000 to $22,000 per
unit. Tel is constantly revising and improving its test instruments (see
"Research and Development") in anticipation of customers' needs. The
development of multifunction "smart" testers, for example, has made it
easier for customers to perform ramp tests with less training.
The Company is also reviewing possible ways to expand its business into
other markets to capitalize on its technology.
The table below sets forth the composition of Tel's sales for the last
three fiscal years.
Year Ended Year Ended Year Ended
March 31, March 31, March 31,
1997 1996 1995
---- ---- ----
Commercial $1,140,779 $1,274,606 $1,268,422
Government 2,024,895 1,043,482 597,070
In the fiscal year ended March 31, 1995, Tel won a competitive solicitation
from the United States Air Force (USAF) for the Model T-30CM. Sales derived
from this contract represented 46% and 37% of total government sales for
the years ended March 31, 1997 and 1996, respectively. In March 1997, the
Company received a $710,703 order from Allied Signal to be shipped in the
first half of fiscal 1998. The end user is in the Far East. The Company has
sufficient backlog to maintain the current level for government sales for
the next fiscal year.
Foreign commercial sales are made direct or through American export agents
at a discount reflecting the 15% selling commission under oral,
year-to-year arrangements. For the years ended March 31, 1997, 1996 and
1995, foreign commercial sales were 14%, 27% and 17%, respectively, of
total commercial sales.
Tel sells its products either directly or through distributors to its
commercial customers. There is no written agreement with the distributors
who receive a 15% discount for stocking and selling these products. Tel
also gives a 5% to 10% discount to non-stocking distributors depending on
their sales volume and promotional effort. Independent sales
representatives receive 5% to 10% commissions depending on their sales
volume and promotional efforts.
2
<PAGE>
Item 1. Business (Continued)
General (Continued)
Set forth below is Tel's backlog at March 31, 1997 and 1996. Sales
increased again in fiscal year 1997 because of government orders. (See
Management's Discussion - Item 7 and Markets - Item 1).
Tel believes that all of the backlog at March 31, 1997 will be delivered
during the fiscal year ending March 31, 1998.
Commercial Government Total
---------- ---------- -----
March 31, 1997 $ 174,600 2,276,952 2,451,552
March 31, 1996 9,900 1,756,602 1,766,502
All of the backlog is pursuant to purchase orders and all of the government
contracts are fully funded. However, government contracts are always
susceptible to termination for convenience.
Tel obtains its purchased parts from a number of suppliers. These materials
are standard in the industry and Tel foresees no difficulty in obtaining
purchased parts, as needed, at acceptable prices.
Markets
The general aviation market consists of some 1,000 repair and maintenance
service shops, at private and commercial airports in the United States,
which purchase test equipment to repair aircraft electronics. The airline
market consists of approximately 80 domestic and foreign commercial
airlines.
The civilian market for avionic testing equipment is dominated by three
manufacturers, of which Tel is believed to be the third largest. The market
is relatively small. While sales to domestic and foreign commercial
customers declined in 1997, the Company believes that the foreign
commercial market represents a better opportunity than the US commercial
market for growth.
Future domestic growth will depend on whether the U.S. Federal Aviation
Administration (FAA) implements plans to upgrade the U.S. air traffic
control system and on continuing recent trends towards more sophisticated
avionics systems, both of which would require the design and manufacture of
new test equipment. The Company continues to analyze the needs of the
market in order to develop new and improved instruments to meet emerging
FAA requirements and redesign models to add functions and reduce the cost
of manufacturing. The Company believes its test equipment is recognized by
its customers for its quality, durability and reliability.
3
<PAGE>
Item 1. Business (Continued)
Markets (Continued)
Tel sells to many commercial customers. In fiscal 1997, no end user
customer or distributor accounted for more than 10% of commercial sales. In
fiscal year 1996, the only customers purchasing over 10% of Tel's
commercial sales were two distributors (14% and 12%) who sell to many end
users.
The military market is large, but is dominated by large corporations with
substantially greater resources than Tel. Tel bids for government contracts
on competitive bids, on the basis of "small business set asides" (i.e.,
statutory provisions requiring the military to entertain bids only from
statutorily defined small businesses), and on bids for sub-contracts from
major government suppliers. The Company's government sales has increased
from $244,289 in fiscal year 1992 to $2,024,895 in fiscal year 1997.
Because of the larger size of the military market, in contrast to the
limited civilian market, Tel has been increasing its efforts to obtain
military contracts and sub-contracts. Although it is anticipated that the
total defense budget will continue to decline, management believes that the
portion devoted to operation and maintenance of existing and improved
avionics will be less adversely affected and, therefore, the market for
test equipment will increase. Tel has increased its concentration on
meeting end user needs by modifying commercial designs to satisfy special
government/military requirements. This approach appears to be viable as Tel
has been able to sell the T-36M, T-49C, T-49CF, T-47 Family and T-48I to
government agencies and prime contractors with a growing list of other
prospective buyers. Government small purchase procedures allow Tel to sell
test sets to users who could have influence on future government purchases.
Tel will also continue its efforts to penetrate the export market and is
actively seeking a European distributor.
Competition
In the general aviation and airline market, Tel competes principally with
IFR, an independent firm, and with JC Air, a division of BFGoodrich. This
market is highly competitive. Tel has generally been successful because of
its high quality products, competitive prices, and responsive service. Tel
also provides customers with calibration and repair services.
The military market is dominated by large corporations with greater
operating experience with the military. Tel competes in this market by
selling applicable "best commercial practice" test equipment, adapted to
government standards, by bidding for small business set asides and by
subcontracting with larger corporations to produce subsystems. Tel's
equipment is both capable and durable, and less expensive than its
competitors.
4
<PAGE>
Item 1. Business (Continued)
Competition (Continued)
Tel's past ability to compete in the civil aviation market and the military
market has been restricted because of limited financial resources, however,
the improvement in financial position allows it to compete more effectively
(see Liquidity and Capital Resources in Item 7). Tel has no patents or
licenses which are material to its business.
Research and Development
In the fiscal years ended March 31, 1997, 1996 and 1995, Tel spent
$486,884, $390,399 and $315,331, respectively, on the research and
development of new and improved products. None of these amounts was
sponsored by customers. Tel's management believes that continued and
increased expenditures for research and development are necessary to enable
Tel to expand its sales and generate profits.
In fiscal year 1997, the development of the military version of the T-36
(T-36M) using a microprocessor for control, and an IFF interrogator test
version of the T-47C (T-47N) were completed. A contract for the T-36M for
$324,795 was received in April 1996 and a proposal for a modified T-47N
(T-47M) was submitted to the U.S. Navy in May 1997.
Item 2. Properties and Personnel
The Company leases 11,164 square feet in Carlstadt, New Jersey as its
manufacturing plant and administrative offices, pursuant to a five year
lease expiring in August, 1998. Tel is unaware of any environmental
problems in connection with its location and, because of the nature of its
manufacturing activities, does not anticipate such problems.
Tel has ten manufacturing, seven administrative and sales, and three
research and development employees, none of whom belongs to a union. Tel
does not anticipate any difficulty in adding personnel as required. The
Company also uses several part-time consultants on an as needed basis.
Item 3. Pending Legal Proceedings
There are no material pending legal proceedings.
5
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Market Information
There has been no established public trading market for Registrant's Common
Stock. Subsequent to the public offering of the Company's Common Stock in
December 1988, the Common Stock has traded sporadically in the
over-the-counter market. During the fiscal year ended March 31, 1997, the
Company's Common Stock had the high and low bids of $1.75 and $0.75,
respectively. These quotations reflect inter-dealer prices, without retail
markup or commission and may not necessarily represent actual transactions.
Approximate Number of Equity Security Holders
Number of Record
Holders as of
Title of Class March 31, 1997
-------------- --------------
Common Stock, par value
$.10 per share 846
Dividends
Registrant has not paid dividends on its Common Stock and does not expect
to pay such dividends in the foreseeable future.
6
<PAGE>
Item 6. Selected Financial Data
TEL-INSTRUMENT ELECTRONICS CORP.
SUMMARY OF FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Years Ended March 31,
----------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net Revenues $ 3,165,674 $ 2,318,088 $ 1,865,492 $1,308,939 $ 1,430,923
----------- ----------- ----------- ---------- -----------
Operating costs and expenses:
Cost of sales 1,325,659 1,022,942 888,213 619,165 772,312
Selling, general and
administrative 854,093 739,912 575,124 506,595 486,455
Engineering, research
and development 486,884 390,399 315,331 236,206 317,937
----------- ----------- ----------- ---------- -----------
$ 2,666,636 $ 2,153,253 $ 1,778,668 $1,361,966 $ 1,576,704
----------- ----------- ----------- ---------- -----------
Operating income/(loss) 499,038 164,835 86,824 (53,027) (145,781)
Other expenses, net (57,954) (69,156) (76,348) (66,116) (54,815)
----------- ----------- ----------- ---------- -----------
Income/(loss)
before extraordinary 441,084 95,679 10,476 (119,143) (200,596)
item and income taxes
Extraordinary item -- -- 12,000 -- --
----------- ----------- ----------- ---------- -----------
Net income before income taxes 441,084 95,679 22,476 (119,143) (200,596)
Income tax benefit 340,200 -- -- -- --
----------- ----------- ----------- ---------- -----------
Net Income $ 781,284 $ 95,679 $ 22,476 $ (119,143) $ (200,596)
=========== =========== =========== ========== ===========
Income/(loss) per share from
continuing operations:
Before extraordinary item (1) $ 0.41 $ 0.04 $ (0.01) $ (0.09) $ (0.14)
Extraordinary item -- -- 0.01 -- --
----------- ----------- ----------- ---------- -----------
Income/(loss) per
common share $ 0.41 $ 0.04 $ -- $ (0.09) $ (0.14)
=========== =========== =========== ========== ===========
<CAPTION>
Years Ended March 31,
----------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital (deficiency) $ 440,978 $ (500,199) $ (519,207) $ (506,519) $ (385,862)
Total assets 1,648,066 824,606 872,442 780,825 640,435
Long-term debt 365,000 100,000 165,000 200,000 200,000
Redeemable preferred stock -- 606,643 576,643 546,643 516,643
Stockholders' equity (deficiency) 455,254 (1,118,364) (1,184,031) (1,176,507) (1,027,364)
</TABLE>
(1) The earning/(loss) per share is calculated on the weighted average number
of shares outstanding. For the years 1993 to 1996 the preferred stock
dividends of $30,000 per year were deducted from income/(loss) before
extraordinary item and income taxes.
7
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations 1997 Compared to 1996
For the year ended March 31, 1997 sales increased $847,586 (36.6%) to
$3,165,674, as compared to the year ended March 31, 1996. This increase in
sales is attributed to the government segment and specifically for specific
sales associated with a contract with the USAF. The uncertainty of the
commercial market continues and, as such, the Company has been emphasizing
its efforts in the government market. The Company has been very active in
responding to requests for proposal from the U.S. Government and continues
to modify its products to respond to these requests. The Company is also
seeking to expand its business into other markets to capitalize on its test
equipment technology. However, there can be no assurance that the Company
will be successful in this endeavor.
Gross margin increased $544,869 (42.1%) for the year ended March 31, 1997
as compared to the prior year. This increase is primarily attributed to the
higher volume. There were no significant price increases during 1997. The
gross margin as a percentage of sales for the year ended March 31, 1997 was
58.1% as compared to 55.9% for the year ended March 31, 1996 and improved
due to reductions in manufacturing cost.
Total selling, general and administrative expenses increased $114,181
(15.4%) for the year ended March 31, 1997 as compared to the previous year.
This increase is due to higher selling expenses associated with increased
commissions as a result of higher government sales, increased professional
fees, and employee incentive compensation. Engineering, research and
development expenses increased $96,485 (24.7%) due to increased new product
development efforts and employee incentive compensation.
Net income before income taxes and income tax benefit was $441,084 for the
year ended March 31, 1997, as compared to $95,679 for the year ended March
31, 1996.
For the year ended March 31, 1997, the Company recorded an income tax
benefit of $340,200 as the Company believes it is more likely than not that
it will realize a portion of its net operating losses before they expire.
The inability to obtain new profitable contracts or the failure of the
Company's engineering development efforts could reduce estimates of future
profitability in the near term, which could affect the Company's ability to
utilize the deferred tax asset on the balance sheet or its loss
carryfowards. This amount is only an estimate and may differ from actual
future results. See Note 8 in the Notes to Financial Statements.
Net income for the year ended March 31, 1997 was $781,284 or $0.41 per
share as compared to $95,679 or $0.04 per share for the year ended March
31, 1996.
Results of Operations 1996 Compared to 1995
Net sales increased $452,596 (24.3%) for the year ended March 31, 1996 as
compared to the year ended March 31, 1995. Commercial sales increased
$6,184 (0.5%) and government sales increased $446,412 (74.8%). New product
introductions to the commercial market and the award of additional
contracts from the government sector
8
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Results of Operations 1996 Compared to 1995 (Continued)
account for these increases. While commercial sales increased, the
commercial airline market remained stagnant. The Company was awarded a
contract from the CDF in fiscal year 1994 in the amount of $630,700 of
which $309,400 was shipped during fiscal year 1996 to complete the
contract. In fiscal year 1995 the Company won an open quantity contract
from the USAF of which firm orders have been received in the amount
of$1,777,045 and $386,742 of these orders were shipped in fiscal year 1996.
The balance of the orders from the USAF are expected to be delivered in
fiscal years 1997 and 1998.
There is no assurance that such sales will continue after these contracts
have been completed. 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 increased $317,867 (32.5%) for the year ended March 31, 1996
as compared to the previous year. Gross margin as a percent of sales
increased to 55.9% in 1996 from 52.4% in 1995. The higher gross margin is
attributed to the higher sales volume and the sale of higher margin
products. Tel does not expect to maintain this higher gross margin
percentage due to the higher mix of lower margin government sales expected
in the coming fiscal year.
Total selling, general and administrative expenses increased $164,788
(28.7%) for the year ended March 31, 1996 as compared to the last fiscal
year. The increase is attributed to the hiring of a director of marketing
and increased travel and trade show expenses. Engineering, research and
development expenditures increased $75,068 (23.8%) for the same period due
to increased development efforts as a result of increased proposal
activity.
The net income for the year was $95,679 as compared to a net income of
$22,476 in the prior fiscal year ended March 31, 1995.
Liquidity and Capital Resources
At March 31, 1997 the Company had positive working capital of $440,978 as
compared to a working capital deficiency of $500,199 at March 31, 1996. The
Company's liquidity and capital position was improved primarily by the
Company's increased profitability, the redemption of the outstanding
redeemable preferred stock (the "Preferred Stock") (see Note 7 to Notes to
the Financial Statements), and the conversion of certain current
liabilities to long-term debt (see Note 10 to Notes to the Financial
Statements). Cash provided by operations was $464,557 for the year ended
March 31, 1997 as compared to $20,137 for the year ended March 31, 1996.
This improvement is due to the increased profitability and to a decrease in
accounts receivable which was partially offset by an increase in
inventories and other assets.
The Company continues to explore additional opportunities to find ways to
improve its profitability and cash flow. Based upon the current backlog and
cash on hand, the Company believes that it should have sufficient working
capital to fund its plans over the next twelve months and on a long term
basis. At present, the Company does expect to incur long-term material
needs for capital outside of its normal operating activities.
The Company has received a letter of intent from a related party for
financing a future significant government contract.
9
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Liquidity and Capital Resources (Continued)
There was no significant impact on the Company's operations as a result of
inflation for the year ended March 31, 1997.
Other Accounting Matters
In February of 1997 the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No 128 "earnings Per Share"
(SFAS 128). SFAS 128 supersedes Accounting Principles Board Opinion No. 15,
Earnings Per Share (APB 15) and specifies the computation, presentation,
and disclosure requirements for earnings per share for entities with
publicly held common stock. SFAS 128 is effective for financial statements
for both interim and annual periods ending after December 15, 1997.
The Company does not expect the adoption of SFAS 128 to have a material
impact on the Company.
10
<PAGE>
Item 8. Financial Statements and Supplementary Data
Pages
-----
(1) Financial Statements:
Report of Independent Accountants 12
Balance Sheets - March 31, 1997 and 1996 13
Statements of Operations - Years Ended
March 31, 1997, 1996 and 1995 14
Statements of Changes in Stockholders'
Equity/(Deficiency) - Years Ended March 31,
1997, 1996 and 1995 15
Statements of Cash Flows - Years Ended
March 31, 1997, 1996 and 1995 16
Notes to Financial Statements 17-27
(2) Financial Statement Schedule:
II - Valuation and Qualifying Accounts 28
Financial statement schedules not included in this annual report on Form 10-K
have been omitted because they are not applicable or the required information is
shown in the financial statements or notes thereto.
11
<PAGE>
Report of Independent Accountants
Stockholders and Board of Directors of Tel-Instrument Electronics Corp.
We have audited the financial statements and financial statement schedule
of Tel-Instrument Electronics Corp. listed in item 14(a) of this Form 10-K.
These financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and the financial
statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Tel-Instrument
Electronics Corp. as of March 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period
ended March 31, 1997, in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial
statements taken as a whole presents fairly, in all material respects, the
information required to be included therein.
COOPERS & LYBRAND L.L.P.
Parsippany, New Jersey
May 30, 1997
12
<PAGE>
TEL-INSTRUMENT ELECTRONICS CORP.
Balance Sheets
March 31,
--------------------
ASSETS 1997 1996
---- ----
Current assets:
Cash $ 528,636 $ 22,625
Accounts receivable, net of
allowance for doubtful accounts
of $65,521 and $66,090 at March 31,
1997 and 1996, respectively 302,737 359,494
Inventories, net 352,173 346,874
Prepaid expenses and other current assets 6,944 7,135
Deferred income tax benefit - current 78,300 --
----------- -----------
Total current assets 1,268,790 736,128
Office and manufacturing equipment, net 45,492 41,825
Other assets 71,884 46,653
Deferred income tax benefit 261,900 --
----------- -----------
Total assets $ 1,648,066 $ 824,606
=========== ===========
LIABILITIES AND STOCKHOLDERS'/ EQUITY/(DEFICIENCY)
Current liabilities:
Convertible subordinated note -
related party $ -- $ 30,000
Convertible subordinated note -- 35,000
Accounts payable 89,344 93,789
Accrued payroll, vacation pay and
deferred wages 342,432 590,353
Accrued expenses - related parties 70,480 136,086
Other accrued expenses 325,556 351,099
----------- -----------
Total current liabilities 827,812 1,236,327
Note payable - related party 350,000 100,000
Convertible subordinated note - related party 15,000 --
Redeemable preferred stock - redemption value
of $375,075, plus unpaid dividends -- 606,643
Stockholders' equity/(deficiency):
Common stock, par value $.10 per
share, 2,030,948 and 1,603,806
issued and outstanding as of
March 31, 1997 and 1996, respectively 203,097 160,383
Additional paid-in capital 3,901,052 3,151,432
Accumulated deficit (3,648,895) (4,430,179)
----------- -----------
Total stockholders'
equity/(deficiency) 455,254 (1,118,364)
----------- -----------
Total liabilities and stockholders'
equity/(deficiency) $ 1,648,066 $ 824,606
=========== ===========
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
TEL-INSTRUMENT ELECTRONICS CORP.
Statements of Operations
For the years ended March 31,
---------------------------------
1997 1996 1995
---- ---- ----
Sales - commercial, net $ 1,140,779 $ 1,274,606 $ 1,268,422
Sales - government, net 2,024,895 1,043,482 597,070
----------- ----------- -----------
Total Sales 3,165,674 2,318,088 1,865,492
Cost of sales 1,325,659 1,022,942 888,213
----------- ----------- -----------
Gross margin 1,840,015 1,295,146 977,279
----------- ----------- -----------
Operating expenses:
Selling, general and
administrative 854,093 739,912 575,124
Engineering, research
and development 486,884 390,399 315,331
----------- ----------- -----------
Total Operating Expense 1,340,977 1,130,311 890,455
----------- ----------- -----------
Income from operations 499,038 164,835 86,824
Other income/(expense):
Interest income 5,183 -- --
Interest expense (51,137) (57,570) (60,748)
Interest expense -
related parties (12,000) (12,100) (15,600)
Other, net -- 514 --
----------- ----------- -----------
Income before extraordinary
item and income taxes 441,084 95,679 10,476
Extraordinary item -
extinguishment of debt -- -- 12,000
----------- ----------- -----------
Net income before income
taxes 441,084 95,679 22,476
Income tax benefit 340,200 -- --
----------- ----------- -----------
Net Income $ 781,284 $ 95,679 $ 22,476
=========== =========== ===========
Income/(loss) per common share:
Before extraordinary item $ 0.41 $ 0.04 $ (0.01)
Extraordinary item -- -- 0.01
----------- ----------- -----------
Income/(loss) per common share $ 0.41 $ 0.04 $ --
=========== =========== ===========
Weighted average number
of shares outstanding 1,894,737 1,603,806 1,603,806
=========== =========== ===========
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
TEL-INSTRUMENT ELECTRONICS CORP.
Statements Of Changes In Stockholders' Equity (Deficiency)
<TABLE>
<CAPTION>
Common Stock
---------------------------------- Additional
Number of Shares Paid-In Accumulated
Authorized Issued Amount Capital Deficit Total
---------- ------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Balances March 31, 1994 2,000,000 1,603,806 $160,383 $3,211,444 $(4,548,334) $(1,176,507)
Net income 22,476 22,476
Redeemable preferred stock
dividends accrued (30,000) (30,000)
---------- ---------- -------- ---------- ----------- -----------
Balances March 31, 1995 2,000,000 1,603,806 $160,383 $3,181,444 $(4,525,858) $(1,184,031)
Net income 95,679 95,679
Repurchase of shares (12) (12)
Redeemable preferred stock
dividends accrued (30,000) (30,000)
---------- ---------- -------- ---------- ----------- -----------
Balances March 31, 1996 2,000,000 1,603,806 $160,383 $3,151,432 $(4,430,179) $(1,118,364)
Net income 781,284 781,284
Exchange of redeemable
preferred stock for common stock
and stock purchase warrants 178,720 17,872 588,771 606,643
Issuance of common stock shares and
stock purchase warrants 178,720 17,872 116,168 134,040
Issuance of common stock in connection
with the exercise of stock
purchase warrants 68,035 6,803 44,223 51,026
Issuance of common stock in connection
with the exercise of stock options 1,667 167 458 625
---------- ---------- -------- ---------- ----------- -----------
Balances March 31, 1997 4,000,000 2,030,948 $203,097 $3,901,052 $(3,648,895) $ 455,254
========== ========== ======== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
TEL-INSTRUMENT ELECTRONICS CORP.
Statements Of Cash Flows
Increase (Decrease) In Cash
For the years ended March 31,
-----------------------------
1997 1996 1995
---- ---- ----
Cash flows from operating activities:
Net income $ 781,284 $ 95,679 $ 22,476
Adjustments to reconcile net income
to cash provided by operating
activities:
Deferred income tax benefit (340,200) -- --
Depreciation and amortization 18,222 17,994 17,067
Provision for losses on accounts
receivable -- 15,000 16,000
Provision for inventory obsolescence 8,298 -- 70,336
Gain on early extinguishment of debt -- -- (12,000)
Gain on sale of equipment -- -- (7,014)
Changes in assets and liabilities:
Decrease/(increase) in accounts
receivable 56,757 (135,015) 3,650
(Increase)/decrease in
inventories (13,597) 135,399 (155,592)
(Increase)/decrease in other
assets (25,040) 17,916 10,853
(Decrease)/increase in accounts
payable (4,445) (152,313) 78,632
(Decrease)/increase in accrued
expenses (16,722) 25,477 58,842
--------- --------- ---------
Net cash provided by operating
activities 464,557 20,137 103,250
--------- --------- ---------
Cash flows from investing activities:
Additions to office and manufacturing
equipment (21,889) (19,601) (36,119)
Proceeds from sale of equipment 12,000
--------- --------- ---------
Net cash used in investing
activities (21,889) (19,601) (24,119)
--------- --------- ---------
Cash flows from financing activities:
Repayment of notes payable -- (16,667) (33,333)
Proceeds from issuance of
shares and warrants 87,500
Proceeds from exercise of warrants
and options 25,843 (12) --
Repayment of convertible
subordinated note (50,000) -- (23,000)
--------- --------- ---------
Net cash provided by (used in)
financing activities 63,343 (16,679) (56,333)
--------- --------- ---------
Net increase in cash 506,011 (16,143) 22,798
Cash - beginning of year 22,625 38,768 15,970
--------- --------- ---------
Cash - end of year $ 528,636 $ 22,625 $ 38,768
========= ========= =========
Non-cash investing and
financing activities:
Redeemable preferred stock
dividends accrued $ -- $ 30,000 $ 30,000
========= ========= =========
Conversion of accrued expenses to
convertible subordinated note 250,000 -- --
========= ========= =========
Conversion of accrued expenses
for common stock in lieu of payment 72,348 -- --
========= ========= =========
Exchange of redeemable preferred stock
for common stock and stock purchase
warrants (see Note 7)
Supplemental information:
Interest paid $ 219,481 $ 20,153 $ 8,667
========= ========= =========
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Financial Statements
1. Business and Organization
Tel-Instrument Electronics Corp. ("Tel" or the "Company") has been in
business since 1947. The Company designs, manufactures, and markets avionic
test equipment for the general and commercial aviation markets and for the
government/military aviation markets. The Company's instruments are used to
test navigation and communications equipment installed in aircraft. The
Company sells its equipment to both the domestic and international markets.
2. Summary of Significant Accounting Policies
Revenue Recognition:
Revenues are recognized at the time of shipment and provisions, when
appropriate, are made where the right to return exists.
Cash and Cash Equivalents:
For purposes of the statements of cash flows, the Company considers all
highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents. Cash equivalents are carried at
costs which approximates market value.
Concentrations of Credit Risk:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of trade accounts
receivable. The Company's customer base is primarily comprised of airlines
and the U.S. Government. As of March 31, 1997, the Company believes it has
no concentration of credit risk with its accounts receivable.
Inventories:
Inventories are stated at the lower of cost or market. Cost is determined
on a first-in, first-out basis. In accordance with industry practice,
service parts inventory is included in current assets, although parts are
carried for established requirements during the serviceable lives of the
products and, therefore, are not expected to be sold within one year.
17
<PAGE>
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Financial Statements (Continued)
2. Summary of Significant Accounting Policies (Continued)
Office and Manufacturing Equipment:
Office and manufacturing equipment are stated at cost. Depreciation and
amortization is provided on a straight-line basis over periods ranging from
3 to 10 years.
Maintenance, repairs, and renewals that do not materially add to the value
of the equipment nor appreciably prolong its life are charged to expense as
incurred. Upon retirement or disposition of a fixed asset, the cost and
related accumulated depreciation are removed from the accounts and the
resulting gain or loss is included in the Statements of Operations.
Research and Development Costs:
Research and development costs are expensed as incurred.
Income/(Loss) Per Common Share:
The computation of income/(loss) per common share is based on the weighted
average number of shares outstanding, including dilutive common stock
equivalents. Preferred stock dividends are considered when determining per
share amounts. In fiscal 1995 the preferred stock dividend of $30,000 was
deducted from the income before extraordinary item of $10,476, which
resulted in the loss per share before extraordinary item of $.01. The
convertible subordinated notes are not considered common stock equivalents
for the purpose of determining per share amounts.
Accounting for Income Taxes:
Deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using enacted tax rates and laws that will be in effect when such
differences are expected to reverse. The measurement of deferred tax assets
is reduced, if necessary, by a valuation allowance for any tax benefit
which is not expected to be realized. The effect on deferred tax assets and
liabilities of a change in tax rate is recognized in the period that such
tax rate changes are enacted.
Stock Option Plan:
Prior to April 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. As such, compensation expense would be recorded on the
date of grant only if the current market price of the underlying stock
exceeded the exercise price. On April 1, 1996, the Company adopted
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), which permits companies to
recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively SFAS 123 allows
companies to continue to apply the provisions of APB Opinion No. 25 and
provide pro forma net income and pro forma earnings per
18
<PAGE>
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Financial Statements (Continued)
2. Summary of Significant Accounting Policies (Continued)
share disclosures for employee stock option grants made in fiscal year 1996
and future years as if the fair-value-based method as defined in SFAS No.
123 has been applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosure
provisions of SFAS No. 123.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires that management make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
most significant estimates include taxes, inventory and accounts receivable
valuation.
Reclassification
Certain amounts have been reclassified to conform to the current year
presentation.
19
<PAGE>
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Financial Statements (Continued)
3. Accounts Receivable
The following tabulation sets forth the components of accounts receivable:
March 31,
---------------------------
1997 1996
-------- --------
Government $163,490 $147,542
Commercial 139,247 211,952
-------- --------
$302,737 $359,494
======== ========
4. Inventories
Inventories consist of:
March 31,
---------------------------
1997 1996
-------- --------
Purchased parts $213,842 $160,327
Work-in-process 206,750 246,668
Less: Reserve for obsolescence (68,419) (60,121)
-------- --------
$352,173 $346,874
======== ========
The work-in-process includes $71,943 and $147,090 for government contracts
at March 31, 1997 and March 31, 1996, respectively.
5. Office and Manufacturing Equipment
March 31,
---------------------------
1997 1996
-------- --------
Leasehold Improvements $ 39,657 $ 36,999
Machinery and equipment 487,672 471,083
Sales equipment 70,663 68,021
Less: Accumulated depreciation (552,500) (534,278)
--------- ---------
$ 45,492 $ 41,825
========= =========
20
<PAGE>
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Financial Statements (Continued)
6. Accrued Expenses
Accrued payroll, vacation pay and deferred wages consists of the following:
March 31,
---------------------------
1997 1996
-------- --------
Deferred salary and wages and interest $169,955 $468,980
Accrued vacation pay 53,157 101,621
Accrued salary, and payroll taxes 24,851 19,752
Accrued profit sharing 94,469 --
-------- --------
$342,432 $590,353
======== ========
Through March 31, 1994, the Company maintained a salary and wage deferral
plan which was applicable for all employees. The deferrals were scaled in
proportion to an employee's salary level. Interest is accrued on the amount
of deferred salary and wages. Such deferred amounts have been recognized as
expense in the period incurred. The Company's managers also deferred salary
for portions of the fiscal years ending March 31, 1997 and March 31, 1996.
Other accrued expenses of $325,556 and $351,099 at March 31, 1997 and 1996,
respectively, consist primarily of professional service costs for legal,
accounting and consulting services and of product related costs, such as
warranty.
21
<PAGE>
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Financial Statements (Continued)
7. Redeemable Preferred Stock
In July 1996, a group of the Company's employees and creditors (the
"Group") agreed to purchase the Company's outstanding redeemable preferred
stock (the "Preferred Stock") from the preferred stockholder. The Group
purchased the Preferred Stock from the preferred stockholder for $111,700
and exchanged the Preferred Stock for unregistered shares, legended, of the
Company's common stock and common stock purchase warrants (the warrants).
The Company had been previously obligated to the Group for certain incurred
liabilities and these funds were used by the Group to purchase the
Preferred Stock. The Company's Board of Directors approved the exchange of
the Preferred Stock and accrued dividends for 178,720 newly issued
unregistered shares, legended, of common stock and warrants to purchase an
additional 35,744 shares of common stock. The warrants are exercisable at a
price of $0.75 per share until March 31, 1997, $1.50 until March 31, 1998
and $2.25 until March 31, 1999. At March 31, 1997, 32,291 have been
exercised.
The issuance of 178,720 common shares was recorded based upon the estimated
market value of the stock at the time of the transaction. The difference
between the market value and par value was credited to additional paid-in
capital. The redemption of the Preferred Stock in exchange for common stock
resulted in a difference of $494,943 between the carrying value of the
Preferred Stock ($606,643) and the market value ($111,700) of the Company's
common stock and such difference was recorded as an increase to additional
paid-in capital. Based upon the application of an option pricing model and
in accordance with SFAS No. 123, the warrants were estimated to have a fair
value of $6,434 which amount was recorded in connection with this
transaction. The exchange of the Preferred Stock and accrued dividends for
unregistered shares, legended, of common stock and warrants was recorded as
a non-cash financing transaction.
22
<PAGE>
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Financial Statements (Continued)
8. Income Taxes
The benefit for income taxes as of March 31, 1997 comprises of the
following:
Current:
Federal $ --
State and Local --
----------
Total Current Benefit $ --
==========
Deferred:
Federal $ (299,000)
State and Local (41,200)
----------
Total Deferred Benefit $ (340,200)
==========
The components of the Company's deferred taxes at March 31, 1997 and 1996
are as follows
March 31, March 31,
1997 1996
--------- ---------
Net operating loss carryforwards $1,222,000 $1,446,900
Asset reserves 53,000 50,400
Deferred wages and accrued interest 206,000 218,800
Provision for estimated expenses 70,000 78,500
---------- ----------
Deferred tax asset 1,551,000 1,794,600
Less, valuation allowance 1,210,800 1,794,600
---------- ----------
Amount recognized in financial
statements $ (340,200) $ --
========== ==========
As of March 31, 1997, the Company has Federal tax net operating loss
carryforwards of approximately $3,521,000 which begin to expire in 1998. As
of March 31, 1997 and 1996, the Company reduced the valuation allowance to
reflect the deferred tax assets utilized to offset income tax expense. In
addition, during 1997, the Company, in accordance with FASB 109, reduced
the valuation allowance to recognize in the financial statements a deferred
tax asset of $340,200 at March 31, 1997. The recognized deferred tax asset
is based upon the expected utilization of net operating loss carryfowards
as the Company believes it is more likely than not it will realize a
portion of its net operating losses before they expire. The remaining
valuation allowance consists of the estimated amount of deferred tax assets
which may not be realized due to the expiration of net operating losses.
The foregoing amounts are management's estimates and the actual results
could
23
<PAGE>
TEL-INSTRUMENT ELECTRONICS CORP.
Notes to Financial Statements (Continued)
8. Income Taxes (Continued)
differ from those estimates. Future profitability in this competitive
industry depends on the continually obtaining and fulfilling new profitable
contracts and modifying products. The inability to obtain new profitable
contracts or the failure of the Company's engineering development efforts
could reduce estimates of future profitability in the near term, which
could affect the Company's ability to utilize the deferred tax asset on the
balance sheet or its loss carryfowards.
A reconciliation of the income tax expense at the statutory Federal tax
rate of 34% to the income tax expense recognized in the financial
statements is as follows:
1997 1996
---- ----
Income tax expense - statutory rate $ 150,000 $ 32,500
Income tax expenses - state and
local, net of federal benefit 27,200
Reduction of federal valuation allowance (542,600) (32,500)
Other 25,200 --
--------- --------
Income tax benefit recognized
in financial statements $(340,200) $ --
========= ========
9. Related Party Transactions
At March 31, 1996 the $100,000 non-current note payable - related party was
payable to the Company's Chairman/President, bore interest at 10% and was
payable on demand no earlier than April 1, 1997. At March 31, 1996 accrued
interest thereon of $72,500 was included in accrued expenses - related
parties.
On March 31, 1997, the Company's Chairman/President renegotiated the term
of the non-current note payable-related party. This note, along with
$250,000 of other accrued expenses due to the Company's Chairman/President,
were converted into seven $50,000 convertible subordinated notes (the
"Notes") totaling $350,000. The Notes become due beginning March 31, 1999
with the last note due March 31, 2005. The Notes bear interest at a rate of
10% per annum, payable semi-annually on the last day of September and March
of each year. The Company is required to prepay the outstanding balance of
the Notes and any accrued interest thereon, if the Company sells all or
substantially all of its assets. The Notes can be converted into newly
issued common shares of the Company at the conversion price of $1.50 per
share until March 31, 1998, and thereafter at $2.50 per share. The
conversion prices shall be adjusted for any stock dividends, stock
issuances or capital reorganizations. The Notes may be redeemed by the
Company prior to maturity upon giving written notice of not less than 30
days or more than 60 days at a redemption price equal to 120% of the
principal if redeemed two years or more
24
<PAGE>
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Financial Statements (Continued)
9. Related Party Transactions (Continued)
prior to the maturity date or 110% of the principal if redeemed more than
one year, but less than two years prior to the maturity date.
Accrued payroll, vacation pay and deferred wages and related interest
includes, $114,555 and $374,343 at March 31, 1997 and 1996, respectively,
which is due to officers of the Company.
Accrued expenses-related parties consists of interest and expenses due to
an officer of the Company of approximately $16,000 and $82,000 at March 31,
1997 and 1996, respectively. In addition, accrued expenses-related parties
includes interest and professional fee of approximately $54,000 due to an
officer/stockholder of the Company at March 31, 1997 and 1996.
Tel has obtained professional services from an officer/stockholder with the
related fees amounting to approximately $35,600, $21,000 and $12,000 which
are included in selling, general and administrative expenses for the years
ended March 31, 1997, 1996 and 1995, respectively.
The Company's $30,000 convertible subordinated note-related party matured
on March 31, 1997. The Company renegotiated such note and satisfied $15,000
of this obligation and extended the maturity date of the remaining $15,000
until March 31, 1999. This note accrues interest semi-annually at a rate of
7%. The subordinate note is for past professional fees and services
converted into a note payable due to an officer/stockholder of the Company.
The notes are convertible to common stock at the option of the holder at
$1.50 per share, at any time prior to maturity.
10. Convertible Subordinated Notes
The Company's $35,000 convertible subordinated note matured and was
discharged on March 31, 1997.
During the year ended March 31, 1995, a convertible subordinated note with
a face value of $35,000 was redeemed for $23,000. The gain on this
transaction of $12,000 has been recognized as an extraordinary item -
extinguishment of debt. As part of the redemption transaction the
subordinated noteholders adjusted the interest due and accrued by $6,942.
This income has been reflected within the operating statement line item
interest expense-related parties.
11. Leases
The Company rents its office space and manufacturing facility under a lease
agreement expiring in August, 1998. Minimum lease payments are $55,824 in
1997 and $20,934 in
25
<PAGE>
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Financial Statements (Continued)
11. Leases (Continued)
1998. Under terms of the lease, the Company pays all real estate taxes and
utility costs for the premises.
Total rent expense, including real estate taxes, was approximately $80,000,
$84,000, and $85,000 for the years ended March 31, 1997,1996 and 1995,
respectively.
12. Significant Customer Concentrations
No distributor or end user customer accounted for more than 10% of
commercial sales for the year ended March 31, 1997. Sales to a major
commercial distributor accounted for 14% and 12% of total commercial
revenue for the years ended March 31, 1996 and 1995, respectively. Sales to
another commercial distributor accounted for 12% of total commercial
revenue for the year ended March 31, 1996. Foreign commercial sales were
14%, 27% and 17% of total commercial sales for the years ended March 31,
1997, 1996 and 1995, respectively.
Government sales to the USAF were 46% and 37% of total government sales,
respectively, for the years ended March 31, 1997 and 1996. Government sales
to the CDF and US Army for the fiscal year ended March 31, 1996 were 30%
and 18% of total government sales, respectively. Government sales to the
CDF and US Coast Guard for the fiscal year ended March 31, 1995 were 54%
and 23% of total government sales, respectively.
13. Stock Option Plan
The Company has a stock option plan that provides for the granting of
options to employees and directors. Activity during 1997, 1996 and 1995 is
summarized below (in number of options):
1997 1996 1995
------- ------- -------
Held at beginning of year 107,886 54,153 57,653
Granted 6,933 53,733 --
Exercised 1,667 -- --
Canceled or expired 19,933 -- (3,500)
------- ------- -------
Held at end of year 93,219 107,886 54,153
======= ======= =======
26
<PAGE>
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Financial Statements (Continued)
13. Stock Option Plan (Continued)
For the years ended March 31, 1997, 1996 and 1995 the Company had 59,130,
38,100 and 21,600 of options outstanding and exercisable.
As of March 31, 1997, the Company had 93,219 options outstanding of which
86,286 are exercisable at $0.375 per share with a weighted average
remaining contractual life of 2.4 years and 6,933 are exercisable at $0.72
per share with a weighted average remaining contractual life of 4.2 years.
The per share weighted-average fair value of stock options granted during
1997 and 1996 were $0.64 and $0.33, respectively on the date of grant using
the Black Scholes option-pricing model with the following weighted-average
assumptions: expected dividend yield of 0.0%, risk-free interest rate of
5%, volatility factor of 135%, and an expected life of 5 years. The Company
applies Accounting Principles Board Opinion No. 25 in accounting for its
stock options and, accordingly, no compensation expense has been recognized
for its stock options in the financial statements. Had the Company
determined compensation cost based on the fair market value at the grant
date for its stock options under SFAS No. 123, the Company's net income
would not have been materially affected. The pro forma amounts are
indicated below:
1997 1996
------- -------
Net income - as reported $781,284 $ 95,679
Net income - pro forma 775,526 92,524
Earnings per share - as reported $ 0.41 0.04
Earnings per share - pro forma 0.41 0.04
In accordance with SFAS No. 123, pro forma net income and earnings per
share data reflect only options granted in 1996 and 1997. Therefore, the
full impact of calculating compensation expense for stock options under
SFAS No. 123 is not reflected in the pro forma amounts presented above
since compensation expense for options granted prior to April 1, 1995 was
not considered.
27
<PAGE>
TEL-INSTRUMENT ELECTRONICS CORP.
Schedule II - Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Balance at Charged to Charged Balance
Beginning Costs and to Other at End
Description of Period Expenses Accounts Deductions of Year
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended March 31, 1995:
Allowance for doubtful
accounts $ 35,090 $16,000 $ 51,090
======== ======= ========
Allowance for obsolete
inventory $ 79,900 $70,336 $ 46,200(1) $104,036
======== ======= ======== ========
Year ended March 31, 1996:
Allowance for doubtful
accounts $ 51,090 $15,000 $ 66,090
======== ======= ========
Allowance for obsolete
inventory $104,036 $ (1,673) $ 42,242(1) $ 60,121
======== ======== ======== ========
Year ended March 31, 1997:
Allowance for doubtful
accounts $ 66,090 $ 569(2) $ 65,521
======== ======== ========
Allowance for obsolete
inventory $ 60,121 8,298 68,419
======== ======== ========
</TABLE>
(1) Amounts represent disposals of obsolete inventory.
(2) Amount represents write off of accounts receivable.
28
<PAGE>
TEL-INSTRUMENT ELECTRONICS CORP.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
No disagreements arose between the Registrant and its independent
auditors' regarding accounting and financial matters during the twelve
months preceding March 31, 1997.
PART III
Item 10. Directors and Executive Officers of the Registrant
DIRECTORS AND EXECUTIVE OFFICERS
Year First
Elected a
Name (age) Position Director
- ---------- -------- --------
Harold K. Fletcher Chairman of the Board, 1982
(72) President and Chief
Executive Officer
since 1982.
George J. Leon Director; Investment 1986
(53) Manager and beneficiary of
the George Leon Family Trust
(investments) since 1986.
Robert H. Walker Director; Executive Vice 1984
(61) President, Robotic Vision
Systems, Inc. (design and
manufacture of robotic
vision systems),
1983-present.
There are no family relationships between any of the Directors and
Officers of the Registrant.
Officers
- --------
Donald S. Bab Secretary and General Counsel since 1982.
Richard J. Wixson Vice President of Manufacturing, employed by Tel
in his present capacity since 1987.
29
<PAGE>
Item 11. Executive Compensation
The following table and accompanying notes set forth information
concerning compensation for the fiscal years ended March 31, 1997 1996
and 1995.
Stock Other
Name and Principal Position Year Salary(1) Options Compensation(2)
- -------------------------------------------------------------------------------
Harold K. Fletcher 1997 $100,000 $ --
Chairman of Board 1996 86,250 --
President and Chief 1995 85,000 2,500
Executive Officer
(1) Salaries includes wages deferred in 1997 and 1996 of $5,193 and $1,250,
respectively.
(2) Other compensation represents compensation for debt guarantees.
30
<PAGE>
TEL-INSTRUMENT ELECTRONICS CORP.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following tables set forth, as of March 31, 1997, the number and
percentage of the outstanding shares of common stock, beneficially
owned by each director and by each beneficial owner of 5% or more of
such shares, and by all officers and directors as a group.
Number of Shares Percentage
Name and Address Beneficially Owned of Class(1)
- ---------------- ------------------ -----------
Harold K. Fletcher, Director 496,102 (2) 24.1%
728 Garden Street
Carlstadt, New Jersey 07072
George J. Leon, Director 302,199 (3) 14.9%
116 Glenview
Toronto, Ontario
Canada M4R1P8
Robert H. Walker, Director 20,450 (4) 1.0%
425 Robro Drive East
Hauppague, New York 11788
Donald S. Bab, Secretary
330 Madison Avenue
New York, NY 10017 65,634 (5) 3.2%
All Officers and Directors 924,863 (6) 44.5%
as a Group (6 persons)
(1) The class includes 2,030,948 shares outstanding. The common stock deemed to
be owned which is not outstanding but subject to currently exercisable
options is deemed to be outstanding for determining the percentage of all
outstanding stock owned.
(2) Includes 24,681 shares owned by Mr. Fletcher's wife, 4,254 shares owned by
his son, 261,295 owned by a family partnership in which Mr. Fletcher is a
partner and 25,787 shares of common stock issuable to Mr. Fletcher upon
conversion of options. Mr. Fletcher disclaims beneficial ownership of the
shares owned by his wife and son and by the partnership.
(3) Includes 299,516 shares owned by the George Leon Family Trust, of which Mr.
Leon is a beneficiary, and 2,693 shares subject to currently exercisable
stock option. Mr. Leon disclaims beneficial ownership of the shares owned
by the trust.
(4) Includes 4,117 shares subject to currently exercisable stock options.
31
<PAGE>
TEL-INSTRUMENT ELECTRONICS CORP.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(Continued)
(5) Includes 3,333 shares subject to currently exercisable stock optioins.
(6) Includes 45,931 shares subject to currently exercisable options held by all
executive offices and directors of the Company (including those
individually named above).
Item 13. Certain Relationships and Related Transactions
The disclosures required by this item are contained in Note 9 to the
financial statements included on pages 24-25 of this document.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 10-K
a.) The following documents are filed as a part of this report:
Pages
-----
(1) Financial Statements:
Report of Independent Accountants 12
Balance Sheets - March 31, 1997 and 1996 13
Statements of Operations - Years Ended
March 31, 1997, 1996 and 1995 14
Statements of Changes in Stockholders'
Equity/(Deficiency) - Years Ended
March 31, 1997, 1996 and 1995 15
Statements of Cash Flows - Years Ended
March 31, 1997, 1996 and 1995 16
Notes to Financial Statements 17-27
(2) Financial Statement Schedule:
II - Valuation and Qualifying Accounts 28
(3) Restated Certificate of Incorporation dated
November 8, 1996
b.) No reports on Form 8-K were filed during the fourth quarter of
1997.
32
<PAGE>
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 10-K
(Continued)
c.) Exhibits identified in parentheses below on file with the
Securities and Exchange Commission, are incorporated herein by
reference as exhibits hereto.
* (3.1) Tel-Instrument Electronics Corp.'s Certificate
of Incorporation, as amended.
* (3.2) Tel-Instrument Electronics Corp.'s By-Laws, as
amended.
* (3.3) Tel-Instrument Electronics Corp.'s Restated
Certificate of Incorporation dated November 8,
1996.
* (4.1) Specimen of Tel-Instrument Electronics Corp.'s
Common Stock Certificate.
* (4.2) Specimen of Tel-Instrument Electronics Corp.'s
Convertible Preferred Stock Certificate.
(10.1) Lease dated August 15, 1994, by and between
Registrant and 210 Garibaldi Avenue Corp.
(10.2) Department of the Air Force Contract No. G-1331,
dated August 30, 1994.
(10.3) Canadian Defense Forces Contract No. G-1457,
dated December 22, 1993.
(10.4) 7%, $35,000 Convertible Subordinated Note dated
March 31, 1992 by and between Registrant and
George Bresler.
(10.5) 7%, $30,000 Convertible Subordinated Note dated
March 31, 1992 between Registrant and Donald S.
Bab.
* (10.6) Guarantee of bank loan, $50,000 Key Bank of
Western New York, N.A., Promissory Note dated
July 29, 1988, and Letter Agreement dated July
27, 1988 by and between Issuer, Kevin S.
Neumaier and Kirsten S. Neumaier.
** (27.) Financial Data Schedule
* Incorporated by reference to Registration 33-18978 dated November
7, 1988.
** Financial Data Schedule which is submitted electronically to the
Securities and Exchange Commission for information only and is
not filed.
The Company will furnish, without charge to a security holder, upon
request, copy of the documentary portions which are incorporated by
reference, and will furnish any other exhibit at cost.
33
<PAGE>
TEL-INSTRUMENT ELECTRONICS CORP.
Signatures
Pursuant to the requirements of Section 13 or 15(d) 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.
(Registrant)
Dated: June 28, 1997 By: /s/ Harold K. Fletcher
----------------------
President and Director
(Principal Executive
Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated and by signature
hereto.
Signature Title Date
--------- ----- ----
/s/ Harold K. Fletcher Director June 28, 1997
---------------------------
/s/ Harold K. Fletcher
/s/ George J. Leon Director June 28, 1997
---------------------------
/s/ George J. Leon
/s/ Robert H. Walker Director June 28, 1997
---------------------------
/s/ Robert H. Walker
Supplemental Information to be Furnished with Reports Filed Pursuant to
Section 15(d) of the Act by Registrants Which Have Not Registered
Securities Pursuant to Section 12 of the Act.
No annual report to security holders covering the fiscal year ended March
31, 1997, except in the form set forth in this Form 10-K, has been
prepared. No proxy statement, form of proxy, or other proxy soliciting
material has been sent to shareholders with respect to any annual or other
meeting of shareholders. No annual report or proxy material is
contemplated.
34
FILED
RESTATED CERTIFICATE OF INCORPORATION
NOV 8 1996
OF
LONNA R. HOOKS
TEL-INSTRUMENT ELECTRONICS CORP. Secretary of State
To: The Secretary of State
State of New Jersey
Pursuant to provision of Section 14A:9-5, Corporations, General, of the New
Jersey Statutes, the undersigned corporation hereby executes the following
Restated Certificate of Incorporation:
FIRST: The name of the corporation is Tel-Instrument Electronics Corp.
SECOND: The corporation may engage in any activity within the purposes for
which corporations may be organized under the New Jersey Business Corporation
Act.
THIRD: Majority Voting: Any proposal submitted to a shareholder vote shall
be approved at a duly convened meeting where a majority of the outstanding
shares entitled to vote are present in person or by proxy, upon receiving the
affirmative vote of the holders of a majority of the shares present and entitled
to vote.
FOURTH: A director or officer of Tel-Instrument Electronics Corp. shall not
be personally liable to the corporation or its shareholders for damages for
breach of any duty owed to the corporation or its shareholders, except as to
1
<PAGE>
liability for any breach of duty based upon an act or omission (a) in breach of
such persons duty of loyalty to the corporation or its shareholders (b) not in
good faith or involving a knowing violation of law or (c) resulting in receipt
by such person of an improper personal benefit. As used herein, an act or
omission in breach of a person's duty of loyalty means an act or omission which
that person knows or believes to be contrary to the best interests of the
corporation or its shareholders in connection with a matter in which he has a
material conflict of interest.
FIFTH: The aggregate number of shares which the corporation shall have
authority to issue is 5,000,000, itemized by classes, par value of shares, and
series, if any within a class as follows:
Series Number of
Class (if any) Shares Par value per share
- ----- -------- ------ -------------------
Common -- 4,000,000 $.10 par value
per share
Preferred 1,000,000 --
The relative rights, preferences and limitations of the shares of each
class and series (if any), are as follows:
The Board of Directors of the Corporation shall have the power, and is
hereby authorized, to divide the authorized and unissued shares of the
Corporation's Preferred Stock into classes and into series within any class or
classes, to determine the designation and the number of shares of any class, or
series, to determine the relative rights, preferences, and limitations of
2
<PAGE>
the shares of any class or series, including, but not limited to, the
convertibility of any shares of one class or series into shares of another class
or series, and to change the designation or number of shares, or the relative
rights, preferences, or limitations of the shares, of any theretofore
established class or series, no shares of which have been issued, all to the
fullest extent and in the manner provided by the New Jersey Business Corporation
Act, as heretofore or hereafter amended.
Any and all authorized shares of the Corporation may be issued and sold in
such manner, in such amounts and proportions, and for such consideration, as
from time to time may be fixed and determined by the Board of Directors of the
Corporation, and any shares, when so issued, shall be fully paid and
nonassessable.
SIXTH: The address of the corporation's current registered office is 728
Garden Street, Carlstadt, New Jersey 07072 and the name of its current
registered agent at such address is Harold K. Fletcher.
SEVENTH: The number of directors constituting the current board of
directors is three (3).
The names and addresses of the directors are as follows;
Names Addresses
----- ---------
Harold K. Fletcher 728 Garden Street
Carlstadt, New Jersey 07072
George J. Leon 728 Garden Street
Carlstadt, New Jersey 07072
Robert H. Walker 728 Garden Street
Carlstadt, New Jersey 07072
3
<PAGE>
CERTIFICATE REQUIRED TO BE FILED WITH THE
RESTATED CERTIFICATE OF INCORPORATION
OF
TEL-INSTRUMENT ELECTRONICS CORP.
Pursuant to the provisions of Section 14A:9-5(5), Corporations, General, of
the New Jersey Statues, the undersigned Corporation hereby executes the
following certificate:
FIRST: The name of the corporation is Tel-Instrument Electronics Corp.
SECOND: The Restated Certificate of Incorporation was adopted on the 5th
day of September, 1996.
THIRD: At the time of the adoption of the Restated Certificate of
Incorporation, the number of shares outstanding was 1,782,526. The total of such
shares entitled to vote thereon, and the vote of such shares was:
Total Number of Shares Number of Shares Voted
Entitled to Vote For Against
---------------- --- -------
1,782,526 1,227,086 -0-
FOURTH: At the time of the adoption of the Restated Certificate of
Incorporation, the number of outstanding shares of each class or series entitled
to vote thereon as a class and the vote of such shares, was: (if inapplicable,
insert "none".)
Class or Series Number of Shares Number of Shares
Entitled to Vote Voted
---------------- -----
None For Against
--- -------
<PAGE>
FIFTH: This Restated Certificate of Incorporation restates and integrates
and further amends the Certificate of Incorporation of this corporation by:
a) Increasing the number of authorized shares to 5,000,000 shares,
divided between 4,000,000 shares of common stock par value $.10 per share and
1,000,000 shares of preferred stock as to which the directors can determine the
relative rights, preferences and limitations pursuant to paragraph fifth of the
Restated Certificate of Incorporation.
b) 125,026 shares of 8% redeemable preferred stock, redeemed on August
9, 1996, were cancelled on September 5, 1996
SIXTH: The effective date of this amendment shall be on filing.
Dated this 28 day of October 1996
TEL-INSTRUMENT ELECTRONICS CORP.
By: /s/ Harold K. Fletcher
-------------------------------
Harold K. Fletcher
President
<TABLE> <S> <C>
<ARTICLE> 5
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<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
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<CURRENT-ASSETS> 1,269
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0
0
<COMMON> 203
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<TOTAL-LIABILITY-AND-EQUITY> 1,648
<SALES> 3,166
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<INCOME-TAX> (340)
<INCOME-CONTINUING> 781
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<NET-INCOME> 781
<EPS-PRIMARY> .41
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