UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------------
FORM 10-Q
_X_ QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 33-18978
TEL-INSTRUMENT ELECTRONICS CORP.
(Exact name of the Registrant as specified in Charter)
New Jersey 22-1441806
(State of Incorporation) (I.R.S. Employer ID Number)
728 Garden Street, Carlstadt, New Jersey 07072
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone No. including Area Code: 201-933-1600
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes _X_ No ____
Indicate the number of shares outstanding of the issuer's common stock, as of
the latest practical date:
2,035,181 shares of Common stock, $.10 par value as of August 4, 1997.
<PAGE>
TEL-INSTRUMENT ELECTRONICS CORPORATION
TABLE OF CONTENTS
PAGE
----
Item 1. Financial Statements (Unaudited):
Condensed Comparative Balance Sheets
June 30, 1997 and March 31, 1997 1
Condensed Comparative Statements of Operations -
Three Months Ended June 30, 1997 and 1996 2
Condensed Comparative Statements of Cash Flows -
Three Months Ended June 30, 1997 and 1996 3
Notes to Condensed Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 5-7
SIGNATURES 7
<PAGE>
Item 1 - Financial Statements
TEL-INSTRUMENT ELECTRONICS CORPORATION
CONDENSED COMPARATIVE BALANCE SHEETS
June 30, 1997 and March 31, 1997
(Unaudited) (Unaudited)
ASSETS June 30, March 31,
1997 1997
----------- -----------
Current assets:
Cash $ 328,480 528,636
Accounts receivable, net of allowance for
doubtful accounts of $65,521 at June 30, 1997
and March 31, 1997, respectfully 506,306 302,737
Inventories 453,204 352,173
Other current assets 6,521 6,944
Deferred income tax benefit - current 78,300 78,300
----------- -----------
Total current assets 1,372,811 1,268,790
Office and manufacturing equipment, net 42,521 45,492
Other assets, net 71,884 71,884
Deferred income tax benefit 203,561 261,900
----------- -----------
Total assets 1,690,777 1,648,066
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accrued payroll, deferred wages and vacation pay 347,746 342,432
Accounts payable and accrued expenses 435,049 485,380
----------- -----------
Total current liabilities 782,795 827,812
Convertible subordinated notes - related parties 365,000 365,000
----------- -----------
Total liabilities 1,147,795 1,192,812
=========== ===========
Stockholders' equity:
Common stock 203,097 203,097
Additional paid-in capital 3,901,052 3,901,052
Accumulated deficit (3,561,167) (3,648,895)
----------- -----------
Total stockholders' equity 542,982 455,254
----------- -----------
Total liabilities and stockholders' equity $ 1,690,777 1,648,066
=========== ===========
See accompanying notes to condensed financial statements
1
<PAGE>
TEL-INSTRUMENT ELECTRONICS CORPORATION
CONDENSED COMPARATIVE STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
June 30,
1997 1996
----------- -----------
Sales:
Government, net $ 557,514 431,039
Commercial, net 313,309 202,568
----------- -----------
Total sales 870,823 633,607
Cost of sales 336,220 279,594
----------- -----------
Gross margin 534,603 354,013
Operating expenses:
Selling, general and administrative 218,930 215,365
Engineering,research and development 157,945 111,251
----------- -----------
Total operating expenses 376,875 326,616
----------- -----------
Profit from operations 157,728 27,397
Other income (expenses):
Interest income 6,082 225
Interest expense (17,743) (16,886)
----------- -----------
Income before incomes 146,067 10,736
Provision for income taxes 58,339 --
----------- -----------
Net income 87,728 10,736
=========== ===========
Net income per common share $ 0.04 0.01
=========== ===========
Dividends per share None None
Weighted average shares outstanding 2,091,071 1,603,806
See accompanying notes to condensed financial statements
2
<PAGE>
TEL-INSTRUMENT ELECTRONICS CORPORATION
CONDENSED COMPARATIVE STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1997 1996
--------- ---------
<S> <C> <C>
Increase (decrease) in cash:
Cash flows from operating activities
Net income $ 87,728 10,736
Adjustments to reconcile net income to cash
provided by operating activities:
Deferred income taxes 58,339 --
Depreciation 6,614 5,461
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (203,569) 8,249
(Increase) decrease in inventories (101,031) 10,766
Decrease in other current assets 423 2,081
(Increase) decrease in other assets -- --
(Increase (decrease) in accrued payroll, deferred wages
and vacation pay 5,314 (279)
(Decrease) increase in accounts payable and accrued expenses (50,331) 62,358
--------- ---------
Net cash (used in) provided by operations (196,513) 99,372
--------- ---------
Cash flows from investing activities:
Cash purchases of property, plant and equipment (3,643) (5,619)
--------- ---------
Net cash used in investing activities (3,643) (5,619)
--------- ---------
Cash flows from financing activities:
Repayment of debt -- --
--------- ---------
Net cash used in financing activities -- --
--------- ---------
Net (decrease) increase in cash (200,156) 93,753
Cash at beginning of period 528,636 22,625
--------- ---------
Cash at end of period $ 328,480 116,378
========= =========
</TABLE>
See accompanying notes to condensed financial statements.
3
<PAGE>
TEL-INSTRUMENT ELECTRONICS CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note 1 Basis of Presentation
In the opinion of management, the accompanying unaudited condensed financial
statements contain all adjustments (consisting only of normal recurring
accruals) necessary to present fairly the financial position of Tel-Instrument
Electronics Corp. as of June 30, 1997, the results of operations for the three
months ended June 30, 1997 and June 30, 1996, and statements of cash flows for
the three months ended June 30, 1997 and June 30, 1996. These results are not
necessarily indicative of the results to be expected for the full year.
The financial statements have been prepared in accordance with the requirements
of Form 10-Q and consequently do not include disclosures normally made in an
Annual Report on Form 10-K. The March 31, 1997 results included herein have been
derived from the audited financial statements included in the Company's annual
report on Form 10-K. Accordingly, the financial statements included herein
should be reviewed in conjunction with the financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1997.
Note 2 Inventories
Inventories consist of:
June 30, March 31,
1997 1997
----------------------------
Purchased parts $230,915 $ 213,842
Work-in-process 290,594 206,750
Less: Reserve for obsolescence (68,305) (68,419)
----------------------------
$453,204 $ 352,173
============================
Note 3 Reclassifications
Certain reclassifications have been made to the fiscal year 1997 financial
statements to be consistent with the fiscal year 1998 presentation.
Note 4 Income Taxes
At March 31, 1997, the Company, in accordance with FASB 109, reduced the
valuation allowance and recognized a deferred income tax benefit of $340,200.
The recognized deferred income tax benefit is based upon the expected
utilization of net operating loss carryforwards as the Company believes it is
more likely than not that it will realize a portion of its net operating losses
before they expire. For the three months ended June 30, 1997, the Company
recorded a provision for income taxes of $58,339, which represents the effective
federal and state tax rate on the Company's net income before taxes of $146,067.
The Company has no tax liability. The $58,339 reduced the Company's deferred
income tax benefit at June 30, 1997 and such amounts are reflected in the
accompanying balance sheet. This amount represents a portion of the net
operating loss tax benefit that the Company previously recognized for financial
statement reporting purposes and expects to utilize for tax reporting purposes.
4
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Sales
For the three months ended June 30, 1997 net sales increased $237,216 (37.4%) as
compared to the three months ended June 30, 1996. Sales increased for both the
government and commercial segments. Government sales increased $126,475 (29.3%)
related to a contract with the USAF. Although commercial sales increased
$110,741 (54.7%), the Company does not expect this to continue because the
commercial market remains uncertain. The Company continues to focus its efforts
in the government market and has been very active in responding to requests from
the U.S. Government and has been adapting its product designs to respond to
these requests.
During the first quarter of Fiscal 1998, the Company identified technical issues
with one of its products scheduled to be delivered during the second quarter of
Fiscal 1998. The Company has corrected such technical issues, however, second
quarter production and resulting shipments may be delayed. Accordingly, the
Company believes that its second quarter results may be adversely affected.
On August 12, 1997 the Company also received notice that it had been awarded a
major contract from the U.S. Navy. The initial order is for $949,324 to provide
5 T-47M IFF test sets for Navy evaluation and for associated documentation. This
work, to be completed within the next 12 months, represents a major milestone
for the Company since it could be a source of significant future revenues. The
contract includes options for up to 1,300 units which the Navy can exercise
through the year 2001. There is no assurance that they will exercise these
options.
The Company continues to explore expanding into other markets in order to
capitalize on its test equipment technology. However, there can be no assurance
that the Company will be successful in its efforts.
Gross Margin
Gross margin increased $180,590 (51.0%), as compared to the same period in the
prior fiscal year. Gross margin as a percent of sales was 61.4% for the three
months ended June 30, 1997, as compared to 55.9% for the three months ended June
30, 1996. The higher gross margin is primarily attributed to the increase in
sales volume and a shift in product mix which included a higher volume of
commercial sales. There were no significant price increases for the first three
months of fiscal year 1998. The Company does not expect to maintain this higher
gross margin percentage due to the higher mix of lower margin government sales
expected to be shipped during the remainder of the current fiscal year.
Operating Expenses
Selling, general and administrative expenses increased $3,565 (1.7%) for the
three months ended June 30 , 1997 as compared to the same period last year.
Increases in commissions associated with the higher government sales and in
expenses incurred related to the Company's efforts to explore additional markets
were partially offset by lower selling expenses. Engineering, research and
development expenses increased $46,694 (42.0%) reflecting the Company's
commitment and efforts to develop new products.
5
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations (continued)
Interest
Interest income increased as a result of the Company's higher cash balances..
Income Before Taxes
Income before taxes increased to $146,067 for the three months ended June 30,
1997, as compared to $10,736 for the three months ended June 30, 1996.
Provision for Income Taxes
A provision for income taxes was not recognized in the prior fiscal year first
quarter because the Company applied a full valuation allowance. At March 31,
1997, the Company reduced the valuation allowance and recognized deferred income
taxes. For the three months ended June 30, 1997 the Company has recorded a
provision for income taxes utilizing the estimated effective Federal and State
income tax rates for fiscal 1998.
Net Income
Net income for the three months ended June 30, 1997 was $87,728 or $0.04 per
share, as compared to $10,736 or $0.01 per share for the three months ended June
30, 1996. The improvement in net income per common share was partially offset by
the increase in the number of shares outstanding.
Liquidity and Capital Resources
At June 30, 1997 the Company had positive working capital of $590,016 as
compared to $440,978 at March 31, 1997. As such the Company's liquidity position
continues to improve. The Company's net worth increased to $542,982 at June 30,
1997, as compared to $455,254 at March 31, 1997 as a result of the Company's
continued profitability. For the three months ended June 30, 1997, cash used in
operations was $196,513 as compared to cash provided by operations of $99,372
for the three months ended June 30, 1997. This decrease in cash provided by
operations is primarily a result of an increase in accounts receivable for items
shipped late in the quarter, an increase in inventories associated with orders
to be shipped in the current fiscal year, and a decrease in accounts payable and
accrued expenses.
The Company continues to explore opportunities 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 for the next
year. At present, the Company does not expect to incur significant long-term
needs for capital outside of its normal operating activities.
There was no significant impact on the Company's operations as a result of
inflation for the three months ended June 30, 1997.
These financial statements should be read in conjunction with the Company's
Annual Report on Form 10-K to the Securities and Exchange Commission for the
fiscal year ended March 31, 1997.
6
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Recent Pronouncements
In June 1997 the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income". SFAS No. 130 establishes the standards for
reporting and displaying comprehensive income and its components (revenues,
expenses, gains, and losses) as part of a full set of financial statements. This
statement requires that all elements of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. The statement is effective for fiscal years beginning
after December 15, 1997. For this company, this means the standard is effective
April 1, 1998. Since this standard applies only to the presentation of
comprehensive income, it will not have any impact on the Company's results of
operations, financial position or cash flows.
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 1997 By: /s/ Harold K. Fletcher
------------- -----------------------------
/s/ Harold K. Fletcher
Chairman and President
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<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 328
<SECURITIES> 0
<RECEIVABLES> 572
<ALLOWANCES> 66
<INVENTORY> 453
<CURRENT-ASSETS> 1,373
<PP&E> 43
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0
0
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<OTHER-EXPENSES> 377
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<INCOME-TAX> 58
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<NET-INCOME> 88
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
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