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 September 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 November 6, 1997.
<PAGE>
TEL-INSTRUMENT ELECTRONICS CORPORATION
TABLE OF CONTENTS
PAGE
----
Item 1. Financial Statements (Unaudited):
Condensed Comparative Balance Sheets
September 30, 1997 and March 31, 1997 1
Condensed Comparative Statements of Operations -
Three and Six Months Ended September 30, 1997 and 1996 2
Condensed Comparative Statements of Cash Flows -
Six Months Ended September 30, 1997 and 1996 3
Notes to Condensed Financial Statements 4
Item 2. Management's Discussion and Analysis of the Results
of Operations and Financial Condition 5-7
SIGNATURES 7
<PAGE>
Item 1 - Financial Statements
TEL-INSTRUMENT ELECTRONICS CORPORATION
CONDENSED COMPARATIVE BALANCE SHEETS
September 30, 1997 and March 31, 1997
(Unaudited)
ASSETS September 30, March 31,
1997 1997
------------- -----------
Current assets:
Cash $ 347,974 $ 528,636
Accounts receivable, net of
allowance for doubtful
accounts of $58,821 at
September 30, 1997 and
$65,521 at March 31, 1997 554,171 302,737
Inventories 446,166 352,173
Other current assets 21,076 6,944
Deferred income tax
benefit - current 78,300 78,300
----------- -----------
Total current assets 1,447,687 1,268,790
Office and manufacturing
equipment, net 74,747 45,492
Other assets, net 86,884 71,884
Deferred income tax benefit 168,436 261,900
----------- -----------
Total assets 1,777,754 1,648,066
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accrued payroll, deferred
wages and vacation pay 356,711 342,432
Accounts payable and
accrued expenses 458,655 485,380
----------- -----------
Total current liabilities 815,366 827,812
Convertible subordinated notes -
related parties 365,000 365,000
----------- -----------
Total liabilities 1,180,366 1,192,812
=========== ===========
Stockholders' equity:
Common stock 203,521 203,097
Additional paid-in capital 3,902,216 3,901,052
Accumulated deficit (3,508,349) (3,648,895)
----------- -----------
Total stockholders' equity 597,388 455,254
----------- -----------
Total liabilities and
stockholders' equity $ 1,777,754 $ 1,648,066
=========== ===========
See accompanying notes to condensed financial statements
1
<PAGE>
TEL-INSTRUMENT ELECTRONICS CORPORATION
CONDENSED COMPARATIVE STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales
Government, net 567,191 353,335 1,124,705 784,374
Commercial, net 276,850 248,266 590,159 450,834
--------- --------- --------- ---------
Total sales 844,041 601,601 1,714,864 1,235,208
Cost of sales 351,674 224,558 687,894 504,152
--------- --------- --------- ---------
Gross margin 492,367 377,043 1,026,970 731,056
Operating expenses
Selling, general & administrative 184,245 196,740 403,175 412,105
Engineering, research & development 205,981 109,078 363,926 220,329
--------- --------- --------- ---------
Total operating expenses 390,226 305,818 767,101 632,434
Income from operations 102,141 71,225 259,869 98,622
Other income (expense):
Interest income 5,651 384 11,733 609
Interest expense (19,849) (16,221) (37,592) (33,107)
--------- --------- --------- ---------
Income before taxes 87,943 55,388 234,010 66,124
Provision for income taxes 35,125 -- 93,464 --
--------- --------- --------- ---------
Net income 52,818 55,388 140,546 66,124
========= ========= ========= =========
Income per common share 0.03 0.03 0.07 0.04
Dividends per share None None None None
Weighted average shares outstanding 2,101,067 1,782,526 2,096,531 1,705,932
</TABLE>
See accompanying notes to condensed finanical statements
2
<PAGE>
CONDENSED COMPARATIVE STATEMENTS OF CASH FLOWS
TEL-INSTRUMENT ELECTRONICS CORPORATION
CONDENSED COMPARATIVE STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
September 30,
1997 1996
---- ----
Increase (decrease) in cash:
Cash flows from operating activities
Net income $ 140,546 $ 66,124
Adjustments to reconcile net income
to cash provided by operating activities:
Deferred income taxes 93,464 --
Depreciation 12,535 11,754
Changes in assets and liabilities:
(Increase) decrease in accounts
receivable, net (251,434) 232,954
(Increase) decrease in inventories (93,993) (98,196)
(Increase) decrease in other
current assets (14,132) 3,873
(Increase) decrease in other assets (15,000) 1,127
Increase (decrease) in accrued payroll,
deferred wages and vacation pay 14,279 (121,683)
(Decrease) increase in accounts payable
and accrued expenses (26,725) 16,607
--------- ---------
Net cash (used in) provided by operations (140,460) 112,560
--------- ---------
Cash flows from investing activities:
Cash purchases of property,
plant and equipment (41,790) (16,196)
--------- ---------
Net cash used in investing activities (41,790) 16,196
--------- ---------
Cash flows from financing activities:
Procees from exercise of stock options 1,588 --
Proceeds from issuance of common stock -- 87,500
--------- ---------
Net cash provided by financing activities 1,588 87,500
--------- ---------
Net (decrease) increase in cash (180,662) 183,864
Cash at beginning of period 528,636 22,625
--------- ---------
Cash at end of period $ 347,974 $ 206,489
========= =========
Non-Cash Items:
Preferred stock redeemed and exchanged
for common stock -- $ 606,643
Stock issued to related party
for liabilities -- $ 46,540
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 September 30, 1997, the results of operations for the
three and six months ended September 30, 1997 and September 30, 1996, and
statements of cash flows for the six months ended September 30, 1997 and
September 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 amounts included herein have been
derived from the audited financial statements included in the Company's annual
report on Form 10-K. 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:
September 30, March 31,
1997 1997
----------------------------
Purchased parts $ 271,562 $ 213,842
Work-in-process 242,909 206,750
Less: Reserve for obsolescence (68,305) (68,419)
----------------------------
$ 446,166 $ 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 six months ended September 30, 1997, the Company
recorded a provision for income taxes of $93,464, which represents the effective
federal and state tax rate on the Company's net income before taxes of $234,010.
The Company has no tax liability. The $93,464 tax provision reduced the
Company's deferred income tax by the same amount at September 30, 1997. This
amount represents a portion of the net operating loss tax benefit as stated on
the March 31, 1997 Balance Sheet that the Company previously recognized for
financial statement reporting purposes and expects to utilize in the future for
tax reporting purposes.
4
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
The Company continues to increase sales and income from operations while
increasing its research and development expenditures. This investment in
research and development is necessary to sustain the growth and profitability of
the Company by producing innovative, state-of-the-art products.
Sales
Sales increased $242,440 (40.3%) and $479,656 (38.8%) for the three and six
months ended September 30, 1997, respectively, as compared to the same periods
last year. The sales increases were both in the government and commercial
markets. Government sales increased $213,856 (60.5%) and $340,331 (43.4%)
related to a contract with the USAF. Commercial sales increased $28,584 (11.5%)
and $139,325 (30.1%) for the three and six months ended September 30, 1997,
respectively, as compared to the three and six months ended September 30, 1996.
The Company continues to focus its efforts in the government market, has been
very active in responding to requests from the U.S. Government for quotations,
and has been adapting its product designs to respond to these requests.
During the first quarter of this year, the Company identified certain technical
issues with one of its products scheduled to be delivered during the second
quarter of Fiscal 1998. The Company corrected such technical issues and most of
the units will be shipped during the third quarter. As such, second quarter
results were adversely affected but, the Company expects that such shipments
will have a positive affect on the third quarter.
On August 12, 1997 the Company received notice that it had been awarded a major
contract from the U.S. Navy. The initial order is for $949,324 to provide five
T-47M IFF test sets, for Navy evaluation, and associated documentation. This
work, to be completed within the next 12 months, represents a major milestone
for the Company since this contract could be a significant source of 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 these options will be
exercised by the Navy. During September 1997, the U.S. Navy conducted a Program
Design Review (PDR) for this contract and the Company believes that such review
was favorable.
The Company continues to explore expanding into other markets in order to
capitalize on its technology.
Gross Margin
Gross margin increased $115,324 (30.6%) and $295,914 (40.5%) for the three and
six months ended September 30, 1997, respectively, as compared to the same
periods in the prior fiscal year. Gross margin as a percent of sales was 58.3%
and 59.9% for the three and six months ended September 30, 1997, respectively,
as compared to 62.7% and 59.2% for the three and six months ended September 30,
1996, respectively. For the six months ended September 30, 1997, the increase in
gross margin primarily reflects the higher volume. However, the second quarter
gross margin increase attributed to volume was partially offset by lower prices
on certain government sales, as a result of the higher quantity ordered, and
lower gross profit on milestone billings on the contract for the U.S. Navy.
5
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Operating Expenses
Selling, general and administrative expenses decreased $12,495 (6.4%) and $8,390
(2.2%) for the three and six months ended September 30, 1997, respectively as
compared to the same periods last year. Lower selling expenses, administrative
salaries and legal costs were partially offset by increased commissions
associated with the higher government sales and expenses incurred related to the
Company's efforts to explore additional markets. Engineering, research and
development expenses increased $96,903 (88.8%), for the same period and $143,597
(65.2%) reflecting the Company's commitment and efforts to develop new products.
Interest
Interest income increased as a result of the higher cash balances.
Income Before Taxes
Income before taxes increased $32,555 to $87,943 for the three months ended
September 30, 1997, and $167,886 to $234,010 for the six months ended September
30, 1997 as compared to the same periods last year.
Provision for Income Taxes
A provision for income taxes was not recognized in the prior fiscal year because
the Company applied a full valuation allowance. At March 31, 1997, the Company
reduced the valuation allowance and recorded the resulting deferred income tax
benefit. For the six months ended September 30, 1997, the Company has recorded a
provision for income taxes utilizing the estimated effective Federal and State
income tax rates for fiscal 1998. The Company has no tax liability. The Company
will continue to monitor the amount of deferred (net operating loss
carryforward) which can be recovered through future taxable income.
Net Income
Net income for the three months ended September 30, 1997 was $52,818 or $0.03
per share, as compared to $55,388 or $0.03 per share in for the three months
ended September 30, 1997. Net income for the six months ended September 30, 1997
was $140,546 or $0.07 per share as compared to $66,124 or $0.04 per share in for
the six months ended September 30, 1996. The improvement in net income per
common share was partially offset by the increase in the number of shares
outstanding and by the tax provision. Net income in the six months ending
September 30, 1997 was reduced by a $93,464 tax provision as described in the
preceding paragraph. The net for the comparable fiscal year 1996 period was not
reduced.
Liquidity and Capital Resources
At September 30, 1997 the Company had positive working capital of $632,321 as
compared to $440,978 at March 31, 1997. The Company's liquidity position
continues to improve. The Company's net worth improved to $597,388 at September
30, 1997, as compared to $455,254 at March 31, 1997. For the six months ended
September 30, 1997, cash used in operations was $140,460 as compared to cash
provided
6
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Liquidity and Capital Resources (continued)
by operations of $112,560 for the six months ended September 30, 1996. The
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
partially offset by the Company's net income, including such non-cash items as
depreciation and deferred income taxes.
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
twelve months. At present, the Company does not expect to incur significant
long-term needs for capital outside of its normal operating activities.
The Company has preliminary approval for progress payments on the contract with
the U.S. Navy.
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.
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 the Company, the standard becomes 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: 10 November 1997 By: /s/ Harold K. Fletcher
------------------------------
/s/ Harold K. Fletcher
Chairman and President
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<PERIOD-START> APR-01-1997
<PERIOD-END> SEP-30-1997
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<SECURITIES> 0
<RECEIVABLES> 613
<ALLOWANCES> 59
<INVENTORY> 446
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0
0
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<TOTAL-LIABILITY-AND-EQUITY> 1,778
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<OTHER-EXPENSES> 767
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