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 December 31, 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:
2,052,781 shares of Common stock, $.10 par value as of February 6, 1998.
<PAGE>
TEL-INSTRUMENT ELECTRONICS CORPORATION
TABLE OF CONTENTS
PAGE
----
Item 1. Financial Statements (Unaudited)
Condensed Comparative Balance Sheets
December 31, 1997 and March 31, 1997 1
Condensed Comparative Statements of Operations -
Three and Nine Months Ended December 31, 1997
and December 31,1996 2
Condensed Comparative Statements of Cash Flows -
Nine Months Ended December 31, 1997 and
December 31, 1996 3
Notes to Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations 5-8
Part II Other Information 9
SIGNATURES 9
<PAGE>
Item 1 - Financial Statements
TEL-INSTRUMENT ELECTRONICS CORPORATION
CONDENSED COMPARATIVE BALANCE SHEETS)
(Unaudited)
December 31, 1997 and March 31, 1997
December 31, March 31,
1997 1997
----------- -----------
ASSETS
Current assets:
Cash $ 463,058 $ 528,636
Accounts receivable, net of allowance
for doubtful accounts of $16,074 at
December 31, 1997 and $65,521 at
March 31, 1997 785,590 302,737
Inventories 397,491 352,173
Other current assets 25,538 6,944
Deferred income tax benefit - current 78,300 78,300
----------- -----------
Total current assets 1,749,977 1,268,790
Office and manufacturing equipment, net 83,492 45,492
Other assets, net 86,884 71,884
Deferred income tax benefit 29,602 261,900
----------- -----------
Total assets 1,949,955 1,648,066
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Advanced billings 57,061 --
Accrued payroll, deferred wages and
vacation pay 336,685 342,432
Accounts payable and accrued expenses 379,174 485,380
----------- -----------
Total current liabilities 772,920 827,812
Convertible subordinated notes - related parties
Total liabilities 365,000 365,000
----------- -----------
1,137,920 1,192,812
=========== ===========
Stockholders' equity:
Common stock 205,281 203,097
Additional paid-in capital 3,907,056 3,901,052
Accumulated deficit (3,300,302) (3,648,895)
----------- -----------
Total stockholders' equity 812,035 455,254
----------- -----------
Total liabilities and stockholders' equity $ 1,949,955 $ 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 Nine Months Ended
------------------------------ ------------------------------
December 31, December 31, December 31, December 31,
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales
Government, net $ 1,133,538 672,740 $ 2,258,243 1,457,114
Commercial, net 348,495 267,996 938,654 718,830
------------- ------------- ------------- -------------
Total sales 1,482,033 940,736 3,196,897 2,175,944
Cost of sales 505,202 414,320 1,193,096 918,472
------------- ------------- ------------- -------------
Gross margin 976,831 526,416 2,003,801 1,257,472
Operating expenses
Selling, general & administrative 334,208 221,904 737,383 634,009
Engineering, research & development 284,309 117,734 648,235 338,063
------------- ------------- ------------- -------------
Total operating expenses 618,517 339,638 1,385,618 972,072
Profit from operations 358,314 186,778 618,183 285,400
Other income (expense):
Interest income 6,145 6 17,878 615
Interest expense (17,578) (15,017) (55,170) (48,124)
------------- ------------- ------------- -------------
Income before taxes 346,881 171,767 580,891 237,891
Provision for income taxes 138,834 -- 232,298 --
------------- ------------- ------------- -------------
Net income $ 208,047 171,767 $ 348,593 237,891
============= ============= ============= =============
Basic and diluted earnings
per share $ 0.10 0.08 $ 0.17 0.13
Dividends per share None None None None
Weighted average shares outstanding 2,093,989 2,049,629 2,089,656 1,866,785
</TABLE>
See accompanying notes to condensed finanical statements
2
<PAGE>
TEL-INSTRUMENT ELECTRONICS CORPORATION
CONDENSED COMPARATIVE STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
December 31,
1997 1996
--------- ---------
<S> <C> <C>
Increase (decrease) in cash:
Cash flows from operating activities
Net income $ 348,593 $ 237,891
Adjustments to reconcile net income to cash provided
by operating activities:
Deferred income taxes 232,298 --
Depreciation 24,483 18,344
Disposal of sales equipment -- 2,093
Changes in assets and liabilities:
(Increase) decrease in accounts receivable, net (482,853) 105,551
(Increase) decrease in inventories (45,318) 4,467
(Increase) decrease in other current assets (18,594) (6,348)
(Increase) decrease in other assets (15,000) 1,124
Increase in advanced billings 57,061 --
Increase (decrease) in accrued payroll, deferred wages
and vacation pay (5,747) (117,358)
(Decrease) increase in accounts payable and accrued expenses (106,206) (68,637)
--------- ---------
Net cash (used in) provided by operations (11,283) 177,127
--------- ---------
Cash flows from investing activities:
Purchases of office and manufacturing equipment (62,483) (33,938)
--------- ---------
Net cash used in investing activities (62,483) (33,938)
--------- ---------
Cash flows from financing activities:
Proceeds from exercise of stock options 8,188 --
Proceeds from issuance of common stock -- 87,500
--------- ---------
Net cash provided by financing activities 8,188 87,500
--------- ---------
Net (decrease) increase in cash (65,578) 230,689
Cash at beginning of period 528,636 22,625
--------- ---------
Cash at end of period $ 463,058 $ 253,314
========= =========
Interest Paid: $ 45,041 $ 61,173
========= =========
Non-Cash Items:
Preferred stock redeemed and exchanged for common stock $ -- $ 606,643
Stock issued to related party for liabilities $ -- $ 46,540
</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 December 31, 1997, the results of operations for the
three and nine months ended December 31, 1997 and December 31, 1996, and
statements of cash flows for the nine months ended December 31, 1997 and
December 31, 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:
December 31, March 31,
1997 1997
------------------------------
Purchased parts $ 289,213 $ 213,842
Work-in-process 176,583 206,750
Less: Reserve for obsolescence (68,305) (68,419)
------------------------------
$ 397,491 $ 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. These
reclassifications have no effect on the financial results.
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 nine months ended December 31, 1997, the Company
recorded a provision for income taxes of $232,298, which represents the
effective federal and state tax rate on the Company's net income before taxes of
$580,891. The Company has no tax liability. The $232,298 tax provision reduced
the Company's deferred income tax by the same amount at December 31, 1997. This
amount represents a portion of the net operating loss carryforward 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 FINANCIAL
POSITION AND RESULTS OF OPERATIONS
Results of Operations
The Company has continued to increase sales and income from operations while
increasing its research and development expenditures, which grew by over 91%
from the prior fiscal year, to over 20% of sales. This investment in research
and development is necessary to perform on existing contracts, to sustain the
growth and profitability of the Company, and to continue producing innovative,
state-of-the-art products. This increase includes several temporary engineers
employed to finalize the U.S. Navy T-47M design, as mentioned below.
The Company continues to focus its principal efforts in the government market
and has been very active in responding to requests for quotation, from the U.S.
Government, in addition to adapting its product designs to respond to these
requests.
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 for the associated tests and
documentation. This work, to be completed during calendar year 1998, represents
a major milestone for the Company since this contract could be a significant
source of future revenues. This 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.
In the third quarter of the current fiscal year the Company fulfilled its
obligation and delivered the final units of the T-30CM to the U.S. Air Force.
Sales derived from this contract represented 35% of total sales for the nine
months ended December 31, 1997 as compared to 46% for fiscal year 1997. As a
result, the next several quarters may not exhibit the growth the Company has
experienced over the last few years. However, while the Company believes that
the future still remains positive based on the Navy contract and other
outstanding proposals, there can be no assurance that these sales will
materialize.
Sales
Sales increased $541,297 (57.5%) and $1,020,953 (46.9%) for the three and nine
months ended December 31, 1997, respectively, as compared to the same periods
last year. The sales increases were both in the government and commercial
markets. Government sales increased $460,798 (68.5%) and $801,129 (55.0%)
related to contracts with the government and from several Department of Defense
prime contractors. Commercial sales increased $80,499 (30.0%) and $219,824
(30.6%) for the three and nine months ended December 31, 1997, respectively , as
compared to the three and nine months ended December 31, 1996. These increases
cannot be assured for the future.
During the first quarter of the current fiscal year the Company had identified
certain technical issues with one of its products scheduled to be delivered
during the second quarter. The Company corrected such technical issues and all
of the remaining units were shipped during the third quarter. As such, these
delayed shipments had a positive affect on the third quarter results.
5
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
POSITION AND RESULTS OF OPERATION
Sales (continued)
The Company continues to explore expansion into other markets in order to
capitalize on its test equipment technology.
Gross Margin
Gross margin increased $450,415 (85.6%) and $746,329 (59.4%) for the three and
nine months ended December 31, 1997, respectively, as compared to the same
periods in the prior fiscal year. Gross margin as a percent of sales was 65.9%
and 62.7% for the three and nine months ended December 31, 1997, respectively,
as compared to 56.0% and 57.8% for the three and nine months ended December 31,
1996, respectively. The increase in gross margin primarily reflects the higher
volume and cannot be assured for the future.
Operating Expenses
Selling, general, and administrative expenses increased $112,304 (50.6%) and
$103,374 (16.3%) for the three and nine months ended December 31, 1997 as
compared to the prior fiscal year. These increases are the result of expenses
incurred related to the Company's efforts to explore additional markets for its
technology, additional employee incentive compensation, and higher sales
commissions. These increases were partially offset by lower selling and
administrative salaries. Engineering, research and development expenses
increased $166,575 (141.4%) and $310,172 (91.7%) for the three and nine months
ended December 31, 1997 as compared to the prior fiscal year, reflecting the
Company's commitment and effort to develop new products, especially the
aforementioned contract with the U.S. Navy.
Interest Income
Interest income increased as a result of higher cash balances.
Income Before Taxes
Income before taxes increased $175,114 to $346,881 for the three months ended
December 31, 1997, and $343,000 to $580,891 for the nine months ended December
31, 1997 as compared to the same period 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 nine months ended December 31, 1997, the Company has
6
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
POSITION AND RESULTS OF OPERATION
Provision For Income Taxes (continued)
recorded a provision for income taxes utilizing estimated effective Federal and
State income tax rates for fiscal year 1998. The Company has no tax liability.
The Company will continue to monitor the amount of deferred tax benefit (net
operating loss carryforward) which can be currently recognized from future
taxable income.
Net Income
Net income for the three months ended December 31, 1997 was $208,047 or $0.10
per share, as compared to $171,767 or $0.08 per share for the three months ended
December 31, 1996. Net income for the nine months ended December 31, 1997 was
$348,593 or $0.17 per share as compared to $237,891 or $0.13 per share for the
nine months ended December 31, 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 for the nine months ended December 31, 1997
was reduced by a $232,298 tax provision as described in the preceding paragraph.
The net income for the comparable fiscal 1997 period was not reduced.
Liquidity and Capital Resources
At December 31, 1997 the Company had positive working capital of $977,057 as
compared to $440,978 at March 31, 1997. The Company's financial position
continues to improve. The Company's net worth improved to $812,035 at December
31, 1997 as compared to $455,254 at March 31, 1997. For the nine months ended
December 31, 1997, cash flows from operations used $11,283 of cash as compared
to providing cash of $177,127 during the nine months ended December 31, 1996.
This decrease in operating cash flows resulted from increases in accounts
receivable of $482,853 and decreases in accounts payable and accrued expenses of
$106,206. The increase in accounts receivable is directly related to the
increase in sales and the decrease in accounts payable and accrued expenses is
due to significant payments made to vendors upon the completion of certain
contracts. These uses of cash were offset by the Company's income before taxes
and depreciation expense of $605,374.
The Company continues to devote its efforts to new product and market
development, and 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.
The Company received in the current fiscal quarter approval to apply 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
year ended March 31, 1997.
7
<PAGE>
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 quarter ended December 31, 1997, the Company's Common
Stock was reported as having the high and low trades of $1.94 and $1.25,
respectively. These trades reflect reported inter-dealer prices without retail
markup or commission.
Part II Other Information
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Shareholders was held on December 3, 1997 (the "Annual
Meeting").
(b) Not applicable because (i) proxies for the Annual Meeting were not solicited
pursuant to Regulation 14A under the Securities and Exchange Act of 1934; (ii)
there was no solicitation in opposition to management's nominees as listed in
the Company's proxy statement; and (iii) all of such nominees were elected.
(c) At the Annual Meeting, the Company's shareholders voted in favor of
management's nominees for election as directors of the Company as follows:
For Against
--- -------
Harold K. Fletcher 1,388,721 0
Robert J. Walker 1,388,721 0
George F. Leon 1,388,721 0
The shareholders also voted all 1,388,721 shares in favor of Coopers and Lybrand
as the Corporation's certified public accountants for the fiscal year ending
March 31, 1998.
The shareholders also voted all 1,388,721 shares for ratification of the
Company's issuance of 10% convertible notes, in aggregate amount of $350,000, to
Harold K. Fletcher.
(d) Not applicable.
8
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibits filed or incorporated by reference as part of this
Quarterly Report on Form 10-Q are listed in the attached Index to
Exhibits.
(b) During the quarter ended December 31, 1997, the Company did not
file any current Reports on Form 8-K.
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: 12 February 1998 /s/ Harold K. Fletcher
---------------------
Harold K. Fletcher
Chairman and President
9
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 463
<SECURITIES> 0
<RECEIVABLES> 802
<ALLOWANCES> (16)
<INVENTORY> 397
<CURRENT-ASSETS> 1,750
<PP&E> 671
<DEPRECIATION> (588)
<TOTAL-ASSETS> 1,950
<CURRENT-LIABILITIES> 773
<BONDS> 0
0
0
<COMMON> 205
<OTHER-SE> 607
<TOTAL-LIABILITY-AND-EQUITY> 1,950
<SALES> 3,191
<TOTAL-REVENUES> 3,191
<CGS> 1,193
<TOTAL-COSTS> 1,193
<OTHER-EXPENSES> 1,386
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (37)
<INCOME-PRETAX> 581
<INCOME-TAX> 232
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</TABLE>
