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, 1998
___ 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:
2,094,735 shares of Common stock, $.10 par value as of July 22, 1998.
<PAGE>
TEL-INSTRUMENT ELECTRONICS CORPORATION
TABLE OF CONTENTS
PAGE
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Item 1. Financial Statements (Unaudited):
Condensed Comparative Balance Sheets
June 30, 1998 and March 31, 1998 1
Condensed Comparative Statements of Operations -
Three Months Ended June 30, 1998 and 1997 2
Condensed Comparative Statements of Cash Flows -
Three Months Ended June 30, 1998 and 1997 3
Notes to Condensed Financial Statements 4-5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6-8
SIGNATURES 9
<PAGE>
Item 1 - Financial Statements
TEL-INSTRUMENT ELECTRONICS CORPORATION
CONDENSED COMPARATIVE BALANCE SHEETS
June 30, 1998 and March 31, 1998
(Unaudited) (Audited)
ASSETS June 30, March 31,
1998 1998
---------- ---------
Current assets:
Cash $ 242,048 $ 585,281
Accounts receivable, net of allowance for doubtful 473,169 374,506
accounts of $16,064 at June 30, 1998 and
March 31, 1998
Inventories 478,852 383,030
Prepaid expenses and other current assets 35,344 24,017
Deferred income tax benefit - current 78,300 78,300
----------- -----------
Total current assets 1,307,713 1,445,134
Property, plant and equipment, net 81,688 79,321
Other assets 115,735 96,067
Deferred income tax benefit 375,135 320,619
----------- -----------
Total assets 1,880,271 1,941,141
----------- -----------
LIABILITES & STOCKHOLDERS EQUITY
Current liabilities:
Note payable - related party - current portion 50,000 50,000
Convertible subordinated notes - related party 15,000 15,000
Accrued payroll, vacation pay, deferred wages
payroll taxes and interest on deferred wages 195,211 211,400
Accounts payable and accrued expenses 341,938 304,673
----------- -----------
Total current liabilities 602,149 581,073
Notes payable - related party - non-current portion 300,000 300,000
----------- -----------
Total liabilities 902,149 881,073
Stockholders' equity:
Common stock 209,476 209,476
Additional paid-in capital 3,921,670 3,921,670
Accumulated deficit (3,153,024) (3,071,078)
----------- -----------
Total stockholders' equity 978,122 1,060,068
Total liabilities and stockholders' equity $ 1,880,271 $ 1,941,141
=========== ===========
See accompanying notes to condensed financial statements
1
<PAGE>
TEL-INSTRUMENT ELECTRONICS CORPORATION
CONDENSED COMPARATIVE STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
June 30,
1998 1997
----------- -----------
Sales - government, net $ 382,740 $ 557,514
Sales - commercial, net 282,453 313,309
----------- -----------
Total sales 665,193 870,823
Cost of sales 339,306 336,220
----------- -----------
Gross margin 325,887 534,603
Operating expenses:
Selling, general and administrative 214,524 218,930
Engineering, research and development 242,012 157,945
----------- -----------
Total operating expenses 456,536 376,875
----------- -----------
(Loss)/Income from operations (130,649) 157,728
Other income (expenses):
Interest income 6,070 6,082
Interest expenses (11,883) (17,743)
----------- -----------
(Loss)/Income before taxes (136,462) 146,067
(Benefit)/Provision for income taxes (54,516) 58,339
----------- -----------
Net (loss)/income (81,946) 87,728
=========== ===========
Basic and diluted income (loss) per common share $ (0.04) $ 0.04
----------- -----------
Dividends per share None None
Weighted average shares outstanding
Basic 2,094,735 2,030,948
Diluted 2,094,735 2,091,071
See accompanying notes to condensed financial statements
2
<PAGE>
TEL-INSTRUMENT ELECTRONICS CORPORATION
CONDENSED COMPARATIVE STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
June 30,
1998 1997
--------- --------
(Decrease) increase in cash:
Cash flows from operating activities
Net (loss) income $ (81,946) 87,728
Adjustments to reconcile net (loss) income to cash
used in operating activities:
Deferred income taxes (54,516) 58,339
Depreciation 10,909 6,614
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (98,663) (203,569)
(Increase) decrease in inventories (95,822) (101,031)
(Increase) decrease in prepaid expenses and other
current assets (11,327) 423
(Increase) decrease in other assets (19,668) --
(Decrease) increase in accrued payroll, deferred
wages and vacation pay (16,189) 5,314
(Decrease) increase in accounts payable and accrued
expenses 37,265 (50,331)
--------- ---------
Net cash used in operations (329,957) (196,513)
--------- ---------
Cash flows from investing activities:
Cash purchases of property, plant and equipment (13,276) (3,643)
--------- ---------
Net cash used in investing activities (13,276) (3,643)
--------- ---------
Net decrease in cash (343,233) (200,156)
Cash at beginning of period 585,281 528,636
--------- ---------
Cash at end of period $ 242,048 $ 328,480
========= =========
Interest Paid $ 2,609 $ 7,536
========= =========
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, 1998, the results of operations for the three
months ended June 30, 1998 and June 30, 1997, and statements of cash flows for
the three months ended June 30, 1998 and June 30, 1997. 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, 1998 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, 1998.
Note 2 Inventories
Inventories consist of:
June 30, March 31.
1998 1998
-------- ---------
Purchased parts $265,382 $253,616
Work-in-process 249,090 165,034
Less: Reserve for obsolescense (35,620) (35,620)
-------- --------
$478,852 $383,030
======== ========
Note 3 Income Taxes
The Company, in accordance with FASB 109, has recognized a deferred income tax
benefit based upon the expected utilization of net operating loss carryforwards
as the Company believes that it is more likely than not that it will realize a
portion of its operating losses before they expire. For the three months ended
June 30, 1998, the Company recorded an additional deferred income tax of
$54,516, which represents the effective federal and state tax rate on the
Company's net loss before taxes of $136,462. The Company has no tax liability
nor will it receive a refund for this amount. The $54,516 increased the
Company's deferred income tax benefit by the same amount in the accompanying
balance sheet. The Company expects to utilize this deferred income tax benefit
in the future for tax reporting purposes.
Note 4 Reclassifications
Certain reclassifications have been made to the fiscal year 1998 financial
statements to be consistent with the fiscal year 1999 presentation.
4
<PAGE>
TEL-INSTRUMENT ELECTRONICS CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)
Note 5 Earnings Per Share
In February 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 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 relating to both interim and annual periods ending
after December 15, 1997.
Basic income (loss) per share is based on net income (loss) for the relevant
period, divided by the weighted average number of common shares outstanding
during the period. Diluted loss per share for June 30, 1998 is based on net
loss, divided by the weighted average number of common shares outstanding during
the period. Common share equivalents, such as outstanding stock options, are not
included in the calculation for the three months ended June 30, 1998 since the
effect would be antidilutive.
5
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
A number of the statements made by the Company in this report may be regarded as
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995.
Forward-looking statements include, among others, statements concerning the
Company's outlook, pricing trends and forces within the industry, the completion
dates of capital projects, expected sales growth, cost reduction strategies and
their results, long-term goals of the Company and other statements of
expectations, beliefs, future plans and strategies, anticipated events or trends
and similar expressions concerning matters that are not historical facts.
All predictions as to future results contain a measure of uncertainty and
accordingly, actual results could differ materially. Among the factors that
could cause a difference are: changes in the general economy; changes in demand
for the Company's products or in the cost and availability if its raw materials;
the actions of its competitors; the success of our customers; technological
change; changes in employee relations; government regulations; litigation,
including its inherent uncertainty; difficulties in plant operations and
materials; transportation, environmental matters; and other unforeseen
circumstances. A number of these factors are discussed in the Company's filings
with the Securities and Exchange Commission.
Overview
The Company continues to invest heavily in engineering, research, and
development as expenditures increased by 53% for the first three months of the
current fiscal year as compared to the first three months in the prior fiscal
year. Engineering, research, and development expenditures continue to be
primarily devoted to the finalization of the design of the T-47M IFF test set
for the U.S. Navy. In April 1998, the Company completed its second design review
with the U.S. Navy without any major technical issues requiring resolution. If
field evaluations are successful and the Navy exercises production options, it
is anticipated that shipments could begin early in the next fiscal year. This
contract could be a source of significant revenues which could include options
for up to 1300 units, which the U.S. Navy can exercise through calendar year
2001. However, there can be no assurance that the Navy will exercise its
purchase options under this contact. In addition, the Company continues the
development of the T-36M, under a U.S. Army contract, and the development of new
products for other markets.
Currently, the off shore commercial market is larger than the domestic market
because many foreign airlines are upgrading to meet U.S. requirements. Part of
the Company's strategy is to attempt to further penetrate the foreign market. As
part of this strategy, in June 1998, the Company signed an exclusive agreement
with Muirhead Avionics, based in the United Kingdom, to represent the Company in
parts of Europe. The Company has recently received from Muirhead Avionics a
$382,900 contract for its T-48I IFF test set.
As reported in the Form 10-K, during fiscal year 1998 the Company fulfilled its
obligation and delivered the final units of the T-30CM ILS test set to the U.S.
Air Force. As a result of completing this substantial contract, it was
anticipated that the Company would have lower sales during the first half of
fiscal year 1999. The Company continues to believe that this decline is
temporary and new contracts can be obtained to increase sales. For example, in
June and July 1998, the Company received a $382,900 order from
6
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Overview (Continued)
Muirhead Avionics (see above) and an order in the amount of $192,300 from a
major air freight carrier. Both of these contracts are expected to be completed
in the current fiscal year.
The Company's backlog in mid-July is approximately $2,160,000, an increase of
approximately 25% from March 31, 1998. It is expected that substantially all of
this back log will be shipped in the current fiscal year.
Sales
For the three months ended June 30, 1998, net sales decreased $205,630 (23.6%)
as compared to the three months ended June 30, 1997. While commercial sales
declined by $30,856 (9.8%), government sales decreased $174,774 (31.3%). The
decrease in government sales is primarily due to the fact that the T-30CM ILS
contract with the U.S. Air Force was completed and shipments have not yet begun
on the contract with the U.S. Navy. Sales for the first three months of the
prior fiscal year attributed to the contract with the U.S. Air Force amounted to
$220,794 or 25.4% of total sales. This decrease was partially offset by revenues
from the U.S. Navy associated with documentation and testing to be provided
under the U.S. Navy T-47M IFF test sets contract. In addition, the Company
identified and corrected a technical issue with one of its products and, as a
result, certain shipments have been delayed.
Gross Margin
Gross Margin decreased $208,716 (39.0%) for the three months ended June 30, 1998
as compared to the same three months in the prior fiscal year. The decrease in
gross margin is attributed to lower volume and lower gross margin associated
with the documentation and testing portion of the U.S. Navy T-47M contract.
Operating Expenses
Selling, general and administrative expenses decreased $4,406 (2.0%) for the
three months ended June 30, 1998 as compared to the three months ended June 30,
1997. This decrease is, for the most part, attributed to lower selling
commissions.
Engineering, research and development expenses increased $84,067 (53.2%)
primarily associated with the finalization of the design of the T-47M IFF test
sets for the U.S. Navy.
Income Taxes
In accordance with SFAS 109, a provision for income taxes was recognized in the
amount of $58,339 for the months ended June 30, 1997. For the three months ended
June 30, 1998, the Company recorded a deferred income tax benefit of $54,516,
which represents the effective federal and state tax rate on the Company's net
loss before taxes of $136,642. (See Note 3 to Notes to Condensed Financial
Statements).
7
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued)
Liquidity and Capital Resources
At June 30, 1998 the Company had positive working capital of $705,564 as
compared to $864,061 at March 31, 1998. For the three months ended June 30,
1998, cash used in operations was $329,957 as compared to $196,513 for the three
months ended June 30, 1997. This reduction in available cash is primarily
associated with the Company's loss from operations, increases in accounts
receivable and inventories, and payment of deferred wages. These amounts were
partially offset by an increase in accounts payable and accrued expenses.
The Company continues to spend heavily in research and development. The Company
expects these investments will finalize the design for the U.S. Navy contract
and also introduce other new products which will increase sales, cash flow, and
profits. However, there is no assurance that sales and profits will increase.
Based upon the current backlog and available working capital, the Company
believes that it has 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 has received a letter of interest for a credit line of $350,000 from
a major bank. This arrangement has been approved by the Board of Directors and
is expected to be finalized by August 1998.
There was no significant impact on the Company's operations as a result of
inflation for the three months ended June 30, 1998.
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, 1998.
New Accounting Pronouncements
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities, was issued in June 1998 and is effective for
all fiscal quarters of fiscal years beginning after June 15, 1999. This
statement establishes accounting and reporting standards for derivative
instruments and hedging activities. The Company does not expect its
implementation will have a material effect on the Company's financial statements
as currently presented.
8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TEL-INSTRUMENT ELECTRONICS CORP.
Date: By: /s/ Harold K. Fletcher
-----------------------------
/s/ Harold K. Fletcher
Chairman and President
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