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, 1999
___ 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:
2,109,957 shares of Common stock, $.10 par value as of August 9, 1999.
<PAGE>
TEL-INSTRUMENT ELECTRONICS CORPORATION
TABLE OF CONTENTS
PAGE
Item 1. Financial Statements (Unaudited):
Condensed Comparative Balance Sheets
June 30, 1999 and March 31, 1999 1
Condensed Comparative Statements of Operations -
Three Months Ended June 30, 1999 and 1998 2
Condensed Comparative Statements of Cash Flows -
Three Months Ended June 30, 1999 and 1998 3
Notes to Condensed Financial Statements 4-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-9
SIGNATURES 10
<PAGE>
Item 1 - Financial Statements
<TABLE>
<CAPTION>
TEL-INSTRUMENT ELECTRONICS CORPORATION
CONDENSED COMPARATIVE BALANCE SHEETS
June 30, 1999 and March 31, 1999
(Unaudited) (Audited)
ASSETS June 30, March 31,
1999 1999
----------- -----------
<S> <C> <C>
Current assets:
Cash $ 53,831 $ 70,617
Accounts receivable, net of allowance for doubtful 871,865 638,721
accounts of $15,598 at June 30, 1999 and
$15,585 at March 31, 1999
Inventories 929,854 713,700
Prepaid expenses and other current assets 43,130 39,173
Deferred income tax benefit - current 78,300 78,300
----------- -----------
Total current assets 1,976,980 1,540,511
Property, plant and equipment, net
170,943 130,901
Other assets 129,256 128,892
Deferred income tax benefit 392,064 418,204
----------- -----------
Total assets 2,669,243 2,218,508
=========== ===========
LIABILITES & STOCKHOLDERS EQUITY
Current liabilities:
Note payable - related party - current portion 100,000 100,000
Note payable - bank 250,000 --
Convertible subordinated notes - related party 15,000 15,000
Capitalized lease obligations - current portion 9,941 9,667
Advance payments 55,601 134,767
Accrued payroll, vacation pay, deferred wages
payroll taxes and interest on deferred wages 263,981 218,289
Accounts payable and accrued expenses 711,799 555,206
----------- -----------
Total current liabilities 1,406,322 1,032,929
Notes payable - related party - non-current portion 250,000 250,000
Capitalized lease obligations - excluding current port 54,538 16,486
----------- -----------
Total liabilities 1,710,860 1,299,415
Stockholders' equity:
Common stock 210,998 210,998
Additional paid-in capital 3,925,854 3,925,854
Accumulated deficit
(3,178,469) (3,217,759)
----------- -----------
Total stockholders' equity 958,383 919,093
----------- -----------
Total liabilities and stockholders' equity $ 2,669,243 $ 2,218,508
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements
1
<PAGE>
TEL-INSTRUMENT ELECTRONICS CORPORATION
CONDENSED COMPARATIVE STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
June 30,
1999 1998
----------- -----------
Sales - government, net $ 553,428 $ 382,740
Sales - commercial, net 558,401 282,453
----------- -----------
Total sales 1,111,829 665,193
Cost of sales 465,424 339,306
----------- -----------
Gross margin 646,405 325,887
Operating expenses:
Selling, general and administrative 290,559 214,524
Engineering, research and development 278,443 242,012
----------- -----------
Total operating expenses 569,002 456,536
----------- -----------
Income (loss) from operations 77,403 (130,649)
Other income (expenses):
Interest income 1,615 6,070
Interest expenses (13,588) (11,883)
----------- -----------
Income (loss) before taxes 65,430 (136,462)
Provision (benefit) for income taxes 26,140 (54,516)
----------- -----------
Net income (loss) 39,290 (81,946)
=========== ===========
Basic and diluted income (loss) per common share $ 0.02 $ (0.04)
=========== ===========
Dividends per share None None
Weighted average shares outstanding
Basic 2,109,957 2,094,735
Diluted 2,119,452 2,094,735
See accompanying notes to condensed financial statements
2
<PAGE>
<TABLE>
<CAPTION>
TEL-INSTRUMENT ELECTRONICS CORPORATION
CONDENSED COMPARATIVE STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
June 30,
1999 1998
--------- ------
<S> <C> <C>
(Decrease) increase in cash:
Cash flows from operating activities
Net income (loss) $ 39,290 (81,946)
Adjustments to reconcile net (loss) income to cash used
in operating activities:
Deferred income taxes 26,140 (54,516)
Depreciation 13,274 10,909
Changes in assets and liabilities:
Increase in accounts receivable (233,144) (98,663)
Increase in inventories (216,154) (95,822)
Increase in prepaid expenses and other current assets (3,957) (11,327)
Increase in other assets (364) (19,668)
Increase (decrease) in accrued payroll, deferred wages
and vacation pay 45,692 (16,189)
Increase in accounts payable, advance payments
and accrued expenses 77,427 37,265
--------- ---------
Net cash used in operations (251,796) (329,957)
--------- ---------
Cash flows from investing activities:
Cash purchases of property, plant and equipment (12,911) (13,276)
--------- ---------
Net cash used in investing activities (12,911) (13,276)
--------- ---------
Cash flows from financing activities:
Proceeds from notes payable - bank 250,000 --
Repayment of capitalized lease obligations (2,079) --
--------- ---------
Net cash provided by financing activities 247,921 --
Net decrease in cash (16,786) (343,233)
Cash at beginning of period 70,617 585,281
--------- ---------
Cash at end of period $ 53,831 $ 242,048
========= =========
</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, 1999, the results of operations for the three
months ended June 30, 1999 and June 30, 1998, and statements of cash flows for
the three months ended June 30, 1999 and June 30, 1998. 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, 1999 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, 1999.
Note 2 Accounts Receivable
The following table sets forth the components of accounts receivable:
June 30, March 31,
1999 1999
-------- ---------
Commercial $ 246,517 $ 179,742
Government 473,603 359,716
Unbilled revenues 167,343 114,848
Allowance for bad debts (15,598) (15,585)
--------- ---------
Total $ 871,865 $ 638,721
Sales are recognized primarily upon shipment of products, except in the case of
long-term contracts wherein sales are recognized on the percentage-of-completion
method.
Sales associated with the documentation and test portion of the U.S. Navy
contract have been recorded on the percentage-of-completion method. Under this
approach, sales and gross margin are recognized based upon the ratio of costs
incurred to date to total estimated contract costs. Unbilled revenues represent
recoverable costs and accrued profit not billed resulting from the application
of percentage-of-completion accounting. Actual billing of these amounts will be
based upon actual billing terms. In August 1999, the Company received the first
production order for 230 test sets with a value of approximately $3,000,000.
4
<PAGE>
TEL-INSTRUMENT ELECTRONICS CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)
Note 3 Inventories
Inventories consist of:
June 30, March 31,
1999 1999
----------------------------
Purchased parts $ 529,930 $ 402,804
Work-in-process 429,544 340,516
Less: Reserve for obsolescence (29,620) (29,620)
----------------------------
$ 929,854 $ 713,700
============================
Note 4 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, 1999, the Company recorded a tax provision of $26,140, which represents
the effective federal and state tax rate on the Company's net income before
taxes of $65,430. The Company has no tax liability. The $26,140 decreased 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 5 Earnings Per Share
The Company's 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 income (loss) per share is based on net
income (loss), divided by the weighted average number of common shares
outstanding during the period, including common share equivalents, such as
outstanding stock options. Common share equivalents are not included in the
calculation for the three months ended June 30, 1998 since the effect would be
antidilutive.
5
<PAGE>
TEL-INSTRUMENT ELECTRONICS CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)
Note 6 Government and Commercial Sales
In 1999, the Company adopted SFAS 131. The prior years information has been
restated to present the Company's government and commercial activities.
The Company is organized primarily on the basis of its avionics products. The
government segment consists primarily of the sale of test equipment to U.S. and
foreign governments and militaries either direct or through distributors. The
commercial segment consists of sales of test equipment to domestic and foreign
airlines and to commercial distributors. The Company primarily develops and
designs test equipment for the avionics industry and, as such, the Company's
products and designs may be sold in the government and commercial markets.
The table below presents information about sales and gross margin. Cost of sales
includes certain allocation factors for indirect costs.
Three Months Ended Three Months Ended
June 30, 1999 June 30, 1998
Government Commercial Government Commercial
---------- ---------- ---------- ----------
Sales $553,428 558,401 $382,740 282,453
Cost of sales 233,966 231,458 196,001 143,305
-------- ------- -------- -------
Gross margin $319,462 326,943 $187,739 139,148
6
<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
In August 1999 the Company received the first production order from the U.S.
Navy for 230 test sets for a total value of over $3,000,000. This order is the
first under the contract which includes options for up to 1,300 units, which the
U.S. Navy can exercise, on behalf of all U.S. military services, through
calendar year 2001. However, there can be no assurance that the U.S. Navy will
exercise all of its purchase options under this contract. The Company expects to
begin shipping these units at the end of the fourth quarter of the current
fiscal year. Sales for the first quarter were $1,111,829 and the Company
generated income before taxes of $65,430. The Company continues to invest
heavily in engineering, research, and development as the Company continues to
develop other products for targeted markets.
The Company's backlog, including the order from the U.S. Navy exceeds
$6,000,000.
Sales
For the three months ended June 30, 1999, net sales increased $446,636 (67.1%)
as compared to the three months ended June 30, 1998. Commercial sales increased
$275,948 (97.7%) and government sales increased $170,688 (44.6%). The increase
in commercial sales reflects the favorable economic conditions within the
airline industry. However, there is no assurance that this trend will continue.
The increase in government sales is attributed to the T-47 family of IFF test
sets, including the T-47CC which incorporates a directional antenna. The
increase is sales in both the commercial and government segments is also
attributed to the efforts of our international distributors.
7
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued)
Results of Operations (continued)
Gross Margin
Gross Margin increased $320,518 (98.4%) for the three months ended June 30, 1998
as compared to the same three months in the prior fiscal year. The increase in
gross margin, for the most part, is attributed to the higher volume. The gross
margin percentage for the three months ended June 30, 1999 was 58.1% as compared
to 49.0% for the three months ended June 30, 1998.
Operating Expenses
Selling, general and administrative expenses increased $76,035 (35.4%) for the
three months ended June 30, 1999 as compared to the three months ended June 30,
1998. This increase is attributed to higher sales and marketing expenses, the
addition to staff of a Director of Finance, and an increase in salaries.
Engineering, research and development expenses increased $36,431 (15.1%)
primarily associated with the finalization of the design of the T-47M IFF test
sets for the U.S. Navy and the development of additional products, such as the
T-47CC and T-47N.
Income Taxes
In accordance with SFAS 109, a provision for income taxes was recognized in the
amount of $26,140 for the three months ended June 30, 1999. 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. The Company currently does not have
any tax liability. (See Note 4 to Notes to Condensed Comparative Financial
Statements).
Liquidity and Capital Resources
At June 30, 1999 the Company had positive working capital of $570,658 as
compared to $507,582 at March 31, 1999. For the three months ended June 30,
1999, cash used in operations was $251,796 as compared to $329,957 for the three
months ended June 30, 1998. This reduction in cash used in operations is
primarily attributed to the improvement in the Company's operating income. The
increases in accounts receivable and inventories were partially offset by the
Company's operating income, borrowings from the bank in the amount of $250,000
,and increases in accounts payable and other accrued liabilities.
The Company has a line of credit from Summit Bank for $350,000, which was
originally scheduled to expire in July 1999, however, the Company received a
60-day extension to the agreement. The Company is currently in the process of
negotiating the extension of this credit line with the bank. As of June 30,
1999, the Company had borrowed $250,000 against this line for working capital
needs.
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
twelve months. At present, the Company does not expect to incur significant
long-term needs for capital outside of its normal operating activities.
8
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued)
Liquidity and Capital Resources (continued)
There was no significant impact on the Company's operations as a result of
inflation for the three months ended June 30, 1999.
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, 1999.
Year 2000 Issue
Many existing computer programs use only two-digits to identify a year in the
date field. These programs were designed and developed without considering the
impact of the upcoming change in the Year 2000. Some older computer systems
stored dates with only a two-digit year with an assumed prefix of "19".
Consequently, this limits those systems to dates between 1900 and 1999. If not
corrected, many computer systems and/or applications could fail or create
erroneous results by or at the year 2000.
The Company has reviewed the potential impact of the Year 2000 issue. This
assessment included a review of the impact of the issue in four areas: products,
manufacturing systems, business systems, and other areas. The Company does not
anticipate that the Year 2000 issue will impact operations or operating results
or require future material expenditures. The Company's products are not date
sensitive. In addition, the Company is in the process of contacting its
suppliers to determine as to whether they are Year 2000 compliant. The Company
relies on its customers, suppliers, utility service providers, financial
institutions, and other partners in order to continue normal business relations.
The Company is continuing to evaluate alternatives and develop contingency plans
for key business partners. Year 2000 disruptions in the operations of key
business partners could also impact the Company's ability to fulfill some of its
contractual obligations. At this time, it is impossible to assess the impact of
the Year 2000 issue on each of these organizations. There can be no guarantee
that the systems of other unrelated entities on which the Company relies will be
correcetd on a timely basis and will not have a material adverse effect on the
Company.
The discussion of the Company's efforts, and management's expectations, relating
to Year 2000 compliance are forward-looking statements. The Company's ability to
achieve Year 2000 compliance and the level of incremental costs associated
therewith, could be adversely impacted by, among other things, the availability
and cost of programming and testing resources, vendors' ability to modify
proprietary software, and unanticipated problems identified in the ongoing
compliance review.
9
<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: August 13, 1999 By: /s/ Harold K. Fletcher
----------------------
Harold K. Fletcher
Chairman and President
Date: August 13, 1999 By: /s/ Joseph P. Macaluso
----------------------
Joseph P. Macaluso
Principal Accounting Officer
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<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 54
<SECURITIES> 0
<RECEIVABLES> 888
<ALLOWANCES> 16
<INVENTORY> 930
<CURRENT-ASSETS> 1,977
<PP&E> 824
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0
0
<COMMON> 211
<OTHER-SE> 747
<TOTAL-LIABILITY-AND-EQUITY> 2,669
<SALES> 1,111
<TOTAL-REVENUES> 1,111
<CGS> 465
<TOTAL-COSTS> 1,034
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