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, 2000
___ 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, 2000.
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TEL-INSTRUMENT ELECTRONICS CORPORATION
TABLE OF CONTENTS
PAGE
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Item 1. Financial Statements (Unaudited):
Condensed Comparative Balance Sheets
June 30, 2000 and March 31, 2000 1
Condensed Comparative Statements of Operations -
Three Months Ended June 30, 2000 and 1999 2
Condensed Comparative Statements of Cash Flows -
Three Months Ended June 30, 2000 and 1999 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
<TABLE>
<CAPTION>
(Unaudited) (Audited)
ASSETS June 30, March 31,
2000 2000
------------ ---------
<S> <C> <C>
Current assets:
Cash $ 120,620 $ 172,836
Accounts receivable, net of allowance for doubtful
accounts of $11,598 at June 30, 2000 and
at March 31, 2000 1,354,931 1,099,425
Inventories 1,490,945 1,486,885
Prepaid expenses and other current assets 47,850 56,020
Deferred income tax benefit - current 215,000 215,000
----------- -----------
Total current assets 3,229,346 3,030,166
Property, plant and equipment, net 328,713 350,872
Other assets 34,778 28,628
Deferred income tax benefit 466,892 523,099
----------- -----------
Total assets 4,059,729 3,932,765
=========== ===========
LIABILITES & STOCKHOLDERS EQUITY
Current liabilities:
Note payable - related party - current portion 150,000 150,000
Note payable - bank 250,000 250,000
Convertible subordinated notes - related party 15,000 15,000
Capitalized lease obligations - current portion 58,063 56,376
Advance payments 141,824 176,193
Accrued payroll, vacation pay, deferred wages
payroll taxes and interest on deferred wages 463,658 350,286
Accounts payable and accrued expenses 1,088,762 1,111,181
----------- -----------
Total current liabilities 2,167,307 2,109,036
Notes payable - related party - non-current portion 200,000 200,000
Capitalized lease obligations - excluding current port 85,224 101,682
----------- -----------
Total liabilities 2,452,531 2,410,718
Stockholders' equity:
Common stock 211,372 211,332
Additional paid-in capital 3,928,545 3,927,921
Accumulated deficit (2,532,719) (2,617,206)
----------- -----------
Total stockholders' equity 1,607,198 1,522,047
----------- -----------
Total liabilities and stockholders' equity $ 4,059,729 $ 3,932,765
=========== ===========
</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,
2000 1999
---------- ----------
Sales - government, net $ 917,113 $ 553,428
Sales - commercial, net 572,890 558,401
---------- ----------
Total sales 1,490,003 1,111,829
Cost of sales 786,709 465,424
---------- ----------
Gross margin 703,294 646,405
Operating expenses:
Selling, general and administrative 353,443 290,559
Engineering, research and development 181,998 278,443
---------- ----------
Total operating expenses 535,441 569,002
---------- ----------
Income from operations 167,853 77,403
Other income (expenses):
Interest income 3,454 1,615
Interest expenses (30,613) (13,588)
---------- ----------
Income before taxes 140,694 65,430
Provision for income taxes 56,207 26,140
---------- ----------
Net income 84,487 39,290
========== ==========
Basic and diluted income per common share $ 0.04 $ 0.02
========== ==========
Dividends per share None None
Weighted average shares outstanding:
Basic 2,113,390 2,109,957
Diluted 2,146,183 2,119,452
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,
2000 1999
--------- ----------
<S> <C> <C>
(Decrease) increase in cash:
Cash flows from operating activities:
Net income $ 84,487 39,290
Adjustments to reconcile net income to cash used
in operating activities:
Deferred income taxes 56,207 26,140
Depreciation 23,045 13,274
Changes in assets and liabilities:
Increase in accounts receivable (255,506) (233,144)
Increase in inventories (4,060) (216,154)
Decrease (increase) in prepaid expenses 8,170 (3,957)
and other current assets
Increase in other assets (6,150) (364)
Increase in accrued payroll, deferred wages
and vacation pay 113,372 45,692
(Decrease) increase in accounts payable, advance payments
and accrued expenses (56,788) 77,427
--------- ---------
Net cash used in operations (37,223) (251,796)
--------- ---------
Cash flows from investing activities:
Cash purchases of property, plant and equipment (886) (12,911)
--------- ---------
Net cash used in investing activities (886) (12,911)
--------- ---------
Cash flows from financing activities:
Proceeds from the exercise of stock options 664 --
Proceeds from notes payable - bank -- 250,000
Repayment of capitalized lease obligations (14,771) (2,079)
--------- ---------
Net cash (used in) provided by financing activities (14,107) 247,921
--------- ---------
Net decrease in cash (52,216) (16,786)
Cash at beginning of period 172,836 70,617
--------- ---------
Cash at end of period $ 120,620 $ 53,831
========= =========
</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, 2000, the results of operations for the three
months ended June 30, 2000 and June 30, 1999, and statements of cash flows for
the three months ended June 30, 2000 and June 30, 1999. 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, 2000 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, 2000.
Note 2 Accounts Receivable
The following table sets forth the components of accounts receivable:
June 30, March 31,
2000 2000
---- ----
Commercial $ 303,400 $ 345,209
Government 1,063,129 765,814
Allowance for bad debts (11,598) (11,598)
----------- -----------
Total $ 1,354,931 $ 1,099,425
=========== ===========
Note 3 Inventories
Inventories consist of:
June 30, March 31,
2000 2000
------------------------
Purchased parts $ 898,912 $ 921,185
Work-in-process 618,771 609,824
Less: Reserve for obsolescence (26,738) (44,124)
------------------------
$1,490,945 $1,486,885
========================
4
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TEL-INSTRUMENT ELECTRONICS CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)
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, 2000, the Company recorded a tax provision of $56,207, which represents
the effective federal and state tax rate on the Company's net income before
taxes of $140,694. The Company has no federal tax liability. The $56,207
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 per share is based on net income for the relevant
period, divided by the weighted average number of common shares outstanding
during the period. Diluted income per share is based on net income, divided by
the weighted average number of common shares outstanding during the period,
including common share equivalents, such as outstanding stock options.
Note 6 Government and Commercial Sales
In 1999, the Company adopted SFAS 131. Presented below is information about the
Company's government and commercial activities.
The Company is organized primarily on the basis of its avionics products. The
government market consists primarily of the sale of test equipment to U.S. and
foreign governments and militaries either direct or through distributors. The
commercial market 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, 2000 June 30, 1998
Government Commercial Government Commercial
---------- ---------- ---------- ----------
Sales $917,113 572,890 $553,428 558,401
Cost of sales 496,744 289,965 233,966 231,458
-------- ------- -------- -------
Gross margin $420,369 282,925 319,462 326,943
======== ======= ======= =======
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 of 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 June 2000, deliveries of the AN/APM-480 IFF (Identification, Friend or Foe)
Transponder Set Test Set (TSTS ) to the U.S. Navy began. The Company has
received orders for more than 960 units, totaling over $12.5 million to be
delivered over the next three to four fiscal years. The AN/APM-480 is a
militarized avionics ramp tester used to simulate IFF Transponder/ Interrogator
and TCAS (collision avoidance) functions to provide accurate go, no-go testing
of avionics equipment installed in U.S. Navy aircraft on the flightline and
aircraft carrier deck.
The Company has also received an order for commercial avionics test sets
exceeding $900,000 from a major freight carrier through a domestic distributor,
which the Company expects to ship during the current fiscal year. In, addition,
the Company shipped all of the T-76 Precision DME Ramp Test Sets under the
contract with Marconi Communications through its Italian intermediary, M.P.G.
Instruments s.r.l. Precision DME is directed solely to the European market.
For the first quarter of fiscal year 2001 sales increased 34% to $1,490,003, and
net income before taxes more than doubled to $140,694, as compared to the first
quarter of the prior fiscal year.
The Company's backlog at June 30, 2000, including the production order from the
U.S. Navy of approximately $12,250,000 million, exceeds $16,500,000. The Company
expects to ship the backlog over the next three to four fiscal years.
6
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (continued)
Sales
For the three months ended June 30, 2000, net sales increased $378,174 (34.0%)
as compared to the three months ended June 30, 1999. Commercial sales increased
$14,489 (2.6%) and government sales increased $363,685 (65.7%). The increase in
sales is primarily attributed to the shipment of the T-76 Precision DME Ramp
Tests under the contract with Marconi Communications through its Italian
intermediary, M.P.G. Instruments s.r.l., and the shipment of the AN/APM-480 IFF
(Identification, Friend or Foe) Transponder Set Test Set (TSTS) to the U.S.
Navy. These increases were partially offset by lower sales of the T-47 family of
IFF test sets.
Gross Margin
Gross margin dollars increased $56,889 (8.8%) for the three months ended June
30, 2000 as compared to the same three months in the prior fiscal year. The
increase in gross margin, for the most part, is attributed to an increase in
sales volume. However, gross margin, as a percentage of sales, was reduced by
the introduction of new products, such as the T-76 and the AN/APM-480, and the
associated learning curve in building and testing these new and more
sophisticated products, and the lower gross profit on the T-76 and AN/APM-480
contracts. The gross margin percentage for the three months ended June 30, 2000
was 47.2% as compared to 58.1% for the three months ended June 30, 1999.
Operating Expenses
Selling, general and administrative expenses increased $62,884 (21.6%) for the
three months ended June 30, 2000 as compared to the three months ended June 30,
1999. This increase is attributed to higher sales and marketing expenses,
including hiring a Director of Business Development, and an increase in
salaries.
Engineering, research and development expenses decreased $96,445 (34.6%). This
decrease is associated with activities that were funded through contracts and,
therefore, are included in the cost of sales.
Income Taxes
In accordance with SFAS 109, a provision for income taxes was recognized in the
amount of $56,207 for the three months ended June 30, 2000, which represents the
effective federal and state tax rate on the Company's net loss before taxes of
$140,694. The Company currently does not have any federal tax liability. (See
Note 4 to Notes to Condensed Comparative 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, 2000 the Company had positive working capital of $1,062,309, as
compared to $921,130 at March 31, 2000. For the three months ended June 30,
2000, cash used in operations was $37,223 as compared to $251,796 for the three
months ended June 30, 1999. This reduction in cash used in operations is
primarily attributed to the improvement in the Company's operating income, an
increase in liabilities, and the fact that inventories have only slightly
increased from the March 31, 2000 level.
In August 2000, the Company received a commitment letter from Summit Bank under
terms that will increase the Company's available credit to $600,000 from its
previous limit of $250,000. The line of credit bears an interest rate of 1%
above the lender's prevailing base rate, which is payable monthly, based upon
the outstanding balance. At June 30, 2000, the Company had an outstanding
balance of $250,000. The line of credit is collateralized by substantially all
of the assets of the Company and expires in June 2001. This credit facility
requires the Company to maintain certain financial covenants. As of June 30, the
Company was in compliance with all financial covenants.
During the first quarter of the current fiscal year, the Company began shipping
AN/APM-480s to the U.S. Navy and delivered all the T-76 Ramp Test Sets.
Management believes that these events will have a positive effect on its cash
flow.
Based upon the current backlog, available line of credit, and cash balance, the
Company believes that it has sufficient working capital to fund its plans for
the next twelve months. At present, the Company does not anticipate significant
long-term needs for capital outside 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, 2000.
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, 2000.
New Accounting Pronouncement
Staff Accounting Bulletin 101 ("SAB 101"), Revenue Recognition in Financial
Statements, was issued on December 3, 1999 with an original effective date of
the first fiscal quarter of fiscal years beginning after December 15, 1999. SAB
101 provides guidance on the recognition, presentation, and disclosure of
revenue in financial statements filed with the SEC. On June 26, 2000, the SEC
staff issued SAB 101B to provide registrants with additional time to implement
guidance contained in SAB 101. SAB 101B delays the implementation date of SAB
101 until no later than the fourth fiscal quarter of fiscal years beginning
after December 15, 1999. This provides an additional six months for companies
with fiscal year ends in December, January, or February. Companies with other
fiscal year ends will have an additional nine months. The Company does not
believe that implementation of SAB 101 will have a material impact on its
financial statements.
8
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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 14, 2000 By: /s/ Harold K. Fletcher
----------------------
/s/ Harold K. Fletcher
Chairman and President
Date: August 14, 2000 By: /s/ Joseph P. Macaluso
----------------------
/s/ Joseph P. Macaluso
Principal Accounting Officer
