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, 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:
2,113,690 shares of Common stock, $.10 par value as of November 1, 2000.
<PAGE>
TEL-INSTRUMENT ELECTRONICS CORPORATION
TABLE OF CONTENTS
PAGE
----
Item 1 Financial Statements (Unaudited):
Condensed Comparative Balance Sheets
September 30, 2000 and March 31, 2000 1
Condensed Comparative Statements of Operations -
Three and Six Months Ended September 30, 2000 and 1999 2
Condensed Comparative Statements of Cash Flows -
Six Months Ended September 30, 2000 and 1999 3
Notes to Condensed Financial Statements 4-6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-10
SIGNATURES 10
<PAGE>
Item 1 - Financial Statements
TEL-INSTRUMENT ELECTRONICS CORPORATION
CONDENSED COMPARATIVE BALANCE SHEETS
September 30, 2000 and March 31, 2000
<TABLE>
<CAPTION>
(Unaudited) (Audited)
ASSETS September 30, March 31,
2000 2000
------------- -----------
<S> <C> <C>
Current assets:
Cash $ 231,455 $ 172,836
Accounts receivable, net 1,199,504 1,099,425
Inventories 1,646,017 1,486,885
Prepaid expenses and other current assets 41,104 56,020
Deferred income tax asset - current 215,000 215,000
----------- -----------
Total current assets 3,333,080 3,030,166
----------- -----------
Property, plant, and equipment, net 379,669 350,872
Other assets 34,776 28,628
Deferred income tax asset 387,389 523,099
----------- -----------
Total assets 4,134,914 3,932,765
=========== ===========
LIABILITIES & STOCKHOLDERS EQUITY
Current liabilities:
Note payable - related party - current portion 150,000 150,000
Note payable - bank 250,000 250,000
Convertible subordinate notes - related party 15,000 15,000
Capitalized lease obligations - current portion 73,324 56,376
Advance payments 102,125 176,193
Accrued payroll, vacation pay, deferred wages, 505,604 350,286
payroll taxes, and interest on deferred wages
Accounts payable and accrued expenses 1,008,220 1,111,181
----------- -----------
Total current liabilities 2,104,273 2,109,036
----------- -----------
Notes payable - related party - non-current portion 200,000 200,000
Capitalized lease obligations - excluding current portion 99,022 101,682
----------- -----------
Total liabilities 2,403,295 2,410,718
Stockholders' equity
Common stock 211,372 211,332
Additional paid-in capital 3,928,545 3,927,921
Accumulated deficit (2,408,298) (2,617,206)
----------- -----------
Total stockholders' equity 1,731,619 1,522,047
----------- -----------
Total liabilities and stockholders' equity $ 4,134,914 $ 3,932,765
=========== ===========
</TABLE>
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,
2000 1999 2000 1999
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales
Government, net $ 933,085 $ 811,287 $ 1,850,198 $ 1,364,715
Commercial, net 819,169 525,507 1,392,059 1,083,908
----------- ----------- ----------- -----------
Total Sales 1,752,254 1,336,794 3,242,257 2,448,623
Cost of sales 896,554 634,996 1,683,263 1,100,420
----------- ----------- ----------- -----------
Gross Margin 855,700 701,798 1,558,994 1,348,203
Operating expenses
Selling, general & administrative 362,846 277,680 716,289 568,239
Engineering, research, & development 258,294 302,859 440,292 581,302
----------- ----------- ----------- -----------
Total operating expenses 621,140 580,539 1,156,581 1,149,541
Income from operations 234,560 121,259 402,413 198,662
Other income (expense):
Interest income 5,821 2,083 9,275 3,698
Interest expense (31,217) (14,699) (61,830) (28,287)
----------- ----------- ----------- -----------
Income before taxes 209,164 108,643 349,858 174,073
Provision for income taxes 84,743 43,403 140,950 69,543
----------- ----------- ----------- -----------
Net income $ 124,421 $ 65,240 $ 208,908 $ 104,530
=========== =========== =========== ===========
Basic and diluted income
per common share $ 0.06 $ 0.03 $ 0.10 $ 0.05
Dividends per share None None None None
Weighted average shares outstanding
Basic 2,113,690 2,109,957 2,113,519 2,109,957
Diluted 2,150,185 2,122,896 2,150,014 2,122,896
</TABLE>
See accompanying notes to condensed financial statements
-2-
<PAGE>
TEL-INSTRUMENT ELECTRONICS CORPORATION
CONDENSED COMPARATIVE STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
September 30,
2000 1999
--------- ---------
<S> <C> <C>
Increase in cash:
Cash flows from operating activities
Net income $ 208,908 $ 104,530
Adjustments to reconcile net income to cash used
in operating activities:
Deferred income taxes 135,710 69,543
Depreciation 57,602 31,962
Changes in operating assets or liabilities:
Increase in accounts receivable and unbilled revenues (100,079) (251,999)
Increase in inventories (159,132) (307,593)
Decrease in prepaid expenses and other current assets 14,916 5,536
Increase in other assets (6,148) (16,712)
Increase in accrued payroll, deferred wages and
vacation pay 155,318 63,803
(Decrease) increase in accounts payable, advance payments
and accrued expenses (177,029) 99,132
--------- ---------
Net cash provided by (used in) operations 130,066 (201,798)
--------- ---------
Cash flows from investing activities:
Cash purchases of property, plant and equipment (41,655) (26,171)
--------- ---------
Net cash used in investing activities (41,655) (26,171)
--------- ---------
Cash flows from financing activities:
Proceeds from exercise of stock options 664
Proceeds from notes payable - bank -- 250,000
Repayment of capitalized lease obligations (30,456) (8,780)
--------- ---------
Net cash (used in) provided by financing activities (29,792) 241,220
--------- ---------
Net increase in cash 58,619 13,251
Cash at beginning of period 172,836 70,617
--------- ---------
Cash at end of period $ 231,455 $ 83,868
========= =========
Supplemental information
Interest paid $ 28,983 $ 39,934
Assets acquired through capital leases $ 44,744 $ 101,900
========= =========
</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, in accordance with the requirements of
Form 10-Q, the financial position of Tel-Instrument Electronics Corp. as of
September 30, 2000, the results of operations for the three and six months ended
September 30, 2000 and September 30, 1999, and statements of cash flows for the
six months ended September 30, 2000 and September 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. 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:
September 30, 2000 March 31, 2000
------------------ --------------
Commercial $ 579,733 $ 345,209
Government 631,369 765,814
Allowance for bad debts (11,598) (11,598)
---------- ----------
Total $1,199,504 $1,099,425
========== ==========
-4-
<PAGE>
TEL-INSTRUMENT ELECTRONICS CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)
Note 3 Inventories
Inventories consist of:
September 30, 2000 March 31, 2000
------------------ --------------
Purchased Parts $ 915,394 $ 921,185
Work-in-process 752,861 609,824
Less: Reserve for obsolescence (22,238) (44,124)
---------- ----------
Total $1,646,017 $1,486,885
========== ==========
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 six months ended
September 30, 2000, the Company recorded a tax provision of $140,950, which
represents the effective federal and state tax rate on the Company's net income
before taxes of $349,858. The Company has no federal tax liability. The $140,950
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, consisting of outstanding stock options. The
inclusion of stock options to calculate diluted income per share, under the
treasury stock method, did not affect earnings per share.
-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 separately 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. Costs of
sales includes certain allocation factors for indirect costs.
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, 2000 September 30, 1999
Government Commercial Government Commercial
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales $933,085 819,169 $811,287 525,507
Cost of Sales 502,416 394,138 411,923 223,073
-------- -------- -------- --------
Gross Margin $430,669 425,031 $399,364 302,434
======== ======== ======== ========
<CAPTION>
Six Months Ended Six Months Ended
September 30, 2000 September 30, 1999
Government Commercial Government Commercial
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales $1,850,198 1,392,059 $1,364,715 1,083,908
Cost of Sales 999,160 684,103 645,889 454,531
---------- ---------- ---------- ----------
Gross Margin $ 851,038 707,956 $ 718,826 629,377
========== ========== ========== ==========
</TABLE>
-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 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
Sales of the AN/APM-480 IFF (Identification, Friend or Foe) Transponder Set Test
Set (TSTS ) to the U.S. Navy accounted for approximately $560,000 (32% of total
sales) for the three months ended September 30, 2000. The Company has received
total orders for more than 960 units, totaling over $12.5, million to be
delivered over the next three to four 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.
During the second quarter of the current fiscal year, the Company began shipment
to a major freight carrier (through a domestic distributor) of its commercial
avionics test sets. The total order exceeds $900,000, and the Company expects to
ship this order during the current fiscal year. In, addition, during the first
quarter the Company shipped all of the T-76 Precision DME/P ("DME/P") ramp rest
sets under the contract with Marconi Communications through its Italian
intermediary, M.P.G. Instruments s.r.l. Precision DME/P is directed solely to
the European market. The Company also continues its efforts to complete the
DME/P bench test sets under a contract with Marconi Communications in the amount
of $680,000.
The Company continues to actively pursue opportunities in both the commercial
and government markets, both domestically and internationally, and has been
active in responding to request for quotations, in addition to adapting its
product designs to respond to these requests.
For the second quarter of fiscal year 2001 sales increased 31% to $1,752,254,
and net income before taxes was $209,164, a 93% increase, as compared to the
second quarter of the prior fiscal year. For the six months ended September 30,
2000, sales increased 32% to $3,242,257 as compared to the same period last
year, and net income before taxes was $349,858, more than double net income
before taxes for the same six month period in the prior fiscal year.
-7-
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
Results of Operations (continued)
Overview (continued)
The Company's backlog at September 30, 2000, including the production order from
the U.S. Navy of approximately $12,000,000, exceeds $16,000,000. The Company
expects to ship the backlog over the next three to four years.
Sales
Total sales increased $415,460 (31.1%) for the three ended September 30, 2000,
as compared to the same period in the prior fiscal year. Commercial sales
increased $293,662 (55.9%) and government sales increased $121,798 (15.0%). The
increase in commercial sales is primarily attributed to the shipment of
commercial test sets under the order from the major freight carrier, an increase
in repair and overhaul sales, as a result of the Company reducing its
backorders, and an increase in ILS (Instrument Landing System) and TCAS (Total
Collision Avoidance System) test sets. Government sales increased as a result of
the shipment of the AN/APM-480 to the U.S. Navy, partially offset by lower sales
of the T-47 family of IFF test sets.
For the six months ended September 30, 2000 total sales increased $793,634
(32.4%) as compared to the same period in the prior fiscal year. Commercial
sales increased $308,151 (28.4%) and government sales increased $485,483
(35.6%). The increase in commercial sales is primarily attributed to the
shipment of commercial test sets from the order from the major freight carrier,
an increase in repair and overhaul sales, as a result of the Company reducing
its backorder, and an increase in TCAS test sets. Government sales increased as
a result of the shipment of the AN/APM-480 to the U.S. Navy and the T-76
Precision DME Ramp test sets. These increases were partially offset by lower
sales of the T-47 family of IFF test sets.
Gross Margin
Gross margin dollars increased $153,902 (21.9%) and $210,791 (15.6%) for the
three and six months ended September 30, 2000, respectively, as compared to the
same periods in the prior fiscal year. The increase in gross margin, for the
most part, is attributed to higher 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 AN/APM-480 contract. The gross margin percentage for the three months ended
September 30, 2000 was 48.8% as compared to 52.5% for the three months ended
September 30, 1999. The gross margin percentage for the six months ended
September 30, 2000 was 48.1% as compared to 55.1% for the six months ended
September 30, 1999. The gross margin percentage was impacted in the second
quarter by the lower gross profit on the sales to the major freight carrier as a
result of the discount given to the Company's domestic distributor.
-8-
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
Results of Operations (continued)
Operating Expenses (continued)
Selling, general and administrative expenses increased $85,166 (30.7%) and
$148,050 (26.1%) for the three and six months ended September 30, 2000,
respectively, as compared to the three and six months ended September 30, 1999.
This increase is attributed to higher sales and marketing expenses, including
the addition to staff of a Director of Business Development, higher outside
commission expenses, consulting fees for program management, and an increase in
salaries.
Engineering, research and development expenses decreased $44,565 (14.7%) and
$141,010 (24.3%) for the three and six months ended September 30, 2000,
respectively, as compared to the same periods last year.
Income Taxes
In accordance with SFAS 109, a provision for income taxes was recognized in the
amount of $140,950 for the six months ended September 30, 2000, which represents
the effective federal and state tax rate on the Company's net income before
taxes of $349,858. The Company currently does not have any federal tax
liability. (See Note 4 to Notes to Condensed Comparative Financial Statements).
Liquidity and Capital Resources
At September 30, 2000 the Company had positive working capital of $1,228,807, as
compared to $921,130 at March 31, 2000. For the six months ended September 30,
2000, the Company generated $130,066 in cash used from operations as compared to
using $201,798 for the six months ended September 30, 1999. The increase in cash
from operations is primarily attributed to the improvement in the Company's
operating income due to an increase in sales.
The Company has a credit line in the amount of $600,000 from Summit Bank. 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 September
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. The credit facility requires the Company to maintain certain
financial covenants. As of September 30, 2000, the Company was in compliance
with all financial covenants.
Based upon the current backlog, available credit line 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 September 30, 2000.
-9-
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
Liquidity and Capital Resources (continued)
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 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.
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: November 10, 2000 By: /s/ Harold K. Fletcher
----------------------------
/s/ Harold K. Fletcher
Chairman and President
Date: November 10, 2000 By: /s/ Joseph P. Macaluso
----------------------------
Joseph P. Macaluso
Principal Accounting Officer
-10-
