UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended March 31, 20172022
Commission File No. 001-31990
TEL-INSTRUMENT ELECTRONICS CORP.
(Exact name of Registrant as specified in its charter)
New Jersey | 22-1441806 |
(State of incorporation) | (IRS Employer Identification Number) |
One Branca Road East Rutherford, NewJersey | 07073 |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (201) 933-1600
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
N/A | N/A | N/A |
Securities registered pursuant to Section 12(b)12(g) of the Act:
Common Stock $.10 par value
(Title of class)
Indicate by checkmark if registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by checkmark if registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by checkmark 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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Act). Yes ☐ No ☒
The aggregate market value of the voting and non-voting common stock held by non-affiliates on September 30, 20162021 (the last business day of our most recently completed second fiscal quarter) was $6,606,534$2,324,023 based on the closing price of $4.65$3.15 on September 30, 2016.2021.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:
3,255,887 shares of common stock, par value $0.10 per share, were outstanding as of July 7, 2017. June 16, 2022.
TEL-INSTRUMENT ELECTRONICS CORP.
TABLE OF CONTENTS
PART I. | Page | |
Item 1. | 5 | |
Item 1A. | 11 | |
Item 1B. | 11 | |
Item 2. | 12 | |
Item 3. | 12 | |
Item 4. | 13 | |
PART II. | ||
Item 5. | 14 | |
Item 6. | 15 | |
Item 7. | 15 | |
Item 7A. | 23 | |
Item 8. | 24 | |
Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 51 |
Item 9A. | 51 | |
Item 9B. | 51 | |
Item | 51 | |
PART III. | ||
Item 10. | 52 | |
Item 11. | 55 | |
Item 12. | 57 | |
Item 13. | 60 | |
Item 14. | 61 | |
PART IV. | ||
Item 15. | 62 | |
| Item 16. | 63 |
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Included in this Annual Report on Form 10-K are “forward-looking” statements, within the meaning of Section 27A and Section 21E of the Securities Act of 1934, as amended (the “Exchange Act”), that involve substantial risks and uncertainties, as well as historical information. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that the expectations reflected in these forward-looking statements will prove to be correct. Our actual results could differ materially from those anticipated in forward-looking statements as a result of certain factors, including matters described infactors.. All statements other than statements of historical fact could be deemed forward-looking statements. Statements that include words such as “may,” “will,” “might,” “projects,” “expects,” “plans,” “believes,” “anticipates,” “targets,” “intends,” “hopes,” “aims,” “can,” “should,” “could,” “would,” “goal,” “potential,” “approximately,” “estimate,” “pro forma,” “continue” or “pursue” or the section titled “Risk Factors.” Forward-lookingnegative of these words or other words or expressions of similar meaning may identify forward-looking statements. For example, forward-looking statements include those that use forward-looking terminology, such asany statements of the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “project,” “plan,” “will,” “shall,” “should,”plans, strategies and similar expressions, including when used inobjectives of management for future operations; any statements concerning proposed new products, services or developments; any statements regarding future economic conditions or performance; statements of belief and any statement of assumptions underlying any of the negative. Although we believe that the expectations reflected in these forward-looking statements are reasonable and achievable, these statements involve risks and uncertainties and we cannot assure you that actual results will be consistent with these forward-looking statements.foregoing. Important factors that could cause our actual results, performance, or achievements to differ from these forward-looking statements include the following:
the availability and adequacy of our cash flow to meet our requirements;
the final amountfinancial impact of damages related to the Aeroflex litigation
our ability to manage general economic, business, and geopolitical conditions, including the impacts of natural disasters, pandemics and outbreaks of contagious diseases and other adverse public health developments, such as the COVID-19 pandemic;
the recovery of market conditions, including our dependence on customers' capital budgets for sales of products and services, and adverse impacts on costs and the demand for our products as a result of factors such as the COVID-19 pandemic and the implementation of tariffs;
economic, competitive, demographic, business, and other conditions in our local and regional markets;
changes in our business and growth strategy;
changes or developments in laws, regulations, or taxes in the electronics/aerospace industry;
actions taken or not taken by third-parties, including our vendors, customers, and competitors;
the availability of additional capital; and
other factors discussed elsewhere in this Annual Report.
These forward-looking statements are found at various places throughout this Annual Report on Form 10-K and the other documents referred to and relate to a variety of matters. These forward-looking statements should not be relied upon as predictions of future events and Tel-Instrument Electronics, Corp. (the “Company”) cannot assure you that the events or circumstances discussed or reflected in these statements will be achieved or will occur. Furthermore, if such forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by the Company or any other person that the Company will achieve its objectives and plans in any specified timeframe, or at all. These forward-looking statements should, therefore, be considered in light of various important factors, including those set forth in “Item 1A. Risk Factors” and elsewhere in this Annual Report on Form 10-K.
All forward-looking statements attributable to us are expressly qualified in their entirety by these and other factors. We undertake no obligation to update or revise these forward-looking statements, whether to reflect events or circumstances after the date initially filed or published, to reflect the occurrence of unanticipated events or otherwise unless required by applicable law.
PART I
Item 1.
BusinessGeneral
Tel-Instrument Electronics Corp. (“Tel”,Tel,” “TIC” or the “Company”) has been in business since 1947, is a certified small business, and is a leading designer and manufacturer of avionics test and measurement solutions for the global commercial air transport, general aviation, and government/military aerospace and defense markets. The Company designs, manufactures and sells instruments to test and measure, and also calibrates and repairs a wide range of airborne navigation and communication equipment.
The Company’s strategy over the years has been to testinvest heavily in research and development to design products significantly better than its competition. Our products provide the stimulus and signals necessary for certification, verification, fault finding and diagnosis of airborne military and commercial navigation and communications equipment installedcommunication systems. Our products incorporate high levels of integration by combining more test functions into a single unit, and thereby reducing customer acquisition, training, and life-cycle support costs than legacy systems. The Company offers avionic test sets for:
■ | Identification Friend or Foe (IFF) transponders and interrogators. |
■ | Tactical Air Navigation (TACAN) |
■ | Commercial Air Traffic Control |
■ | Navigation |
■ | Communication |
Tel-Instrument Electronics Corp. an industry leader in aircraft, both on thedeveloping, producing, selling, and supporting field-tested, rugged avionic flight line (“ramp testers”)(ramp) and in the maintenance shop (“bench testers”),(bench) test sets for demanding military and commercial customers that range in list price from $7,500$12,000 to $80,750 per unit. Tel continues to develop new products$90,000. Founded in anticipation of customers’ needs,1947 and to maintain its strong market position. Its development of multifunction testers has made it easier for customers to perform ramp tests with less operator training, a fewer number of test sets, and lower product support costs.based in East Rutherford NJ, Tel-Instrument is an OTCQB listed public company trading under ticker symbol TIKK.
The Company has becomebuilt a major manufacturervery solid position in the Mode 5 IFF and supplier of Identification Friend or Foe (“IFF”) flight lineTACAN test equipment.set market. The Company has been awarded two major contracts from bothis successfully extending its dominant market position in Mode 5 test sets in the U.S. Navy and the U.S. Army for IFF flight line test equipment (see below). The products under these contracts represent cutting edge technology and, together with derivative products, should provide Tel with a competitive advantage for yearsdefense industry to come.
TIC is also working with the Navy on an ECP contract to upgrade all of the CRAFT 708 and 719 units in its inventory to remove product obsolescence and make other required software changes. TIC expects to receive a contract this summer from the Navy for engineering design work and the KIT replacement of all of the active components in the fielded CRAFT test sets. This should result in substantial recurring revenue once the design work is completed which is currently estimated at 24 months.
TIC is introducing the SDR/OMNI multi-purpose avionics test set this summer for the commercial and military markets. This will provide Transponder (Modes A, C, and S), ADS-B, and 978 MHz UAT capability as well as communication and navigation test functionality as well as distance to fault measurements. The SDR-Omni product is a game changer in the commercial and military avionics test market as it will allow customers to replace multiple competitive test sets with one unit that is smaller and provides more capabilities at a fraction of the cost. This new technology could provide us with the opportunity to expand out of our relatively narrow avionics test market niche and enter the much larger secure military and ashomeland security radio test market which is many times the size of our existing avionics test market. The secure military test set market is very large, and we have already deliveredare anticipating several large competitive DOD solicitations to take place in the next several years. The SDR/OMNI is the only test set on the market with full Class 1 military environmental compliance.
Item 1. Business (continued)
General (continued)
TIC is also working with Lockheed Martin (LMCO) on a new MADL test set. TIC was awarded this contract after winning a competitive solicitation. MADL is a secure communications radio for the F-35. This operates in a much higher frequency range than our other test sets intoand could represent a further diversification out of our core markets. TIC has completed the Test Readiness Review (“TRR”) and will be commencing environmental and qualification testing this month . It is expected that this product will generate approximately $600k of recurring annual revenues and will position TIC for further development contracts with LMCO.
Company Response to COVID-19
Fiscal year 2022 operations continued to be affected by the ongoing outbreak of the Coronavirus disease 2019 (“COVID-19”) and its variants. While the business is still strong, the Company has been impacted by the pandemic in its commercial business and delays in orders from some of its military customers. The pandemic has also impacted its supply chain and labor force with disruptions to both the delivery of critical inventory components and personnel shortages due to COVID quarantines, which have hampered our ability to ship units under normal lead times
The subsequent spread of COVID-19 to the U.S. and many other parts of the world led the World Health Organization to characterize COVID-19 as a pandemic on March 11, 2020. Thereafter, most U.S. states imposed “stay-at-home” orders on their populations to stem the spread of COVID-19. Of specific interest to the Company, stay-at-home orders were imposed in the states of New Jersey and Kansas.
On May 4, 2020, the Company secured a Paycheck Protection Program (the “PPP”) loan, which, among other things is included in the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) in the amount of $772,577. TIC qualified for full loan forgiveness on the initial tranche on December 18, international markets. Our2020. On January 6, 2021, updated PPP guidance outlining program changes to enhance its effectiveness and accessibility was released on in accordance with the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act. This was available to companies that recorded greater than a 25% sales reduction in any quarter compared to the prior year. The Company qualified for this second round of funding and on March 15, 2021, the company secured a Second Draw PPP loan in the amount of $772,577. The Company applied for forgiveness of the Second Draw Loan in accordance with the terms of the PPP Legislation. The Second Draw Loan was fully approved for the forgiveness, including the associated interest on September 17, 2021.
On August 24, 2021, TIC, and the New Jersey Economic Development Authority (NJEDA) signed a small business emergency assistance grant agreement in the amount of $20,000. The funds related to the grant were received from the NJEDA on August 30, 2021, and were recognized as other income during fiscal year ended March 31, 2022.
On September 9, 2021, President Biden announced Executive Order 14042 (“Executive Order”) and related initiatives designed to lead the country out of the COVID-19 pandemic. The Executive Order includes policies that will require employees of contractors that do business with the federal government to be vaccinated. On September 24, 2021, The Safer Federal Workforce Task Force released COVID-19 vaccine guidance for Federal contractors and subcontractors. According to this guidance, covered employees must be fully vaccinated by December 8, 2021, or at the latest, by the first day of performance on a covered contract, absent the need for a disability or religious accommodation. In addition, covered contractors must follow the CDC’s mask and physical distance requirements for covered contractor employees and visitors. The Executive Order and the guidance apply to any prime contractor or subcontractor that is a party to a “contract or contract-like instrument” that includes a clause incorporating the requirements of the Executive Order. The new T-47M5 clause was applied on October 15, 2021, to only new federal contracts, solicitations, contract extensions and renewals.
On December 7, 2021, the federal court in Georgia issued a preliminary injunction temporarily halting the enforcement of EO 14042 (Ensuring Adequate COVID Safety Protocols for Federal Contractors) for all covered contracts nation-wide. New guidance from OMB also followed suit giving federal agencies input on how to go about non-enforcement provisions until legal challenges have been resolved. The updated guidance will remain applicable despite any change to new or existing court decisions. The new guidance does not impact the Safer Federal Workforce Taskforce Guidance. The vast majority of TIC employees are fully vaccinated, and TIC is preparing for full compliance of the Executive Order should it apply.
The Department of Defense (DoD) also issued a memorandum stating that its contracting officers shall not enforce Defense Federal Acquisition Regulation Supplement (DFARS) 252.223-7999, Ensuring Adequate COVID-19 Safety Protocols for Federal Contractors. DoD instructed its contracting officers not to include the DFARS clause in existing contracts, task orders, and delivery orders. In addition, the memo directs that DoD contracting officers shall not include the class deviation clause in new contracts or orders and must not amend existing contracts or orders to incorporate the clause.
Item 1. Business (continued)
General (continued)
Mode 5 Identification Friend or Foe (“IFF”) Products
T-47/M5 Dual Crypto Test Set (discussed below) should also provide another opportunity to increase sales
This test set has been well-received in the market, especially in the international markets.market. It is designed as a KIV 77/KIV78 Mode 5 upgrade for the approximately 2,000 AN/APM-480A and T-47 series Mode 4 IFF test sets that the Company has sold both domestically and internationally. This will be a cost-efficient upgrade to Mode 5 for our large installed customer base. The T-47/M5 capabilities allow full testing, simulation, and analysis of the following systems: Interrogator/Transponder Test set for Modes 1, 2, 3A, C, S, EHS, ADS-B TX and RX with 4 and Mode 5, TACAN, TCAS I, II and E-TCAS. The T-47/M5 utilizes the KIV-77, SIT 2010 or the KIV-78 Crypto applique (not included) for Mode 5 testing and built in USB connection available for remote diagnostic testing and download of test results to a PC.
The T-47/M5 performs the following tests:
● | Comprehensive Interrogator and Transponder test Modes 1, 2, 3A, C, S, EHS, Mode 4 and Mode 5 |
● | Multi Crypto Capable - Out of the Box - No Mods or added options needed |
● | Full TACAN testing of A/A, G/A, and A/A BCN on all 252 TACAN channels X and Y |
● | TCAS I, TCAS II and E-TCAS airborne systems intruder simulations |
● | Mode 5 testing with a built in powered bay for the KIV-77, SIT 2010 and KIV-78 Crypto Applique’ |
● | Full Testing of ADS-B in compliance with RTCA DO-260 A and B requirements |
● | Light Weight compact package in a MILSPEC Class 1 Container |
● | Long Lasting Battery |
● | Supports Remote Client testing utilizing USB connection to any laptop or desktop computer |
● | Large Full Color Display with User Friendly easy to navigate interface |
We have already sold approximately $13 million of these test sets to both domestically and internationally. TIC believes this product will continue to support our future growth and profitability. Tel has also received U.S. DOD AIMS certification for the T-47/M5 Test Set.
TS-4530A IFF Test Set
The TS-4530A test set provides simple to use GO/NO-GO operation. The TS-4530A, developed under a U.S. Army contract, now tests IFF Mode 5, ADS-B, EHS, and TCAS. The TS-4530A includes a large 8 line, color display and a new 3-button switch assembly that adds a 4-way directional toggle action for improved usability. The upper housing includes a built-in KIV-77 CCI appliqué enclosure.
Based on a new, highly integrated digital architecture; the TS-4530A performs the following tests:
● | Transponder: Modes 1, 2, 3/A, C, 4 Mode S, EHS (Enhanced Surveillance) and Mode 5 (Levels 1 & 2) |
● | ADS-B In and Out (transmit and receive) testing |
● | Built in GPS with integrated GPS antenna provides accurate Date, TOD and LAT/LONG for positioning |
● | Simple to use GO/NO-GO operation |
● | Selected Mode S BDS register information |
Item 1. Business (continued)
General (continued)
We have delivered over 3,520 TS-4530A kits and test sets. We are seeing modest demand from both the U.S. military and international customers, and we believe our new lightweight, hand-held products that we are planning to introduce in fiscal year 2018 will generate increased market share at very attractive gross margin levels. The technology for the hand-held product will provide a platform for future products. We are also working closely with our military customers on new potential market opportunities that will be needed to maintain our sales and profitability.
T-4530i IFF Test Set
This new test is a software/hardware upgrade of the TS-4530A product. The lead customer for this test is the German military. This unit includes extended life Ni-MH batteries and significantly expanded manual Mode 5 test capability using a seven-year indefinite-delivery-indefinite quantity (“IDIQ”) contract to our European distributor, Muirhead Avionics (“Muirhead”) for T-4530i test sets. In total, TIC has delivered $3.5 million of these test sets to Germany.
Communications/Navigation (COMM/(“COMM/NAV) Radio Frequency (RF) Avionics Flight line Tester”Tester”) (“CRAFT”(“CRAFT”) (AN/USM-708 and AN/USM-719)
The AN/USM-708 multi-purpose test set was developed by the Company in conjunction with the U.S. Navy
The AN/USM-708 has been and continues to be a key product for the Company as it represents a new generation technology product. The Company delivered approximately $40 million in orders, representing over 1,200 test sets, for the AN/USM-708 and AN/USM-719 (IFF only) contract was competitively awardedtest sets to the Company by the United States Navy.U.S. Military. The AN/USM-708 CRAFT unit combines advanced IFF (including Mode 5 encryption technology) navigation, communication, and sonobuoy test capabilities in a portable test set, which will utilize a flexible and expandable digital-signal-processing-based architecture. Both the AN/USM-708 and the AN/USM-719 have been certified by the AIMS Program Office. This program represented
TIC is currently working with the culminationNavy on an ECP contract to upgrade all of the CRAFT 708 and 719 units in its inventory to remove product obsolescence and make other required software changes. TIC expects to receive a multi-year, multi-million dollar investment bycontract this summer from the Company in Mode 5 technologyNavy for engineering design work and may provide a significant competitive advantagethe KIT replacement of all of the active components in the years to come. Management believes thatfielded CRAFT test sets. This should result in substantial recurring revenue once the CRAFT program also has significant potential for sales into the balance of the U.S. Military, NATO, and internationally, as the new Mode 5 IFF systems are installed in overseas aircraft platforms. design work is completed which is currently estimated at 24 months.
The Jointjoint Strike Fighter (“JSF”) program by itself is expectedcontinues to generate significant CRAFT orders as this program continues to ramp up limited rate production.
Please visit www.telinstrument.com for a firm fixed price indefinite-delivery/indefinite-quantity (“IDIQ”) contract by the U.S. Army Aviation and Missile Command with a maximum dollar valuecomplete listing of approximately $44 million, depending on the number of units purchased (see Item 3, Legal Proceedings). Management believes that this award, in conjunction with our U.S. Navy CRAFT Mode 5 program, provides Tel with market leadership in the Mode 5 IFF flight-line test business and should provide a constant revenue stream going forward. This program takes full advantage of the significant investment that the Company has made in its proprietary Mode 5 technology.
New Products
SDR/OMNI/MIL
TIC has spent the Company received a $2.14 million contract modification onlast several years developing the ITATS program This contract modification entails the sale of certain intellectual property (“IP”) to the U.S. Navy plus the sale of ancillarySDR/OMNI avionics test support equipment, and a modest increaseset which currently operates in the recurring price1 MHz to reflect several product enhancements. As part of this contract modification, the Company sold certain IP in the aggregate amount of $1,526,795 of which $1,200,000 of the IP sale proceeds was paid to the Company’s subcontractor on this program. As part of this agreement with the Company’s subcontractor, upon payment of the $1,200,000, the outstanding amount due to the subcontractor in the amount of $790,535 was discharged. The Company also received $117,095 for engineering enhancements for this program. The sale of the IP for the ITATS program should have no impact on sales of these units to the U.S. Navy or other customers.
Item 1. Business (continued)
General (continued)
MADL TEST SET
TIC is also working with Lockheed Martin (LMCO) on a new MADL test set. TIC was awarded this contract after winning a competitive solicitation. MADL is a secure communications radio for the F-35. This operates in a much higher frequency range than our other test sets and could represent a further diversification out of our core markets. TIC has completed the TRR and will be commencing environmental and qualification testing this summer. It is expected that this product will generate approximately $600k of recurring annual revenues and will position TIC for further development contracts with LMCO.
Future Prospects
The Company has built a very solid position in the Mode 5 IFF and TACAN test set market. The planned Navy ECP for CRAFT should generate substantial recurring revenues with the KIT upgrade of all of the Navy units and potentially units sold to other customers. We believe that we are well positioned as our CRAFT and TS-4530Acurrently have the majority of the Mode 5 IFF flight-line test sets have been endorsed by the U.S. militarymarket and we have already delivered test sets into 18 international markets. The commercial avionics industry is undergoing a great deal of change, and weexpect to continue to dominate this market segment with our commitment to self-funded research such as adding Mode 5 Level 2B to our T-47/M5 product.
We believe our new hand-held products, thatSDR/OMNI will do very well in the world-wide commercial avionics market although we are planning to introduce in twelve months, willfacing new competition from Aeroflex and a Canadian company. This should generate increased market share at very attractive gross margin levels. WeThe real focus for the SDR/OMNI is in the military arena for Nav/Comm testers and communication test sets. This market has been dominated by Aeroflex for the last 30 years and TIC has not had a viable competitive product until now. The SDR/OMNI is ideally suited for these markets as it is the only test set on the market with full Class 1 DOD environmental compliance. The secure military test set market is very large, and we are also working closely with our military customers on new potential market opportunities that will be neededanticipating several large competitive DOD solicitations to maintain our sales and profitability.
The general aviation market consists of some 1,000 avionics repair and maintenance service shops at private and commercial airports in the United States whichthat purchase test equipment to assist in the repair of aircraft electronics. The commercial aviation market consists of approximately 80 domestic and foreign commercial airlines.
The civilian market for avionic test equipment ishas been dominated by two designers and manufacturers, the Company and Aeroflex Inc., a division of Cobham (a U.K. company), (“Aeroflex”),Viavi Solutions, Inc. (NASDAQ: VIAV). They have dominated the commercial market with their IFR 4000 and 6000 test sets which were first introduced in 2004. They have sold thousands of these units over the last 18 years. These are becoming obsolete and will need to be replaced. Aeroflex being substantially largerhas recently introduced a new test set called the 10K which combines the two test sets into one unit. A Canadian company, CCX Technologies, has recently introduced a competitive product which appears to be doing well in the market. The SDR/OMNI is smaller, more rugged, and easier to use than Tel. Thisthese two test sets and we are very optimistic that it will greatly improve our market is relatively narrow and highly competitive. Tel has been successful because of its high quality, new technology, user friendly products and competitive prices. share.
The military market is large and is dominated by large corporations with substantially greater resources than the Company, including Aeroflex. Tel competitively bids for government contracts based on the basis of the engineering quality and innovation of its products, competitive price, and “small business set asides” (i.e., statutory provisions requiring the military to entertain bids only from statutorily defined small businesses), and on bids for sub-contracts from major government suppliers. There are a limited number of competitors who are qualified to bid for “small business set asides.” The military market consists of many independent purchasing agencies and offices. The process of awarding contracts is heavily regulated by the U.S. Department of Defense.
Over the last tenfifteen years, the Company has won several large, competitively bid contracts from the military and has become the primary supplier for the U.S. Military, as well as the NATO countries, of flight line IFF test equipment. The CRAFT AN/USM-708, CRAFT AN/USM-719,TS-4530A, TS-4530i and TR-47M5TR-47/M5 test sets, discussed previously, involve a new generation of technology, including the next generation of IFF testing, and is expected to enable the Company to continue to be a major supplier of avionics test equipment to the military for years to come. Tel believes its new technology will also allow it to increase sales to the commercial avionics market in the future and expand into the very large secure communication test market.
Item 1. Business (continued)
General (continued)
Marketing and Distribution
Domestic commercial sales are made throughout the U.S. to commercial airlines and general aviation businesses directly or through distributors. NoThere were $2,482,424 in domestic commercial sales in fiscal year 2022 and there was one (1) direct commercial customer who accounted for more than 10% of domestic commercial sales, in fiscal years 2017 and 2016. Domestic distributors receive a 15%Aero Express (14%). The Company has one domestic distributor which receives discounts ranging between 16%-20% discount for stocking, selling, and, in some cases, providing product calibration and repairs. Tel gives a 5% to 15% discount to non-stocking distributors, and to independent sales representatives, depending on their sales volume and promotional effort. The loss of any one of these distributorsthis distributor would not have a material adverse effect on the Company or its operations. Commercial sales represented 12% and 7% of total sales, respectively, for the fiscal years ended March 31, 2017 and 2016. AOur commercial distributor represented more than 24%approximately 14% and 21%5%, respectively, of commercial sales during fiscal years 20172022 and 2016.2021.
Marketing to the U.S. Government is made directly by employees of the Company or through independent sales representatives, who receive similar commissions to the commercial distributors. For the years ended March 31, 20172022, and 2016,2021, sales to the U.S. Government, including shipments through the government’s logistics centers, represented approximately 64%26% and 79%38%, respectively, of avionicstotal sales. For the year ended March 31, 2022, two (2) direct customers represented 20% and 12% of total sales and 25% and 10% of government sales, respectively. Two (2) international distributors represented 13% and 12% of total sales and two (2) represented 16% and 15% of government sales for the year ended March 31, 2022. For the year ended March 31, 2021, two (2) direct customers represented 10% and 33% of total sales and 12% and 39% of government sales, respectively. No other government customerinternational distributor represented over10% of total sales or 10% of government sales for fiscal years 2017 and 2016.the year ended March 31, 2021.
International sales are made throughout the world to government and commercial customers, directly through American export agents, or through the Company’s overseas distributors at a discount reflecting a 20%15% to 22% selling commission, under written or oral, year-to-year arrangements. The Company has an exclusive distribution agreement with Muirhead Avionics Ltd (“Muirhead”) and Accessories, Ltd (“Muirhead”), based in the United Kingdom, to represent the Company in parts of Europe, and with Milspec Services in Australia and New Zealand. Tel also sells its products through exclusive distributors in Spain, Portugal, and the Far East Asia and is exploring distribution in other areas. For the years ended March 31, 20172022, and 2016,2021, total international sales were 10%37% and 8%52%, respectively, of sales.sales, the notable decrease is due partially to the Covid-19 Pandemic. Additionally, the Company has an agreement with M.P.G. Instruments s.r.l., based in Italy, wherein this distributor has the exclusive sales rights for DME/P ramp and bench test units. The Company continues to explore additional marketing opportunities in other parts of the world, including the Far East. No international distributor accounted for more than 10% of total sales for the fiscal years ended March 31, 2017 and 2016. East Asia.
The Company has no material assets overseas.
Future domestic market growth, if any, will be affected in part by whether the U.S. Federal Aviation Administration (“FAA”) implements additional plans to upgrade the U.S. air traffic control system regulations and by continuing recent industry trends towards more sophisticated avionics systems, both of which would require the design and manufacture of new test equipment. The major developmentCurrently, the T-47/M5 has been upgrade for continued support of NATO customers and we continue to develop the Mode 5L2B Flight Line Test. This technology will be supported in the commercial marketplace is the ADS-B requirement for all aircraft after January 1, 2020. TIC’s new products will address this testing requirement.our T-47/M5 and T-4530i product lines. Military contracts are awarded and implemented by extensive government regulation. The Company believes its test equipment is recognized by its customers for its quality, durability, reliability, affordability, and by its advanced technology.
Backlog
Set forth below is Tel’s avionics backlog aton March 31, 20172022, and 2016:2021:
| Commercial | Government | Total | ||||||||||
| March 31, 2017 | $ | 253,312 | $ | 2,977,763 | $ | 3,231,075 | ||||||
| March 31, 2016 | $ | 221,453 | $ | 11,410,210 | $ | 11,631,663 | ||||||
|
| Commercial |
|
| Government |
|
| Total |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2022 |
| $ | 275,242 |
|
| $ | 3,216,299 |
|
| $ | 3,491,541 |
|
March 31, 2021 |
| $ | 291,687 |
|
| $ | 7,310,096 |
|
| $ | 7,601,783 |
|
Tel believes that most of its backlog aton March 31, 20172022, will be delivered during the next 12 months. The backlog is pursuant to purchase orders, and all of the government contracts are fully funded. However, government contracts are always susceptible to termination for convenience by the government. The decline in the Company’s backlog is the result of the completion of its major programs.orders. Historically, the Company obtains orders which are required to be filled in less than 12 months, and therefore, these anticipated orders arebacklog amounts at the end of the period do not reflected in the backlog. As such, in thereflect delivered or future the Company will not maintain a substantial backlog as it has the last few years and will ship orders in less than 12 months.orders.
Item 1. Business (continued)
General (continued)
Suppliers
TIC obtains its purchased parts from a number of suppliers. These materials are standardIn fiscal year 2022, our supply chain had significant issues with deliveries being delayed which negatively impacted TIC’s revenues and profitability. The situation has been slow in the industry,improving this calendar year and the Company foresees no difficulty in obtainingis placing orders earlier to allow for longer lead times to obtain purchased parts, as needed, at acceptable prices.
Patents and Environmental Laws
TIC has no patents or licenses which are material to its business, and there are no material costs incurred to comply with environmental laws.
Engineering, Research, and Development
In the fiscal years ended March 31, 20172022, and 2016,2021, Tel spent $2,430,322incurred expenses of $2,548,626 and $2,038,126,$2,295,901, respectively, on the engineering, research, and development of new and improved products. None of these amounts were sponsored by customers. Engineering, research, and development expenditures in fiscal year 20172022 were made primarily for the development of the Company’s SDR/OMNI hand-held product line utilizing CRAFT and TS-4530A technology, TR-36, a new commercial navigation/communicationthe MADL test set the T47-M5 test set, the enhanced remote client,for LMCO, and T-4530i, and the incorporation of other product enhancements in existing designs. The Company owns all of these designs with the exception of the AN/ARM-206 product.
Personnel
As of June 16, 2022, Tel had thirty44 employees, comprised of 20 full-time and 1 part-time employees in manufacturing, materials management,supply chain, and quality assurance, ten6 full-time and 1 part-time employees in administration and sales, including customer services and product support, and twelve14 full-time and 2 part-time employees in engineering, research, and development, none of whom belongs to a union. From time to time, the Company also employs independent contractors to support its manufacturing, engineering, and sales organizations. At July 7, 2017,As of June 16, 2022, the Company utilized one2 independent contractor in manufacturing, onecontractors in sales and in program management, and two in engineering, research and development.management. Tel has been successful in attracting skilled and experienced management, sales, and engineering personnel.
Where You Can Find More Information
The public may read and copy any materials the Company files with the U.S. Securities and Exchange Commission (the “SEC”) at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0030. The SEC maintains an Internet website (sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.
Item 1A.
Risk FactorsWe are a smaller reporting company as defined in Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
Item 1B.
Unresolved Staff CommentsNot Applicable.
Item 2.
PropertiesThe Company leases its general office and manufacturing facility in East Rutherford, NJ (approximately 27,000 square feet) under an operating lease agreement which expires July 31, 2016.. In June 2016,April 2021, the Company extended the lease term for another fiveeight years until August 2021.31, 2029, at an initial monthly rate of $21,237. Under terms of the lease, the Company is also responsible for its proportionate share of the additional rent to include all real estate taxes, insurance, snow removal, landscaping, and other building charges. The Company is also responsible for the utility costs for the premises.
The Company also leases a small office in Lawrence, Kansas under an operating lease agreement which expires June 30, 2018.agreement. In March 2022, the Company extended the lease term to March 31, 2023.
We believe that our facilities are adequate for our needs for the foreseeable future. Tel is unaware of any environmental problems in connection with its location and because of the nature of its manufacturing activities, does not anticipate any such problems.
Item 3.
Legal ProceedingsContingencies are recorded in the audited consolidated financial statements when it is probable that a liability will be incurred and the amount of the loss is reasonably estimable, or otherwise disclosed, in accordance with Accounting Standards Codification 450, Contingencies (ASC 450). Significant judgment is required in both the determination of probability and the determination as to whether a loss is reasonably estimable. In the event the Company determines that a loss is not probable, but is reasonably possible, and it becomes possible to develop what the Company believes to be a reasonable range of possible loss, then the Company will include disclosures related to such matter as appropriate and in compliance with ASC 450. To the extent there is a reasonable possibility that the losses could exceed the amounts already accrued, the Company will, when applicable, adjust the accrual in the period the determination is made, disclose an estimate of the additional loss or range of loss or if the amount of such adjustment cannot be reasonably estimated, disclose that an estimate cannot be made.
On March 24, 2009, Aeroflex Wichita, Inc. (“Aeroflex”) filed a petition against the Company and two of its employees in the District Court located in Sedgwick County, Kansas, Case No. 09 CV 1141 (the “Aeroflex Action”), alleging that the Company and its two employees misappropriated Aeroflex’s proprietary technology in connection with the Company winning a substantial contract from the U.S. Army, to develop new Mode-5 radar test sets and kits to upgrade the existing TS-4530 radar test sets to Mode 5 (the “Award”). Aeroflex’s petition, seeking injunctive relief and damages, alleges that in connection with the Award, the Company and its named employees misappropriated Aeroflex’s trade secrets; tortiously interfered with Aeroflex’s business relationship; conspired to harm Aeroflex and tortiously interfered with Aeroflex’s contract. The central basis of all the claims in the Aeroflex Action is that the Company misappropriated and used Aeroflex proprietary technology and confidential information in winning the Award. In February 2009, subsequent to the Company winning the Award, Aeroflex filed a protest of the Award with the Government Accounting Office (“GAO”).
In its protest, Aeroflex alleged, inter alia, that the Company used Aeroflex’s proprietary technology in order to win the Award, the same
material allegations as were later alleged in the Aeroflex Action. On or about March 17, 2009, the U.S. Army Contracts Attorney, and the U.S. Army Contracting Officer each filed a statement with the GAO, expressly rejecting Aeroflex’s allegations that the Company used or infringed on Aeroflex’s proprietary technology in winning the Award and concluding that the Company had used only its own proprietary technology. On April 6, 2009, Aeroflex withdrew its protest.
In December 2009, the Kansas District Court dismissed the Aeroflex Action on jurisdiction grounds. Aeroflex appealed this decision. In May 2012, the Kansas Supreme Court reversed the decision and remanded the Aeroflex Action to the Kansas District Court for further proceedings. The case then entered an extended discovery period in the District Court.
On May 23, 2016, the Company filed a motion for summary judgment based on Aeroflex’s lack of jurisdictional standing to bring the case. The motion asserts that Aeroflex does not own the intellectual property at issue since it is a bare licensee of Northrop Grumman. Northrop Grumman has declined to join this suit as plaintiff. The motion asserted Aeroflex lacks standing to sue alone. Also, the motion raises the fact that Aeroflex allowed the license to expire, Aeroflex’s claims are either moot or Aeroflex lacks standing to sue for damages alleged to have accrued after the license ended in December 2011. The motion for summary judgment was denied.
The Aeroflex trial on remand in the Kansas District Court began in March 2017. After a six-weeknine-week trial, the jury rendered its verdict. The jury found no misappropriation of Aeroflex trade secrets but it did rulefound that the Company tortiously interfered with a prospective business opportunity and awarded damages of $1.3 million for lost profits. The jury also ruled that Tel tortiously interfered with Aeroflex’s non-disclosure agreements with two former Aeroflex employees and awarded damages of $1.5 million for lost profits, resulting in total damages against the Company of $2.8 million. The jury also found that the former Aeroflex employees breached their non-disclosure agreements with Aeroflex and awarded damages against these two individuals totaling $525,000. The jury also decided that punitive damages should be allowed against the Company. The court has not yet entered final judgment on the verdict.
Item 3. Legal Proceedings (continued)
Following the verdict, the Company filed a motion for judgment as a matter of law, which is pending.law. In the motion, the Company renewed its motion for judgment on Aeroflex’s tortious interference with prospective business opportunity claim arguing that such claim is barred by the statute of limitations. Alternatively, the motion asserts there is insufficient evidence supporting the lost profit award on that claim. Additionally, the motion for judgment addresses inconsistency between the awards against the former Aeroflex employees for breach of the non-disclosure agreements and the award against the Company for interfering with those agreements. Alternatively, the motion asserts there is insufficient evidence supporting the lost profit award on that claim. While we believe that this motion has merit, there is no assurance that the judge will reduce the jury awards.
During July 2017, the Court will hearheard the Company’s motion for judgment. The Court will also conductjudgment as well as conducting a hearing as to the amount of a punitive damages award. Kansas statutes limit punitive damages to a maximum of $5 million.
Aeroflex has submitted a motion to the Court requesting that the judge award punitive damages at the maximum $5 million amount. In Kansas, punitive damages areOctober 2017, the Court denied the Company’s motions and awarded to “punish the wrongdoer for his malicious, vindictive or willful and wanton invasion of another’s rights, with the ultimate purpose being to restrain and deter others from the commission of similar wrongdoings.” Importantly, Kansas courts have ruled that the purposeAeroflex an additional $2.1 million of punitive damages, “iswhich brings the total Tel damages awarded in this case to sting, notapproximately $4.9 million. Pursuant to kill”K.S.A. 16-204(d) “any judgment rendered by a court of this state on or after July 1, 1986, shall bear interest on and after the day on which judgment is rendered at the rate provided by subsection (e). The Kansas Secretary of State publishes the interest rate which is modified annually based on market interest rates.
For the year starting July 1, 2021, the interest rate was 4.25 %. Cumulative interest on the $4.9 million judgment started to accrue on November 22, 2017, the date the judgment was entered. As of March 31, 2022, the outstanding amount of the judgement and accrued interest is $6.1 million.
The Company filed post-trial motions to avoid damage duplication and inconsistency, and to secure judgment as a matter of law or a new trial. The trial court denied those motions. The Company appealed the verdict in 2019 and the post-trial rulings to the Court will also take into considerationof Appeals of the Company’s financial conditionState of Kansas, Case No. 18-119,563. The Company posted a $2 million supersedeas bond. The Plaintiff filed a cross-appeal. The appeal and cross-appeal are fully briefed. The appellate court has not set a date to hear the appeal.
The Company is optimistic about the prospects of its appeal for a judgment as a matter of law. The appeal decision has been delayed due to the COVID-19 related shutdown of the Kansas court system and the inability of court staff to work remotely on confidentiality issues. During August 2021, in settingan effort to move the appeal forward, all parties agreed to supply the appeal information to the court on a dedicated and secured laptop that would be used by the research attorney remotely. The Company has the ability to settle this case at its sole discretion by withdrawing the appeal and paying the judgment plus interest amount. The Company currently has sufficient cash on hand to pay off this liability if the appeal is lost. On January 28, 2022, Aeroflex filed a Motion to Require Supplemental Appeal Bond with the Court of Appeals of the State of Kansas, seeking a bond from the Company in the amount of punitive damages.$6 million to supplement the existing bond of $2 million. The Company does not believehas filed a response and we are confident that punitive damages, in any amount are appropriate. Regardless, the Company will vigorously defend against an award.
Other than the matters outlineddisclosed above, wethere are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiryother actions, suits, proceedings, inquiries or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our Company,company or any of our subsidiaries, threatened against or affecting our Company,company, our common stock, any of our subsidiaries or of our companies or our common stocksubsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
Item 4.
Mine Safety DisclosuresNot applicable.
PART II
Item 5.Market for Registrant’sRegistrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
a) Market Information
The common stock, $0.10 par value per share, of the registrant (“Common Stock”) is traded on the NYSE - MKTOTCQB under the symbol “TIK”“TIKK”. The following table sets forth the high and low per share sale prices for our Common Stock for the periods indicated as reported for fiscal years 20172022 and 20162021 by the NYSE - MKT:OTC.
| Fiscal Year | ||||||||||||||||
| Ended March 31, | ||||||||||||||||
| 2017 | High | Low | ||||||||||||||
High | Low | |||||||||||||||
2022 | ||||||||||||||||
| First Quarter | $ | 4.66 | $ | 4.05 | $ | 3.63 | $ | 2.80 | ||||||||
| Second Quarter | 4.55 | 3.53 | 3.75 | 2.76 | ||||||||||||
| Third Quarter | 4.85 | 3.40 | 3.55 | 2.90 | ||||||||||||
| Fourth Quarter | 6.09 | 4.25 | 3.15 | 2.80 | ||||||||||||
| 2016 | ||||||||||||||||
2021 | ||||||||||||||||
| First Quarter | $ | 6.35 | $ | 4.87 | $ | 3.95 | $ | 2.56 | ||||||||
| Second Quarter | 5.27 | 3.98 | 4.80 | 3.13 | ||||||||||||
| Third Quarter | 5.52 | 4.60 | 5.95 | 2.76 | ||||||||||||
| Fourth Quarter | 4.76 | 3.70 | 3.85 | 2.85 | ||||||||||||
b) Holders
The Company has approximately 183144 holders of its Common Stock as of July 7, 2017.June 16, 2022. This figure does not take into accountconsider those shareholders whose certificates are held in the name of broker-dealers or other nominees.
c) Dividends
We have not declared or paid any dividends on our Common Stock and intend to retain any future earnings to fund development and growth of our business. Therefore, we do not anticipate paying dividends on our common stock for the foreseeable future. There are no restrictions on our present ability to pay dividends to stockholders of our common stock, other than those prescribed by law.
d) Securities Authorized for Issuance under Equity Compensation Plans
The following table provides information as of March 31, 20172022, regarding compensation plans under which equity securities of the Company are authorized for issuance. See “Equity Compensation Plan Information” under Item 12 below.
Plan category | Number of securities to be issued upon exercise of outstanding options | Weighted average exercise price of outstanding options | Number of options remaining available for future issuance under Equity Compensation Plans | Number of securities to be issued upon exercise of outstanding options | Weighted average exercise price of outstanding options | Number of options remaining available for future issuance under Equity Compensation Plans | ||||||||||||||||||
| Equity Compensation Plans approved by shareholders | 79,000 | $ | 5.26 | 250,000 | 111,500 | $ | 3.14 | 138,500 | ||||||||||||||||
| Equity Compensation Plans not approved by shareholders | -- | -- | -- | |||||||||||||||||||||
| Total | 79,000 | $ | 5.26 | 250,000 | 111,500 | $ | 3.14 | 138,500 | ||||||||||||||||
Rule 10B-18 Transactions
During the year ended March 31, 2017,2022, there were no repurchases of the Company’s Common Stock by the Company.
Recent Sales of Unregistered Securities
During the year ended March 31, 2022, we have not issued any securities that were not registered under the Securities Act and not previously disclosed in the Company’s Quarterly Reports on Form 10-Q or Current Reports on Form 8-K.
Item 6.Selected Financial Data Reserved
The Company is a smaller reporting company as defined in Item 10 (f) of Regulation S-K and therefore is not required to provide the information under this item.
Item 7.Management’s Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of our operations together with our financial statements and the notes thereto appearing elsewhere in this Annual Report. This discussion contains forward-looking statements reflecting our current expectations, whose actual outcomes involve risks and uncertainties. Actual results and the timing of events may differ materially from those stated in or implied by these forward-looking statements due to a number of factors, including those discussed in the section relating to Forward-Looking Statements below and elsewhere in this Annual Report. Please see the notes to our Financial Statements for information about our Critical Accounting Policies and Recently Issued Accounting Pronouncements.
Forward Looking Statements
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 1965.
Forward-looking statements include, among others, statements concerning the Company’s outlook, pricing trends and forces within the industry, the completion dates of 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 costs and availability of its raw materials; the actions of 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.circumstances, including the current COVID-19 pandemic. A number of these factors are discussed in the Company’s filings with the SEC.
General
Management’s discussion and analysis of results of operations and financial condition is intended to assist the reader in the understanding and assessment of significant changes and trends related to the results of operations and financial position of the Company together with its subsidiary.. This discussion and analysis should be read in conjunction with the consolidated financial statements and accompanying financial notes, and with the Critical Accounting Policies noted below. The Company’s fiscal year begins on April 1 and ends on March 31. Unless otherwise noted, all references in this document to a particular year shall mean the Company’s fiscal year ending on March 31.
Overview
Fiscal year 2022 operations continued to be affected by the ongoing outbreak of COVID-19 and its variants. While the business is still strong, the Company has been impacted by the pandemic in its commercial business and delays in orders from some of its military customers. The pandemic has also impacted its supply chain and labor force with disruptions to both the delivery of critical inventory components and personnel shortages due to COVID quarantines, which have hampered our ability to ship units under normal lead times. Although the Company has been negatively impacted by the pandemic, there was an increase in sales during fiscal 2022.
The Company believes it has built a solid positionreported net income of $1,309,738 and net sales of $12,932,790 for the fiscal year ended March 31, 2022. This compared to net income of $600,057 and net sales of $11,582,520 in the Mode 5 IFF and TACAN test set market and these products should be very competitive in both the domestic and overseas markets. While the major contracts have been,prior fiscal year. Net income for the most part, completed, we believe that we are well positionedcurrent and prior fiscal years each included $722,577 gains on forgiveness of PPP loans. Excluding the $722,577 gain on PPP forgiveness, net income (loss) for the years ended March 31, 2022, and 2021 were $587,161 and $(122,520), respectively. The Company reported a 11.7% increase in sales to $12,932,790 for the year ended March 31, 2022, as our CRAFT and TS-4530A flight-line test sets have been endorsedcompared to $11,582,520 for the previous year. Commercial sales increased by 49% to $2,568,959 for the year ended March 31, 2022, as compared to $1,723,983 for the year ended March 31, 2021. The commercial airline industry was devastated by the U.S. military,COVID pandemic during prior fiscal year, and we have already delivered test sets into 18 international markets. We have intensified our marketing effortshas been on a steady recovery. Avionics government sales increased by 5.1% to $10,363,831 for the year ended March 31, 2022, as compared to $9,858,537 for the year ended March 31, 2021. This increase in government sales is the gradual return of government workers to their jobs post shutdowns from the COVID pandemic issues. Gross margin increased by $982,841 in fiscal 2022 as compared to 2021 and the gross margin percentage improved by 3.3 percentage points to 44.6%. The improvement to gross margin was primarily due to a decrease in manufacturing variances due to lower volume and a decrease of discounts being granted. Total operating expenses for the year increased our investment inby $121,488, primarily due to engineering, research, and development. We continuedevelopment expenses from increased engineering activities primarily with the SDR-OMNI hand-held product line final development plans to emphasize the importance of capturing the majority share of the large IFF international market which we believe could generate substantial revenues starting in the 2018 fiscal year timeframe, and we have been working with international partners to ensure that we are well-positioned in this market. The new T-47M5 Mode 5 IFF test set will be a cost effective upgrade option for our large installed base of Mode 4 test sets and we have seen substantial interest in this test set from a number of countries. Our business development team met with several European customers in January 2017, relating to possible Mode 5 orders that could be issued startingbegin production in the summer of 2017. All allied countries have a drop dead date2022 and the restart of January 1, 2020 for Mode 5 capability; as a result, we believe that this international Mode 5 business to remain strong for at least the next three years.
Item 7.Management’s Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Overview (continued)
The Company continues to pursue in the domestic and international market for our Mode 5 test sets with good results. We continue to evaluate other attractive potential market opportunities.
The Company is also actively looking at expanding out of its current core avionics market area. TIC is working with Lockheed Martin (LMCO) on a new MADL test set. TIC was awarded this contract after winning a $956,000 competitive solicitation. MADL is a secure communications radio for the F-35. This operates in a much higher frequency range than our other test sets. TIC has finished the design and is getting ready to commence environmental qualification testing. This should generate ongoing recurring revenues for the Company and will position TIC for further engineering work with LMCO.
The main focus area for the Company is moving into the secure communications testing with our new DSR/OMNI test set. The world’s first “All-in-One” Avionics Test Set utilizes true software-designed radio technology that enables it to test all common avionics functions in one 4.5 pound test set. The SDR/OMNI has very wide frequency to accommodate new commercial and military waveforms in an industry leading 4.5-pound package. This is half the weight of competitive test sets. It utilizes the latest touch screen technology and has the capability to replace all TIC commercial test sets and military flight-line test sets with one handheld product. he U.S. military will need to upgrade thousands of existing communication and navigation test sets over the next several years to address the new frequency and waveform requirements for military radios and we believe the SDR/OMNI is well positioned to capture a large portion of this business.
The Aeroflex litigation (see Note 19 to the consolidated financial statements) did not result in a favorable outcome for the Company, despite our belief that we committed no wrongdoing.
The jury found no misappropriation of Aeroflex trade secrets, but it did rule that the Company tortiously interfered with a prospective business opportunity and awarded damages. The jury also ruled that Tel tortiously interfered with Aeroflex’s non-disclosure agreements with two former Aeroflex employees. The jury also found that the former Aeroflex employees breached their non-disclosure agreements with Aeroflex. The Court conducted further hearings on the Company’s post-trial motions which sought to reduce the damages award of $2.8 million, as well as the punitive damages claim. The Court denied the Company’s motions and awarded Aeroflex an additional $2.1 million of punitive damages. The Company has filed motions in January 2018 for the Court to reconsider the number of damages on the grounds that they are duplicative and not legally supportable. The Court heard these motions, and such motions were denied. The Company has filed for the appeal. The Company has posted a $2 million bond for the appeal. This $2 million bond amount will remain in place during the appeal process (See Note 6).
As reflected in the accompanying consolidated balance sheet as of March 31, 2022, the Company has recorded estimated damages to date of $6.1 million, including interest, as a result of a jury verdict associated with the Aeroflex litigation. The Company has filed for an appeal (see Notes 6 and 19). As of March 31, 2022, the Company has cash balances of $7 million, including $2 million of restricted cash as well as $690,000 of borrowing capacity. We expect to see increased volatility in our quarterly revenues starting in fiscalcontinue to have sufficient cash and borrowing capacity to fully cover the Aeroflex damages amount.
The Company is very optimistic about the prospects of its appeal for a judgment as a matter of law. The Company was hoping for a decision from the court this calendar year, 2018.but this timing will likely be delayed due to the three month COVID-19 related shutdown of the Kansas court system. As such, the appeal process is expected to take at least another six months to a year to complete unless a settlement can be reached. The Company has the ability to settle this case at its sole discretion by withdrawing the appeal and paying the judgment plus interest amount.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Overview (continued)
On March 21, 2016, the Company entered into a line of credit agreement with Bank of America, which expired March 31, 2017. In March 2017, the Company renewed the agreement until March 31, 2018. The new line provides a revolving credit facility with borrowing capacity of up to $1,000,000. There are no covenants or borrowing base calculations associated with this line of credit. Interest on any outstanding balances is payable monthly at an annual interest rate equal to the LIBOR (London Interbank Offered Rates) Daily Floating plus 3.75 percentage points. The Company’s interest rate was 4.732% at March 31, 2017.America. The line is collateralized by substantially all of the assets of the Company. In March 31, 2017 the Company borrowed $200,000 fromThe line provided a revolving credit facility with borrowing capacity of up to $1,000,000. There were no covenants or borrowing base calculations associated with this line of credit. On August 29, 2018, the Company entered a Loan Modification Agreement (the “Agreement”) with the bank to extend the Agreement until May 31, 2019, which included a debt service ratio “covenant”. In June 2019, Bank of America agreed to extend the Company’s line of credit until March 31, 2020, including monthly principal payments of $10,000, and eliminating the covenant for the debt service ratio. In March 2020, the Company extended its line of credit until January 31, 2021, then extended to March 31, 2021, and then subsequently to July 31, 2022. The new agreement includes availability up to $690,000. Monthly payments will be interest only. As of March 31, 2017 and 2016,2022, the outstanding balances were $200,000 and $-0-, respectively. Asline of credit draw remains at zero, with $690,000 available (see Note 10 to the consolidated financial statements). On March 31, 2017 the remaining availability under this line is $800,000. In April 2017, the Company borrowed an additional $200,000 from this line of credit.
The Company believes it has sufficient cash on hand and expected cash flow from operations for the next twelve months due to the increase in business and the opportunities that exist for the next few years.
Results of Operations 2022 Compared to 2021
Sales
For the year ended March 31, 2022, sales increased $1,350,270 (11.7%) to $12,932,790 as compared to $11,582,520 for the year ended March 31, 2021. Commercial sales increased $844,976 (49%) to $2,568,959 for the year ended March 31, 2022, as compared to $1,723,983 for the year ended March 31, 2021. The commercial airline industry which was devastated by the COVID pandemic the prior fiscal year, has been showing signs of a recovery. Avionics government sales increased $505,294 (5.1%) to $10,363,831 for the year ended March 31, 2022, as compared to $9,858,537 for the year ended March 31, 2021. This increase in government sales is the gradual return of government workers to their jobs post shutdowns from the COVID pandemic issues.
Gross Margin
Gross margin increased $982,841 (20.6%) to $5,765,340 for the year ended March 31, 2022, as compared to $4,782,499 for the year ended March 31, 2021, primarily as a result of a decrease in manufacturing variances due to lower volume and a decrease of discounts being granted. The gross margin percentage for the year ended March 31, 2022, was 44.6%, as compared to 41.3% for the year ended March 31, 2021.
Operating Expenses
Selling, general and administrative expenses, along with litigation expense, decreased $133,139 (5.5%) to $2,280,055 for the year ended March 31, 2022, as compared to $2,413,194 for the year ended March 31, 2021. This decrease is primarily attributed to one-time legal fees from prior fiscal year ended March 31, 2021.
Engineering, research, and development expenses increased $252,725 (11.0%) to $2,548,626 for the year ended March 31, 2022, as compared to $2,295,901 for the year ended March 31, 2021. The increase is primarily due to increase in engineering staff to support the development of the Company’s SDR/OMNI hand-held product line final development plans to begin production summer 2022 and the restart of Lockheed Martin MADL test set projects, which was offset by reimbursed engineering costs of approximately $120,000.
Income from Operations
As such,a result of the above, the Company recorded income from operations in the future,amount of $936,659 for the Company will not maintain a substantial backlogfiscal year ended March 31, 2022, as it hascompared to income from operations of $73,404 for the last few years and will ship orders in less than 12 months.
Other Income
For the Company and twoyear ended March 31, 2022, total other income was $548,532 as compared to $499,626 for the year ended March 31, 2021. This was primarily the result of its employees inlower interest for the District Court located in Sedgwick County, Kansas, Case No. 09 CV 1141 (the “Aeroflex Action”), alleging that the Company and its two employees misappropriated Aeroflex’s proprietary technology in connection with the Company winning a substantial contract from the U.S. Army, to develop new Mode-5 radar test sets and kits to upgrade the existing TS-4530 radar test sets to Mode 5 (the “Award”). Aeroflex’s petition, seeking injunctive relief and damages, alleges that in connection with the Award, the Company and its named employees misappropriated Aeroflex’s trade secrets; tortiously interfered with Aeroflex’s business relationship; conspired to harm Aeroflex and tortiously interfered with Aeroflex’s contract. The central basisline of all the claims in the Aeroflex Action is that the Company misappropriated and used Aeroflex proprietary technology and confidential information in winning the Award. In February 2009, subsequent to the Company winning the Award, Aeroflex filed a protest of the Award with the Government Accounting Office (“GAO”). In its protest, Aeroflex alleged, inter alia, that the Company used Aeroflex’s proprietary technology in order to win the Award, the same material allegations as were later alleged in the Aeroflex Action. On or about March 17, 2009, the U.S. Army Contracts Attorney and the U.S. Army Contracting Officer each filed a statement with the GAO, expressly rejecting Aeroflex’s allegations that the Company used or infringed on Aeroflex’s proprietary technology in winning the Award, and concluding that the Company had used only its own proprietary technology. On April 6, 2009, Aeroflex withdrew its protest.credit.
Item 7.Management’s Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Income before Income Taxes
As a result of the verdict,above, the Company filedrecorded income before taxes of $1,485,191 for the year ended March 31, 2022, as compared to income before taxes of $573,030 for the fiscal year ended March 31, 2021.
Income Taxes
For the year ended March 31, 2022, the Company reported $175,453 tax provision as compared to a motiontax benefit of $27,027 in the prior fiscal year. The forgiveness of the PPP loan in both comparative fiscal year ends are not a taxable event.
The differences between income taxes expected at the U.S. federal statutory income tax rate of 21 percent and the reported income tax expense are due to the recognition of non-taxable PPP funds of $722,577 as other income during fiscal year ended March 31, 2022. Taxable income was $762,614 for the year ended March 31, 2022, and a tax benefit resulted from the net loss $(149,547) for the year ended March 31, 2021. The forgiven PPP loans were non-taxable.
Net Income
As a result of the above, the Company recorded net income of $1,309,738 for the year ended March 31, 2022, as compared to net income of $600,057 for the year ended March 31, 2021.
Liquidity and Capital Resources
On March 31, 2022, the Company had positive working capital of $3,671,667, as compared to working capital of $3,159,731 on March 31, 2021. The Company has approximately $7.0 million of cash on hand at year-end including $2 million of restricted cash supporting the appeal bond.
On March 31, 2021, Bank of America further extended the maturity date of our line of credit from March 31, 2021, to June 30, 2021, to allow time for a full underwriting for the annual renewal period. The line of credit was subsequently renewed for $690,000 until July 30, 2022.
As discussed in Note 19 of the consolidated financial statements, the Company has recorded total damages of $6,097,273 including accrued interest, as a result of the jury verdict associated with the Aeroflex litigation as well as the Court’s decision on punitive damages. The Company has recorded accrued interest of $1,197,273 as of March 31, 2022.
The Company is very optimistic about the prospects of its appeal for a judgment as a matter of law. The Company was hoping for a decision from the court this calendar year, but this timing has been delayed due to the COVID-19 related shutdown of the Kansas court system. As such, the appeal process is expected to take at least another six to twelve months to complete. The Company has the ability to settle this case at its sole discretion by withdrawing the appeal and paying the judgment plus interest amount.
On March 27, 2020, former President Trump signed the Coronavirus Aid, Relief and Economic Security (the “CARES Act”), which, among other things, outlines the provisions of the Paycheck Protection Program (the “PPP”). The Company determined that it met the criteria to be eligible to obtain a loan under the PPP because, among other reasons, in light of the COVID-19 outbreak and the uncertainty of economic conditions related thereto, the loan was considered necessary to support the Company’s ongoing operations and retain all its employees. In addition, former President Trump signed into law the Paycheck Protection Program and Health Care Enhancement Act on April 24, 2020, which is pending. Inincreased funding provided by the motion,CARES Act. On May 4, 2020, the Company renewedissued a promissory note (the “Note”) to Bank of America in the principal aggregate amount of $722,577 (the “PPP Loan”) pursuant to the Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The amount was deposited in our bank on May 4, 2020. On June 5, 2020, the Paycheck Protection Program Flexibility Act was signed into law and extended the program until December 31, 2020. TIC qualified for full loan forgiveness on the initial tranche on December 18, 2020.
On January 6, 2021, updated PPP guidance outlining program changes to enhance its motioneffectiveness and accessibility was released on in accordance with the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act. This was available to companies that recorded greater than a 25% sales reduction in any quarter compared to the prior year. The Company qualified for judgmentthis second round of funding and on Aeroflex’s tortious interference with prospective business opportunity claim arguing that such claim is barred byMarch 15, 2021, the statute of limitations. Alternatively, the motion asserts there is insufficient evidence supporting the lost profit award on that claim. Additionally, the motion for judgment addresses inconsistency between the awards against the former Aeroflex employees for breach of the non-disclosure agreements and the award against the Company for interfering with those agreements. Alternatively, the motion asserts there is insufficient evidence supporting the lost profit award on that claim. While we believe that this motion has merit, there is no assurance that the judge will reduce the jury awards.
Item 7.Management’s Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Liquidity and ITATS units associated with the U.S. Navy programs, which contracts have now been completed. This decrease was partially offset by the shipment of the TS-4530A SETS and CRAFT units sold to Lockheed Martin for the Joint Strike Fighter (“JSF”) program and to other customers. Commercial sales increased $419,734 (23.4%) to $2,213,543 for the year ended March 31, 2017 as compared to $1,793,809 for the year ended March 31, 2016. This increase is attributed to the sales of our recently introduced TR-36 Nav/Comm test set as well as increase in sales of the TR-220Capital Resources (continued)
On August 24, 2021, TIC, and the T-30D.New Jersey Economic Development Authority (NJEDA) signed a small business emergency assistance grant agreement in the amount of $20,000. We received these funds into our bank account on August 30, 2021, from NJEDA.
Based on the foregoing, we believe that our expected cash flows from operations, line of credit in place and current cash balances will be sufficient to $6,684,115operate in the normal course of business for next 12 months from the year ended March 31, 2017 as compared to $7,985,590issuance date of these financial statements, including any payments for the year ended March 31, 2016. This decrease is mostly attributed to the lower volume offset partially by increased prices on CRAFT and the change in sales mix. The gross margin percentage for the year ended March 31, 2017 was 35.7%, as compared to 32.2% for the year ended March 31, 2016.
The Company continues to investmonitor the impact of the COVID-19 outbreak on its supply chain, manufacturing and distribution operations, customers, and employees, as well as the U.S. economy in new products by taking advantagegeneral. The uncertainties associated with the COVID-19 outbreak include potential adverse effects on the overall economy, the Company’s supply chain, transportation services, employees, and customers. The COVID-19 outbreak could adversely affect the Company’s revenues, earnings, liquidity, and cash flows and may require significant actions in response, including expense reductions. Conditions surrounding COVID-19 change rapidly, and additional impacts of our CRAFT and TS-4530A technology to develop smaller hand-held products, which will broaden our product line for both commercial and military applications. We also introduced a new commercial Nav/Comm test set earlier this calendar year. This is a large and important market segment for the Company is not currently aware may arise. Based on past performance and we are optimistic that this new product will help us regain market share in this segment. We have added additional personnel to research and development activities to accelerate our time to market.
During the year ended March 31, 2017,2022, the Company’s cash balance decreasedincreased by $684,760$1,464,415 to $287,873.$6,960,740, including restricted cash to support the appeal bond. The Company’s principal sources, and uses of funds were as follows:
Cash provided by(used in) operating activities.
Cash used in(used in) investing activities
Cash used in(used in) provided by financing activities.
Currently, the Company has no material future capital expenditure requirements.
There was no significant impact on the Company’s operations as a result of inflation for the year ended March 31, 2017.
Critical Accounting Policies
In preparing the consolidated financial statements and accounting for the underlying transactions and balances, the Company applies its accounting policies as disclosed in Note 2 of our Notes to Consolidated Financial Statements. The Company’s accounting policies that require a higher degree of judgment and complexity used in the preparation of these consolidated financial statements include:
Revenue recognition - r
The Company generates revenue from designing, manufacturing, and selling avionic tests and measurement solutions for the global commercial air transport, general aviation, and government/military aerospace and defense markets. The Company also offers calibration and repair services for a wide range of airborne navigation and communication equipment.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Critical Accounting Policies (continued)
The Company recognizes revenue when the customer obtains control of promised goods or services, in an amount that reflects the consideration which is expected to be received in exchange for those goods or services. The Company recognizes revenue following the five-step model prescribed under ASC 606: (i) identify contract(s) with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligation(s) in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
Nature of goods and services
The following is a description of the products and services from which the Company generates revenue, as well as the nature, timing of satisfaction of performance obligations, and significant payment terms for each.
Test Units/Sets
The Company develops, and manufactures unit sets to test navigation and communication equipment, such as ramp testers and bench testers for radios installed in aircraft. The Company recognizes revenue when the customer obtains control of the Company’s product based on the contractual shipping terms of the contract, which is usually at the time of shipmentshipment. Revenue on products is presented gross because the Company is primarily responsible for fulfilling the promise to or acceptance byprovide the customer, provided titleproduct, is responsible to ensure that the product is produced in accordance with the related supply agreement and bears the risk of loss while the inventory is transferredin-transit. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products to the customer.
If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price based on the estimated relative standalone selling prices of the promised products or services underlying each performance obligation. The Company determines stand-alone selling prices based on the price at which the performance obligation is sold separately. If the stand-alone selling price is not observable through past transactions, the Company estimates the standalone selling price considering available information such as market conditions and internally approved pricing guidelines related to the performance obligations.
When determining the transaction price of a contract, an adjustment is made if payment from the customer occurs either significantly before or significantly after performance, resulting in a significant financing component. Applying the practical expedient in paragraph 606-10-32-18, the Company does not assess whether a significant financing component exists if the period between when the Company performs its obligations under the contract and when the customer pays is one year or less. None of the Company’s contracts contained a significant financing component as of March 31, 2022.
Replacement Parts
The Company offers replacement parts for test equipment, ramp testers, and bench testers. Similar to the sale of test units, the control of the product transfers at a point of time and therefore, revenue is recognized at the point in time when the obligation to the customer has been fulfilled.
Extended Warranties
The extended warranties sold by the Company provide a level of assurance beyond the coverage for defects that existed at the time of a sale or against certain types of covered damage with coverage terms generally ranging from 5 to 7 years. Amounts received for warranties are recorded as deferred revenue and recognized as revenue ratably over the product price is fixed or determinable, collectionrespective term of the resulting receivableagreements. As of March 31, 2022, approximately $386,907 is probable, evidence of an arrangement exists and product returns are reasonably estimable. Provisions, when appropriate, are made whereexpected to be recognized from remaining performance obligations for extended warranties as compared to $408,219 on March 31, 2021. For the right to return exists.
Item 7. Management’s Discussion and 2016, respectively.Analysis of Financial Condition and Results of Operations (Continued)
Critical Accounting Policies (continued)
The following table provides a summary of the changes in deferred revenues related to extended warranties for the year ended March 31, 2022:
Deferred revenues related to extended warranties on April 1, 2021 | $ | 408,219 | ||
Additional extended warranties | 54,479 | |||
Revenue recognized for the year ended March 31, 2022 | (75,791 | ) | ||
Deferred revenues related to extended warranties on March 31, 2022 | $ | 386,907 |
Other Deferred Revenues
The Company sometimes receives payments in advance of shipment. These amounts are classified as other deferred revenues. For the year ended March 31, 2022, the Company has other deferred revenues areof $21,999 and $74,920 for period ending March 31, 2021.
Repair and Calibration Services
The Company offers repair and calibration services for units that are periodically returned for annual calibrations and/or for repairs after the warranty period has expired. Revenues onThe Company repairs and calibrations arecalibrates a wide range of airborne navigation and communication equipment. Revenue is recognized at the time the repaired or calibrated unit is shipped back to the customer, as it is at this time that the work is completed.
Other
The majority of the Company’s revenues are from contracts with the U.S. government, airlines, aircraft manufacturers, such as Boeing and Lockheed Martin, domestic distributors, international distributors for sales to military and commercial customers, and other commercial customers. The contracts with the U.S. government typically are subject to the Federal Acquisition Regulation (“FAR”) which provides guidance on the types of costs that are allowable in establishing prices for goods and services provided under U.S. government contracts.
Payment terms and conditions vary by contract, although terms generally include a requirement of payment within a range from 30 to 60 days, or in certain cases, up-front deposits. In circumstances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined that the Company's contracts generally do not include a significant financing component. Payments received prior to the delivery of units or services performed are F.O.B. Plant,recorded as deferred revenues. Taxes collected from customers, which are subsequently remitted to governmental authorities, are excluded from sales. The Company applied the practical expedient to account for shipping and handling activities as such, delivery has occurred, and revenue recognized, when picked up and acknowledged byfulfillment cost rather than as a common carrier.
All sales are denominated in U.S. dollars. The Company excludes from revenues all taxes assessed by a governmental authority that are imposed on the sale of its products and collected from customers. Company within 30 days of the related sales order fulfillment. Accordingly, management has determined that no change in accounting for costs to the delivery of units or services performed are recorded as deferred revenues.obtain a contract
will be the warranty period,required for the Company offers customers an optional warranty. Amounts receivedto conform to ASC 606.
Disaggregation of revenue
In the following tables, revenue is disaggregated by revenue category.
For the Year Ended March 31, 2022 | ||||||||
Commercial | Government | |||||||
Sales Distribution | ||||||||
Test Units | $ | 409,594 | $ | 10,307,842 | ||||
| $ | 409,594 | $ | 10,307,842 | |||||
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Critical Accounting Policies (continued)
The remainder of our revenues for the year ended March 31, 2022, are derived from repairs and calibration of $1,853,665 replacement parts of $229,058, extended warranties of $75,791 and other miscellaneous. income of $56,840.
For the Year Ended March 31, 2021 | ||||||||
Commercial | Government | |||||||
Sales Distribution | ||||||||
Test Units | $ | 325,195 | $ | 9,858,537 | ||||
| $ | 325,195 | $ | 9,858,537 | |||||
The remainder of our revenues for the year ended March 31, 2021, are recorded as deferredderived from repairs and calibration of $1,169,399 replacement parts of $142,801 and extended warranties of $86,588.
In the following table, revenue and recognized over the respective terms of the agreements.is disaggregated by geography.
For the Year Ended March 31, 2022 | For the Year Ended March 31, 2021 | |||||||
Geography | ||||||||
United States | $ | 8,175,301 | $ | 5,511,516 | ||||
International | 4,757,489 | 6,071,004 | ||||||
Total | $ | 12,932,790 | $ | 11,582,520 | ||||
Inventory reserves –inventory reserves or write-downs are estimated for excess, slow-moving and obsolete inventory as well as inventory whose carrying value is in excess of net realizable value. These estimates are based on current assessments about future demands, market conditions and related management initiatives. If market conditions and actual demands are less favorable than those projected by management, additional inventory write-downs may be required. While such write-downs have historically been within our expectation and the provision established, the Company cannot guarantee that it will continue to receive positive results.
Warranty reserves
– warranty reserves are based upon historical rates and specific items that are identifiable and can be estimated at time of sale. While warranty costs have historically been within the Company’s expectations and the provisions established, future warranty costs could be in excess of the Company’s warranty reserves. A significant increase in these costs could adversely affect the Company’s operating results for the period and the periods these additional costs materialize. Warranty reserves are adjusted from time to time when actual warranty claim experience differs from estimates. For the year ended March 31,Accounts receivable
– the Company performs ongoing credit evaluations of its customers and adjusts credit limits based on customer payment and current credit worthiness, as determined by review of their current credit information. The Company continuously monitors credits and payments from its customers and maintains provision for estimated credit losses based on its historical experience and any specific customer issues that have been identified.Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Critical Accounting Policies (continued)
Income taxes - deferred tax assets arise from a variety of sources, the most significant being:being a) tax losses that can be carried forward to be utilized against profits in future years; b) expenses recognized in the books but disallowed in the tax return until the associated cash flow occurs; and c) valuation changes of assets which need to be tax effected for book purposes but are deductible only when the valuation change is realized. Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when such differences are expected to reverse. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance for any tax benefit which is not more likely than not to be realized. In assessing the need for a valuation allowance, future taxable income is estimated, considering the realization of tax loss carryforwards. Valuation allowances related to deferred tax assets can also be affected by changes to tax laws, changes to statutory tax rates and future taxable income levels. In the event it was determined that the Company would not be able to realize all or a portion of its deferred tax assets in the future, the Company would reduce such amounts through a charge to income in the period in which that determination is made. Conversely, if it were determined that it would be able to realize the deferred tax assets in the future in excess of the net carrying amounts, TelTIC would decrease the recorded valuation allowance through an increase to income in the period in which that determination is made. In its evaluation of a valuation allowance, the Company takes into accountconsiders existing contracts and backlog, and the probability that options under these contract awards will be exercised as well as sales of existing products. The Company prepares profit projections based on the revenue and expenses forecast to determine that such revenues will produce sufficient taxable income to realize the deferred tax assets. The Company determined they will not be able to realize allthe majority of its deferred tax assets and as a result a full valuation allowance was recorded atof its current projections on March 31, 2017.
Off Balance Sheet Arrangements
The Company is not party to any off-balance sheet arrangements that may affect its financial position or its results of operations.
New Accounting Pronouncements
In August 2014,June 2016, the FASB issued Accounting Standards Update (“ASU”)ASU No. 2014-15, Presentation2016-13 Financial Instruments -Credit Losses (Topic 326), Measurement of Credit Losses on Financial Statements - Going ConcernStatements. The amendment in this update replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses on instruments within its scope, including trade receivables. This update is intended to provide guidancefinancial statement users with more decision-useful information about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern.the expected credit losses. The guidance requires management to assess whether there are conditions or events, considered ineffective date of the aggregate, that raise substantial doubt about an entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. When management identifies such conditions or events, a footnote disclosure is required to disclose their nature, as well as management’s plans to alleviate the substantial doubt to continue as a going concern. The standard became effective for our fiscal year end 2017 and did not have an impact on the consolidated financial statements.
Item 7. Management’s Discussion and Analysis of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires disclosures sufficient to enable users to understand the nature, amount, timing,Financial Condition and uncertaintyResults of revenue and cash flows arising from contracts with customers, including qualitative and quantitative disclosures about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. In March 2016, the FASB issued ASU 2016-08 which further clarifies the guidance on the principal versus agent considerations within ASU 2014-09. In April 2016, the FASB issued ASU 2016-10 to expand the guidance on identifying performance obligations and licensing within ASU 2014-09. In May 2016, the FASB issued ASU 2016-12 to improve revenue recognition in the areas of collectability, presentation of sales tax and other similar taxes collected from customers, noncash consideration, contract modifications and completed contracts at transition. This update also amends the disclosure requirements within ASU 2014-09 for entities that retrospectively apply the guidance. The latest amendments are intended to address implementation issues that were raised by stakeholders and discussed by the Revenue Recognition Transition Resource Group, and provide additional practical expedients. These standards are effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period. The Company is currently evaluating the new guidance to determine the impact, if any, it will have on its consolidated financial statements.Operations (Continued)
Critical Accounting Policies (continued)
No other recently issued accounting pronouncements had or are expected to have a material impact on the Company’s condensed consolidated financial statements.
Item 7A.
Quantitative and Qualitative Disclosures about Market RiskWe are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act, and are not required to provide the information under this Item. Nonetheless, we do not hold any derivative instruments and do not engage in any hedging activities.
Item 8.
Financial Statements and Supplementary DataPages | |
(1) Financial Statements: | |
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31 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Tel-Instrument Electronics Corp. (the “Company”) as of March 31, 20172022 and 20162021, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for each of the years then ended. in the two-year period ended March 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the two-year period ended March 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on thesethe Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the auditaudits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. OurAs part of our audits, included considerationwe are required to obtain an understanding of internal control over financial reporting, as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements referredthat was communicated or required to above present fairly, in allbe communicated to the audit committee and that: (1) relates to accounts or disclosures that are material respects, the financial position of Tel-Instrument Electronics Corp. as of March 31, 2017 and 2016, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Inventory Valuation
Description of this uncertainty.the Matter
At March 31, 2022, the Company’s net inventory balance was approximately $2.8 million. As discussed in Note 2 of the consolidated financial statements, the Company adjusts the inventory carrying value to the lower of cost or net realizable value, which includes an estimate of the allowance for obsolescence.
How We Addressed the Matter in Our Audit
Our audit procedures related to management’s judgments underlying the calculation of the allowance for obsolete inventory, included the following, among others:
● | We evaluated the appropriateness and consistency of management’s methods and assumptions used in developing the Company’s estimate of the allowance for obsolete inventory. |
● | We evaluated the appropriateness of specific inputs supporting management’s estimate. |
● | We tested the mathematical accuracy of the Company’s calculation of the allowance for obsolete inventory. |
/s/ Friedman LLP |
We have served as the Company’s auditor since 2019. |
Marlton, New Jersey |
June 17, 2022 |
TEL-INSTRUMENT ELECTRONICS CORP.
Consolidated Balance Sheets
| ASSETS | March 31, 2017 | March 31, 2016 | March 31, 2022 | March 31, 2021 | ||||||||||||
| Current assets: | ||||||||||||||||
| Cash | $ | 287,873 | $ | 972,633 | $ | 4,949,690 | $ | 3,485,275 | ||||||||
Accounts receivable, net of allowance for doubtful accounts of $7,500 and $7,500, respectively | 1,556,382 | 1,454,361 | ||||||||||||||
Accounts receivable, net of allowance for doubtful accounts of $7,425 and $7,500, respectively | 1,049,040 | 1,933,321 | ||||||||||||||
| Inventories, net | 4,208,179 | 4,679,032 | 2,820,497 | 3,437,989 | ||||||||||||
Restricted cash to support appeal bond | 2,011,050 | 2,011,050 | ||||||||||||||
| Prepaid expenses and other current assets | 188,578 | 128,071 | 244,040 | 263,067 | ||||||||||||
| Total current assets | 6,241,012 | 7,234,097 | 11,074,317 | 11,130,702 | ||||||||||||
| Equipment and leasehold improvements, net | 161,427 | 193,518 | 115,338 | 200,769 | ||||||||||||
| Deferred tax asset – non-current | - | 2,643,633 | ||||||||||||||
Operating lease right-of-use assets | 1,720,921 | 1,922,805 | ||||||||||||||
Deferred tax asset, net | 2,499,587 | 2,675,040 | ||||||||||||||
| Other assets | 33,509 | 36,871 | 35,109 | 35,110 | ||||||||||||
| Total assets | $ | 6,435,948 | $ | 10,108,119 | $ | 15,445,272 | $ | 15,964,426 | ||||||||
| LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY | ||||||||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
| Current liabilities: | ||||||||||||||||
| Current portion of long-term debt | $ | 291,991 | $ | 418,255 | ||||||||||||
| Line of credit | 200,000 | - | ||||||||||||||
| Capital lease obligations – current portion | 6,268 | 10,232 | ||||||||||||||
Operating lease liabilities – current portion | $ | 194,370 | $ | 201,883 | ||||||||||||
| Accounts payable | 1,428,320 | 1,686,469 | 406,489 | 906,149 | ||||||||||||
| Deferred revenues – current portion | 123,720 | 48,766 | 119,835 | 150,709 | ||||||||||||
| Federal and state taxes payable | 4,105 | 53,623 | ||||||||||||||
| Accrued expenses - vacation pay, payroll and payroll withholdings | 527,413 | 836,589 | 410,538 | 457,232 | ||||||||||||
| Accrued legal damages | 2,800,000 | - | 6,097,273 | 5,889,023 | ||||||||||||
| Accrued expenses - related parties | 45,586 | 213,344 | ||||||||||||||
| Accrued expenses – other | 599,049 | 501,687 | 174,145 | 365,975 | ||||||||||||
| Total current liabilities | 6,026,452 | 3,768,965 | 7,402,650 | 7,970,971 | ||||||||||||
| Subordinated notes payable – related parties | - | 25,000 | ||||||||||||||
| Capital lease obligations – long-term | 13,760 | 20,524 | ||||||||||||||
| Long-term debt, net of debt discount | 2,124 | 304,560 | ||||||||||||||
| Warrant liability | 95,000 | 1,136,203 | ||||||||||||||
Operating lease liabilities – long-term | 1,526,551 | 1,720,921 | ||||||||||||||
Long term debt-PPP | - | 722,577 | ||||||||||||||
| Deferred revenues – long-term | 352,973 | 172,703 | 289,071 | 332,428 | ||||||||||||
| Other long-term liabilities | - | 7,800 | ||||||||||||||
| Total liabilities | 6,490,309 | 5,435,755 | 9,218,272 | 10,746,897 | ||||||||||||
| Commitments and contingencies | ||||||||||||||||
| Stockholders’ (deficit) equity | ||||||||||||||||
Common stock, 4,000,000 shares authorized, par value $.10 per share, 3,255,887 and 3,255,887 shares issued and outstanding, respectively | 325,586 | 325,586 | ||||||||||||||
Stockholders’ equity | ||||||||||||||||
Preferred stock, 1,000,000 shares authorized, par value $0.10 per share | ||||||||||||||||
Preferred stock, 500,000 shares 8% Cumulative Series A Convertible Preferred issued and outstanding, par value $0.10 per share | 3,695,998 | 3,695,998 | ||||||||||||||
Preferred stock, 166,667 shares 8% Cumulative Series B Convertible Preferred issued and outstanding, par value $0.10 per share | 1,147,367 | 1,147,367 | ||||||||||||||
Common stock, 7,000,000 shares authorized, par value $.10 per share, 3,255,887 and 3,255,887 shares issued and outstanding, respectively | 325,586 | 325,586 | ||||||||||||||
| Additional paid-in capital | 8,107,369 | 8,074,655 | 7,018,353 | 7,318,620 | ||||||||||||
| Accumulated deficit | (8,487,316 | ) | (3,727,877 | ) | (5,960,304 | ) | (7,270,042 | ) | ||||||||
| Total stockholders’ (deficit) equity | (54,361 | ) | 4,672,364 | |||||||||||||
Total stockholders’ equity | 6,227,000 | 5,217,529 | ||||||||||||||
| Total liabilities and stockholders’ (deficit) equity | $ | 6,435,948 | $ | 10,108,119 | ||||||||||||
Total liabilities and stockholders’ equity | $ | 15,445,272 | $ | 15,964,426 | ||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
TEL-INSTRUMENT ELECTRONICS CORP.
Consolidated Statements of Operations
For the years ended March 31, | ||||||||
2022 | 2021 | |||||||
Net sales | $ | 12,932,790 | $ | 11,582,520 | ||||
Cost of sales | 7,167,450 | 6,800,021 | ||||||
Gross margin | 5,765,340 | 4,782,499 | ||||||
Operating expenses: | ||||||||
Selling, general and administrative | 2,250,576 | 2,165,190 | ||||||
Litigation expenses | 29,479 | 248,004 | ||||||
Engineering, research, and development | 2,548,626 | 2,295,901 | ||||||
Total operating expenses | 4,828,681 | 4,709,095 | ||||||
Income from operations | 936,659 | 73,404 | ||||||
Other income (expense): | ||||||||
Interest income | 3,951 | 7,483 | ||||||
Forgiveness of PPP loan | 722,577 | 722,577 | ||||||
Interest expense | - | (29,779 | ) | |||||
Interest expense – judgment | (208,250 | ) | (231,474 | ) | ||||
Other income, net | 30,254 | 30,819 | ||||||
Total other income | 548,532 | 499,626 | ||||||
Income before income taxes | 1,485,191 | 573,030 | ||||||
Provision (benefit) for income taxes | 175,453 | (27,027 | ) | |||||
Net income | 1,309,738 | 600,057 | ||||||
Preferred dividends | (320,000 | ) | (320,000 | ) | ||||
Net income attributable to common shareholders | $ | 989,738 | $ | 280,057 | ||||
Basic income per common share | $ | 0.30 | $ | 0.09 | ||||
Diluted income per common share | $ | 0.26 | $ | 0.12 | ||||
Weighted average number of shares outstanding | ||||||||
Basic | 3,255,887 | 3,255,887 | ||||||
Diluted | 5,095,665 | 5,073,165 | ||||||
| For the years ended March 31, | ||||||||
| 2017 | 2016 | |||||||
| Net sales | $ | 18,745,456 | $ | 24,804,825 | ||||
| Cost of sales | 12,061,341 | 16,819,235 | ||||||
| Gross margin | 6,684,115 | 7,985,590 | ||||||
| Operating expenses: | ||||||||
| Selling, general and administrative | 2,581,085 | 2,919,165 | ||||||
| Litigation expenses | 1,244,639 | 448,379 | ||||||
| Legal damages | 2,800,000 | - | ||||||
| Engineering, research and development | 2,430,322 | 2,038,126 | ||||||
| Total operating expenses | 9,056,046 | 5,405,670 | ||||||
| (Loss) income from operations | (2,371,931 | ) | 2,579,920 | |||||
| Other income (expense): | ||||||||
| Amortization of deferred financing costs | (5,429 | ) | (5,429 | ) | ||||
| Change in fair value of common stock warrants | 321,203 | (617,241 | ) | |||||
| Interest expense | (40,431 | ) | (58,133 | ) | ||||
| Interest expense - related parties | (18,736 | ) | (42,996 | ) | ||||
| Total other income (expense) | 256,607 | (723,799 | ) | |||||
| (Loss) income before income taxes | (2,115,324 | ) | 1,856,121 | |||||
| Provision for income taxes | 2,644,115 | 851,968 | ||||||
| Net (loss) income | $ | (4,759,439 | ) | $ | 1,004,153 | |||
| Basic (loss) income per common share | $ | (1.46 | ) | $ | 0.31 | |||
| Diluted (loss) income per common share | $ | (1.49 | ) | $ | 0.31 | |||
| Weighted average number of shares outstanding | ||||||||
| Basic | 3,255,887 | 3,256,887 | ||||||
| Diluted | 3,266,842 | 3,261,153 | ||||||
The accompanying notes are an integral part of the consolidated financial statements.
TEL-INSTRUMENT ELECTRONICS CORP.
Consolidated Statements of Changes in Stockholders’ (Deficit) Equity
| Common Stock | Additional | |||||||||||||||||||
| # of Shares | Paid-In | Accumulated | ||||||||||||||||||
| Issued | Amount | Capital | Deficit | Total | ||||||||||||||||
| Balances at April 1, 2015 | 3,256,887 | $ | 325,686 | $ | 8,046,168 | $ | (4,732,030 | ) | $ | 3,639,824 | ||||||||||
| Stock-based compensation | - | - | 32,277 | - | 32,277 | |||||||||||||||
| Reversal of shares intended to be issued in connection with the exercise of stock options | (1,000 | ) | (100 | ) | (3,790 | ) | - | (3,890 | ) | |||||||||||
| Net income | - | - | - | 1,004,153 | 1,004,153 | |||||||||||||||
| Balances at March 31, 2016 | 3,255,887 | $ | 325,586 | $ | 8,074,655 | $ | (3,727,877 | ) | $ | 4,672,364 | ||||||||||
| Stock-based compensation | - | - | 32,714 | - | 32,714 | |||||||||||||||
| Net loss | - | - | - | (4,759,439 | ) | (4,759,439 | ) | |||||||||||||
| Balances at March 31, 2017 | 3,255,887 | $ | 325,586 | $ | 8,107,369 | $ | (8,487,316 | ) | $ | (54,361 | ) | |||||||||
Series A Convertible Preferred Stock | Series B Convertible Preferred Stock | Common Stock | Additional Paid-In Capital | Accumulated Deficit | ||||||||||||||||||||||||||||||||
# of Shares Issued | Amount | # of Shares Issued | Amount | # of Shares Issued | Amount | Total | ||||||||||||||||||||||||||||||
Balances on April 1, 2020 | 500,000 | $ | 3,515,998 | 166,667 | $ | 1,087,367 | 3,255,887 | $ | 325,586 | $ | 7,616,624 | $ | (7,870,099 | ) | $ | 4,675,476 | ||||||||||||||||||||
Stock based Compensation | - | - | - | - | - | - | 21,996 | - | 21,996 | |||||||||||||||||||||||||||
8% Dividends on preferred stock | - | 240,000 | - | 80,000 | - | - | (320,000 | ) | - | - | ||||||||||||||||||||||||||
Dividend payments | - | (60,000 | ) | - | (20,000 | ) | - | - | - | - | (80,000 | ) | ||||||||||||||||||||||||
Net income | - | - | - | - | - | - | - | 600,057 | 600,057 | |||||||||||||||||||||||||||
Balances on March 31, 2021 | 500,000 | 3,695,998 | 166,667 | 1,147,367 | 3,255,887 | 325,586 | 7,318,620 | (7,270,042 | ) | 5,217,529 | ||||||||||||||||||||||||||
Stock-based compensation | - | - | - | - | - | - | 19,733 | - | 19,733 | |||||||||||||||||||||||||||
8% Dividends on preferred stock | - | 240,000 | - | 80,000 | - | - | (320,000 | ) | - | - | ||||||||||||||||||||||||||
Dividend payments | - | (240,000 | ) | - | (80,000 | ) | - | - | - | - | (320,000 | ) | ||||||||||||||||||||||||
Net income | - | - | - | - | - | - | - | 1,309,738 | 1,309,738 | |||||||||||||||||||||||||||
Balances on March 31, 2022 | 500,000 | $ | 3,695,998 | 166,667 | $ | 1,147,367 | 3,255,887 | $ | 325,586 | $ | 7,018,353 | $ | (5,960,304 | ) | $ | 6,227,000 | ||||||||||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
TEL-INSTRUMENT ELECTRONICS CORP.
Consolidated Statements of Cash Flows
For the years ended March 31, | ||||||||
2022 | 2021 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 1,309,738 | $ | 600,057 | ||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||
Deferred income taxes | 175,453 | (27,027 | ) | |||||
Depreciation and amortization | 95,904 | 125,120 | ||||||
Loss on sale of equipment | 5,596 | - | ||||||
Non-cash lease expense | 201,884 | 214,793 | ||||||
Forgiveness of PPP Loan | (722,577 | ) | (722,577 | ) | ||||
(Recovery of) provision for inventory obsolescence | (61,932 | ) | 25,000 | |||||
Non-cash stock-based compensation | 19,733 | 21,996 | ||||||
Changes in assets and liabilities: | ||||||||
Decrease (increase) in accounts receivable | 884,281 | (521,677 | ) | |||||
Decrease (increase) in inventories | 679,424 | (370,310 | ) | |||||
Decrease in prepaid expenses and other assets | 19,027 | 189,889 | ||||||
(Decrease) increase in accounts payable | (499,660 | ) | 166,338 | |||||
Increase in accrued legal damages | 208,250 | 231,474 | ||||||
(Decrease) increase in deferred revenues | (74,231 | ) | 10,839 | |||||
(Decrease) in accrued payroll, vacation pay & withholdings | (46,694 | ) | (55,500 | ) | ||||
(Decrease) in operating lease liabilities | (201,884 | ) | (214,793 | ) | ||||
(Decrease) increase in accrued expenses | (191,829 | ) | 70,762 | |||||
Net cash provided by (used in) operating activities | 1,800,483 | (255,616 | ) | |||||
Cash flows from investing activities: | ||||||||
Acquisition of equipment | (16,068 | ) | (67,902 | ) | ||||
Net cash used in investing activities | (16,068 | ) | (67,902 | ) | ||||
Cash flows from financing activities: | ||||||||
Payment of dividends | (320,000 | ) | (80,000 | ) | ||||
Proceeds from PPP loans | - | 1,445,154 | ||||||
Repayment of line of credit | - | (680,000 | ) | |||||
Repayment of capitalized lease obligations | - | (50 | ) | |||||
Net cash (used in) provided by financing activities | (320,000 | ) | 685,104 | |||||
Net increase in cash and restricted cash | 1,464,415 | 361,586 | ||||||
Cash and restricted cash at beginning of year | 5,496,325 | 5,134,739 | ||||||
Cash and restricted cash at end of year | $ | 6,960,740 | $ | 5,496,325 | ||||
End of year | ||||||||
Cash | $ | 4,949,690 | $ | 3,485,275 | ||||
Restricted cash | 2,011,050 | 2,011,050 | ||||||
| $ | 6,960,740 | $ | 5,496,325 | |||||
Beginning of year | ||||||||
Cash | $ | 3,485,275 | $ | 3,126,195 | ||||
Restricted cash | 2,011,050 | 2,008,544 | ||||||
| $ | 5,496,325 | $ | 5,134,739 | |||||
Supplemental cash flow information: | ||||||||
Interest paid | $ | - | $ | 19,497 | ||||
| For the years ended March 31, | ||||||||
| 2017 | 2016 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | (4,759,439 | ) | $ | 1,004,153 | |||
Adjustments to reconcile net (loss) income to net cash (Used in) provided by operating activities: | ||||||||
| Deferred income taxes | 2,643,633 | 798,345 | ||||||
| Allowance for doubtful accounts | - | (17,295 | ) | |||||
| Depreciation and amortization | 120,160 | 164,774 | ||||||
| Amortization of deferred financing costs | 5,429 | 5,429 | ||||||
| Change in fair value of common stock warrant | (321,203 | ) | 617,241 | |||||
| Provision for inventory obsolescence | 40,000 | 60,713 | ||||||
| Non-cash stock-based compensation | 32,714 | 32,277 | ||||||
| Changes in assets and liabilities: | ||||||||
| (Increase) decrease in accounts receivable | (102,021 | ) | 188,105 | |||||
| Decrease (increase) in inventories | 430,853 | (707,671 | ) | |||||
| (Increase) decrease in prepaid expenses and other assets | (62,574 | ) | 153,279 | |||||
| Decrease in accounts payable | (258,149 | ) | (1,125,312 | ) | ||||
| Increase in accrued legal damages | 2,800,000 | - | ||||||
| Increase in deferred revenues | 255,224 | 69,210 | ||||||
| (Decrease) increase in federal and state taxes payable | (49,518 | ) | 53,623 | |||||
| (Decrease) increase in accrued payroll, vacation pay & withholdings | (309,176 | ) | 242,475 | |||||
| Decrease in accrued expenses – related party and other | (70,396 | ) | (50,754 | ) | ||||
| Decrease in other long-term liabilities | (7,800 | ) | (25,200 | ) | ||||
| Net cash provided by operating activities | 387,737 | 1,463,392 | ||||||
| Cash flows from investing activities: | ||||||||
| Acquisition of equipment | (88,069 | ) | (61,306 | ) | ||||
| Net cash used in investing activities | (88,069 | ) | (61,306 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from line of credit | 200,000 | - | ||||||
| Proceeds from issuance of debt | - | 18,000 | ||||||
| Payment of warrant liability | (720,000 | ) | - | |||||
| Repayment of subordinated notes - related parties | (25,000 | ) | (225,000 | ) | ||||
| Repayment of long-term debt | (428,700 | ) | (391,628 | ) | ||||
| Repayment of capitalized lease obligations | (10,728 | ) | (16,757 | ) | ||||
| Net cash used in financing activities | (984,428 | ) | (615,385 | ) | ||||
| Net (decrease) increase in cash | (684,760 | ) | 786,701 | |||||
| Cash, beginning of year | 972,633 | 185,932 | ||||||
| Cash, end of year | $ | 287,873 | $ | 972,633 | ||||
| Supplemental cash flow information: | ||||||||
| Taxes paid | $ | 50,000 | $ | - | ||||
| Interest paid | $ | 228,358 | $ | 59,100 | ||||
| Supplemental non-cash information: | ||||||||
| Capital lease obligations | $ | - | $ | 26,194 | ||||
TEL-INSTRUMENT ELECTRONICS CORP.
Consolidated Statements of Cash Flow (continued)
Supplemental disclosure of non-cash financing activities:
a) | The Company recorded $1,830,858 of right-of-use assets and related operating leases liabilities for the year ended March 31, 2021. |
b) | The Company’s first PPP loan was forgiven by the SBA during December 2020 in the amount of $722,577. The Company’s second PPP loan was forgiven by the SBA during September 2021 in the amount of $722,577. |
The accompanying notes are an integral part of the consolidated financial statements.
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Consolidated Financial Statements
1. Business, Organization, and Liquidity
Business and Organization
Tel-Instrument Electronics Corp. (“Tel”Tel,” “TIC,” or the “Company”) has been in business since 1947. The Company is a leading designer and manufacturer of avionics test and measurement instruments for the global, commercial air transport, general aviation, and government/military defense markets. Tel provides instruments to test, measure, calibrate, and repair a wide range of airborne navigation and communication equipment. The Company sells its equipment in both domestic and international markets. Tel continues to develop new products in anticipation of customers’ needs and to maintain its strong market position. Its development of multi-function testers has made it easier for customers to perform ramp tests with less operator training, fewer test sets, and lower product support costs. The Company has become a major manufacturer and supplier of Identification Friend or Foe (“IFF”) flight line test equipment and over the last few yearstwo decades.
Liquidity and PPP Loans
On March 31, 2022, the Company had positive working capital of $3,671,667, as compared to working capital of $3,159,731 on March 31, 2021. This included $7.0 million of cash including the $2 million supersedes appeal bond. The Company also has current borrowing capacity of $690,000 under the Company’s line of credit agreement. As discussed in Note 19 of the consolidated financial statements, the Company has recorded total damages of $6,097,273, including accrued interest, as a result of the jury verdict associated with the Aeroflex litigation as well as the Court’s decision on punitive damages.
There was awarded three major military contracts.a $3.5 million sales order backlog on March 31, 2022.
Bank of America renewed our line of credit with a maturity date of July 30, 2022. As of March 31, 2022, the line of credit draw remains at zero, with $690,000 available.
On March 27, 2020, former President Trump signed the Coronavirus Aid, Relief and Economic Security (the “CARES Act”), which, among other things, outlines the provisions of the Paycheck Protection Program (the “PPP”). The Company determined that it met the criteria to be eligible to obtain a loan under the PPP because, among other reasons, in light of the COVID-19 outbreak and the uncertainty of economic conditions related thereto, the loan was considered necessary to support the Company’s ongoing operations and retain all its employees. In addition, former President Trump signed into law the Paycheck Protection Program and Health Care Enhancement Act on April 24, 2020, which increased funding provided by the CARES Act. On May 4, 2020, the Company issued a promissory note (the “Note”) to Bank of America in the principal aggregate amount of $772,577 (the “PPP Loan”). The amount was deposited in our bank on May 4, 2020. On June 5, 2020, the Paycheck Protection Program Flexibility Act was signed into law and extended the program until December 31, 2020. TIC qualified for full loan forgiveness on the initial tranche on December 18, 2020.
On January 6, 2021, updated PPP guidance outlining program changes to enhance its effectiveness and accessibility was released on in accordance with the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act. This was available to companies that recorded greater than a 25% sales reduction in any quarter compared to the prior year. The Company qualified for this second round of funding and on March 15, 2021, the company secured a Second Draw PPP loan in the amount of $722,577. TIC qualified for full loan forgiveness on September 17, 2021.
On August 24, 2021, TIC, and the New Jersey Economic Development Authority (NJEDA) signed a small business emergency assistance grant agreement in the amount of $20,000. We received these funds into our bank account on August 30, 2021 from NJEDA.
Moving forward, we believe that our expected cash flows from operations and current cash balances, which amounted to approximately $7.0 million, including the approximately $2 million in restricted cash will be sufficient to operate in the normal course of business for next 12 months from the issuance date of these consolidated financial statements, including any payments for settlement of the litigation.
Currently, the Company has no material future capital expenditure requirements.
There was no significant impact on the Company’s operations as a result of inflation during fiscal Q4 ended March 31, 2022.
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Consolidated Financial Statements
1. Business, Organization, and Liquidity (continued)
Impact of the COVID-19 Coronavirus
In December 2019, a novel strain of coronavirus, which causes the disease known as COVID-19, was reported to have surfaced in Wuhan, China. Since then, COVID-19 coronavirus has spread globally. In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic and the U.S. government imposed travel restrictions on travel between the United States, Europe, and certain other countries. The impact of this pandemic has been, and will likely continue to be, extensive in many aspects of society, which has resulted, and will likely continue to result, in significant disruptions to the global economy as well as businesses and capital markets around the world.
In response to public health directives and orders and to help minimize the risk of the virus to employees, the Company has taken precautionary measures, including implementing work-from-home policies for certain employees. The impact of the virus, including work-from-home policies, may negatively impact productivity, disrupt the Company's business, and delay certain projects, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on the Company's ability to conduct its business in the ordinary course. Other impacts to the Company's business may include temporary closures of its suppliers and disruptions or restrictions on its employees' ability to travel. Any prolonged material disruption to the Company's employees or suppliers could adversely impact the Company's financial condition and results of operations, including its ability to obtain financing.
On September 9, 2021, President Biden announced Executive Order 14042 (“Executive Order”) and related initiatives designed to lead the country out of the COVID-19 pandemic. The Executive Order includes policies that will require employees of contractors that do business with the federal government to be vaccinated. On September 24, 2021, The Safer Federal Workforce Task Force released COVID-19 vaccine guidance for Federal contractors and subcontractors. According to this guidance, covered employees must be fully vaccinated by December 8, 2021, or at the latest, by the first day of performance on a covered contract, absent the need for a disability or religious accommodation. In addition, covered contractors must follow the CDC’s mask and physical distance requirements for covered contractor employees and visitors. The Executive Order and the guidance apply to any prime contractor or subcontractor that is a party to a “contract or contract-like instrument” that includes a clause incorporating the requirements of the Executive Order. The new clause was applied on October 15, 2021, to only new federal contracts, solicitations, contract extensions and renewals.
On December 7, 2021, the federal court in Georgia issued a preliminary injunction temporarily halting the enforcement of EO 14042 (Ensuring Adequate COVID Safety Protocols for Federal Contractors) for all covered contracts nation-wide. New guidance from OMB also followed suit giving federal agencies input on how to go about non-enforcement provisions until legal challenges have been resolved. The updated guidance will remain applicable despite any change to new or existing court decisions. The new guidance does not impact the Safer Federal Workforce Taskforce Guidance. The vast majority of TIC employees are fully vaccinated, and TIC is preparing for full compliance of the Executive Order should it apply.
2. Summary of Significant Accounting Policies
Principles of Consolidation:
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and include the Company and its wholly-owned subsidiary. All significant inter-company accounts and transactions have been eliminated.
Revenue Recognition:
Under Financial Accounting Standards Board (“FASB”) Topic 606, Revenue from Contacts with GAAP, which contemplates continuation ofCustomers (“ASC 606”), the Company asrecognizes revenue when the customer obtains control of promised goods or services, in an amount that reflects the consideration which is expected to be received in exchange for those goods or services. The Company recognizes revenue following the five-step model prescribed under ASC 606: (i) identify contract(s) with a going concern. As discussedcustomer; (ii) identify the performance obligation(s) in Note 19the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the Notesperformance obligation(s) in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods and services it transfers to the Consolidated Financial Statements,customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company has recorded estimated damages of $2,800,000assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as a result of the jury verdict associated with the Aeroflex litigation. The jury found no misappropriation of Aeroflex trade secrets but it did rule that the Company tortiously interfered with a prospective business opportunity and awarded damages. The jury also ruled that Tel tortiously interfered with Aeroflex’s non-disclosure agreements with two former Aeroflex employees. The jury also found that the former Aeroflex employees breached their non-disclosure agreements with Aeroflex. The court will conduct further hearings in the next few weeks which will include a punitive damages claim. Subsequent to the jury verdict, the Company filed a motion with the Kansas court seeking to reduce the damages award. The court will conduct further hearings on both motions in the next few weeks.
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Consolidated Financial Statements
2. Summary of Significant Accounting Policies (continued)
Revenue Recognition (continued):
The damages, legal expenseCompany accounts for revenue recognition in accordance with ASC 606.The core principle of Topic 606 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. The ASC 606 defines a five-step process to achieve the core principle and, write offin doing so, it is possible more judgement and estimates may be required within the revenue recognition process than are currently in use.
The Company generates revenue from designing, manufacturing, and selling avionic tests and measurement solutions for the global commercial air transport, general aviation, and government/military aerospace and defense markets. The Company also offers calibration and repair services for a wide range of airborne navigation and communication equipment.
Nature of goods and services
The following is a description of the deferred tax asset resulted inproducts and services from which the Company incurring a net lossgenerates revenue, as well as the nature, timing of $4,759,439 for the current fiscal year. Additionally, working capital at March 31, 2017 was just $214,560 and the Company has a Stockholders’ Deficit of $54,361.
Test Units/Sets
The Company develops, and manufactures unit sets to test navigation and communication equipment, such as ramp testers and bench testers for radios installed in aircraft. The Company recognizes revenue when the normal course of business. The abilitycustomer obtains control of the Company to continue as a going concernCompany’s product based on the contractual shipping terms of the contract, usually at time of shipment. Revenue on products is dependent upon its ability to raise additional capital to support the appeal process or pay any final damages amount and achieve profitable operations. The accompanying financial statements do not include any adjustments that might be necessary ifpresented gross because the Company is unableprimarily responsible for fulfilling the promise to continueprovide the product, is responsible to ensure that the product is produced in accordance with the related supply agreement and bears the risk of loss while the inventory is in-transit. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products to the customer.
If the contract contains a going concern.
When determining the transaction price of a contract, an adjustment is made if payment from the customer occurs either significantly before or significantly after performance, resulting in a significant financing component. Applying the practical expedient in paragraph 606-10-32-18, the Company does not assess whether a significant financing component exists if the period between when the Company performs its obligations under the contract and when the customer pays is one year or less. None of the Company’s contracts contained a significant financing component as of March 31, 2022.
Replacement Parts
The Company offers replacement parts for test equipment, ramp testers, and bench testers. Similar to the sale of test units, the control of the product transfers at a point of time and therefore, revenue is recognized at the point in time when the obligation to the customer has been profitable from an operational standpoint for the last several years and should be able to obtain sufficient cash proceeds to support the planned appeal assuming the final judgment amount remains at or below the current $2.8 million accrual. Financing discussions have been taking place with various parties butfulfilled.
Extended Warranties
The extended warranties sold by the Company has no commitment from any party to provide additional funding at this time. Moreover, there is noa level of assurance beyond the coverage for defects that sufficient funding will be available, or if available, that its terms will be favorable to the Company.
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Consolidated Financial Statements
2. Summary of Significant Accounting Policies (continued)
Revenue Recognition (continued):
The following table provides a summary of the changes in deferred revenues related to extended warranties for the year ended March 31, 2022:
Deferred revenues related to extended warranties on April 1, 2021 | $ | 408,219 | ||
Additional extended warranties | 54,479 | |||
Revenue recognized for the year ended March 31, 2022 | (75,791 | ) | ||
Deferred revenues related to extended warranties on March 31, 2022 | $ | 386,907 |
Other Deferred Revenues
The Company sometimes receives payments in advance of shipment. These amounts are classified as other deferred revenues. For the period ended March 31, 2022, the Company has other deferred revenues of $21,999 and 2016, respectively. These revenues are$74,920 for the prior year ended March 31, 2021.
Repair and Calibration Services
The Company offers repair and calibration services for units that are periodically returned for annual calibrations and/or for repairs after the warranty period has expired. Revenues onThe Company repairs and calibrations arecalibrates a wide range of airborne navigation and communication equipment. Revenue is recognized at the time the repaired or calibrated unit is shipped back to the customer, as it is at this time that the work is completed. The Company’s terms are F.O.B. Plant, and as such, delivery has occurred, and revenue recognized, when picked up and acknowledged by a common carrier.
Other
The majority of the Company’s revenues are from contracts with the U.S. government, airlines, aircraft manufacturers, such as Boeing and Lockheed Martin, domestic distributors, international distributors for sales to military and commercial customers, and other commercial customers. The contracts with the U.S. government typically are subject to the Federal Acquisition Regulation (“FAR”) which provides guidance on the types of costs that are allowable in establishing prices for goods and services provided under U.S. government contracts.
Payment terms and conditions vary by contract, although terms generally include a requirement of Contents
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Consolidated Financial Statements
2. Summary of Significant Accounting Policies (continued)
Revenue Recognition (continued):
Disaggregation of revenue
In the following tables, revenue is disaggregated by revenue category.
For the Year Ended March 31, 2022 | ||||||||
Commercial | Government | |||||||
Sales Distribution | ||||||||
Test Units | $ | 409,594 | $ | 10,307,842 | ||||
| $ | 409,594 | $ | 10,307,842 | |||||
The remainder of our revenues for the year ended March 31, 2022, are derived from repairs and calibration of $1,853,665, replacement parts of $229,058, extended warranties of $75,791 and other miscellaneous income of $56,840.
For the Year Ended March 31, 2021 | ||||||||
Commercial | Government | |||||||
Sales Distribution | ||||||||
Test Units | $ | 325,195 | $ | 9,858,537 | ||||
| $ | 325,195 | $ | 9,858,537 | |||||
The remainder of our revenues for the year ended March 31, 2021, are derived from repairs and calibration of $1,169,399, replacement parts of $142,801, extended warranties of $86,588.
In the following table, revenue is disaggregated by geography.
For the Year Ended March 31, 2022 | For the Year Ended March 31, 2021 | |||||||
Geography | ||||||||
United States | $ | 8,175,301 | $ | 5,511,516 | ||||
International | 4,757,489 | 6,071,004 | ||||||
Total | $ | 12,932,790 | $ | 11,582,520 | ||||
Fair Value of Financial Instruments:
Accounting Standards Codification subtopic 825-10, Financial Instruments ("ASC 825-10") requires disclosure of the fair value of allcertain financial instruments at March 31, 2017instruments. The carrying value of cash, accounts payable and March 31, 2016,accrued liabilities as defined in Financial Accounting Standards Board (“FASB”) ASC 825 “Financial Instruments”, does not differ materially, except for the items discussed below, from the aggregate carrying values of its financial instruments recordedreflected in the accompanying consolidated balance sheets. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. Considerable judgment is required in interpreting market data to develop the estimates of fair value.
Cash: Cash primarily consists of deposits held at major banks.
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Consolidated Financial Statements
2. Summary of Significant Accounting Policies (continued)
Concentrations of Credit Risk:
Cash held in banks:
The Company maintains cash balances at a financial institution that is insured by the Federal Deposit Insurance Corporation (“FDIC”) up to federally insured limits. At times balances may exceed FDIC insured limits. The Company has not experienced any losses in such accounts.Accounts Receivable:
The Company’s avionics customer base is primarily comprised of airlines, distributors, and the U.S. Government. As of March 31,Inventories:
Inventories are stated at the lower of cost or market.net realizable value. Cost is determined on a first-in, first-out basis. Inventories are written down if the estimated net realizable value is less than the recorded value. The Company reviews the carrying cost of inventories by product to determine the adequacy of reserves for obsolescence. In accounting for inventories, the Company must make estimates regarding the estimated realizable value of inventory. The estimate is based, in part, on the Company’s forecasts of future sales and age of inventory. If actual conditions are less favorable than those we have projected, we may need to increase our reserves for excess and obsolete inventories. Any increases in our reserves will adversely impact our results of operations. The establishment of a reserve for excess and obsolete inventory establishes a new cost basis in the inventory. Such reserves are not reduced until the product is sold. If we are able to sell such inventory any related reserves would be reversed in the period of sale. In accordance with industry practice, service parts inventory is included in current assets, although service parts are carried for established requirements during the serviceable lives of the products and, therefore, not all parts are expected to be sold within one year.
Equipment and Leasehold Improvements:
Office and manufacturing equipment are stated at cost, net of accumulated depreciation. Depreciation and amortization are provided on a straight-line basis over periods ranging from 3 to 5 years.
Maintenance, repairs, and renewals that do not materially add to the value of the equipment nor appreciably prolong its life are charged to expense as incurred.
Engineering, Research and Development Costs:
Engineering, research, and development costs are expensed as incurred.
Deferred Revenues:
Amounts billed in advance of the period in which the service is rendered, or product delivered are recorded as deferred revenue. AtOn March 31, 20172022, and 2016,2021, deferred revenues totaled $476,693$408,906 and $221,469,$483,139, respectively. See above for additional information regarding our revenue recognition policies.
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Consolidated Financial Statements
2. Summary of Significant Accounting Policies (continued)
Net Income (Loss) per Common Share:Share Attributable to Common Shareholders:
Net income (loss) per share attributable to common stockholders ishas been computed by dividingaccording to Accounting Standards Codification (“ASC 260”), Earnings per Share, which requires a dual presentation of basic and diluted income (loss) per share (“EPS”). Basic EPS attributable to common stockholders represents net income (loss) less preferred dividends divided by the weighted-averageweighted average number of common shares outstanding during thea reporting period. Diluted incomeEPS attributable to common stockholders reflects the potential dilution that could occur if securities, including preferred stock, warrants and options, were converted into common stock. The dilutive effect of outstanding warrants and options is reflected in earnings per share is computed by dividing diluted net income by the weighted-average numberuse of common shares outstanding during the period, including common stock equivalents, such as stock options and warrants using the treasury stock method. Diluted lossThe dilutive effect of preferred stock is reflected in earnings per share isby use of the if-converted method. In applying the treasury stock method for stock-based compensation arrangements, the assumed proceeds are computed by dividing net loss byas the weighted-average numbersum of common shares outstanding during the period,amount the employee must pay upon exercise and excludes the anti-dilutive effectsamounts of common stock equivalents.average unrecognized compensation.
Income Taxes
The Company accounts for income taxes using the asset and liability method described in FASB ASC 740, “Income Taxes”.Income Taxes Deferred tax assets arise from a variety of sources, the most significant being:being a) tax losses that can be carried forward to be utilized against profits in future years; b) expenses recognized for financial reporting purposes but disallowed in the tax return until the associated cash flow occurs; and c) valuation changes of assets which need to be tax effected for book purposes but are deductible only when the valuation change is realized.
Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when such differences are expected to reverse. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance for any tax benefit which is not more likely than not to be realized. In assessing the need for a valuation allowance, future taxable income is estimated, considering the realization of tax loss carryforwards. Valuation allowances related to deferred tax assets can also be affected by changes to tax laws, changes to statutory tax rates and future taxable income levels. In the event it was determined that the Company would not be able to realize all or a portion of our deferred tax assets in the future, we would reduce such amounts through a charge to income in the period in which that determination is made. Conversely, if we were to determine that we would be able to realize our deferred tax assets in the future in excess of the net carrying amounts, we would decrease the recorded valuation allowance through an increase to income in the period in which that determination is made. In its evaluation of a valuation allowance the Company takes into accountconsiders existing contracts and backlog, and the probability that options under these contract awards will be exercised as well as sales of existing products. The Company prepares profit projections based on the revenue and expenses forecast to determine that such revenues will produce sufficient taxable income to realize the deferred tax assets.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes - simplifying the accounting for income taxes (Topic 740), which is meant to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740, Income Taxes. The amendment also improves consistent application and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. This ASU was effective April 1, 2021, and adoption of this standard had no significant impact on our financial position and results of operations.
The Company accounts for uncertainties in income taxes under ASC 740-10-50 which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740-10 requires that the Company determine whether the benefits of its tax positions are more-likely-than-not of being sustained upon audit based on the technical merits of the tax position. The Company recognizes the impact of an uncertain income tax position taken on its income tax return at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. The implementation of ASC 740-10 had no impact on the Company’s results of operations or financial position.
Despite the Company’s belief that its tax return positions are consistent with applicable tax laws, one or more positions may be challenged by taxing authorities. Settlement of any challenge can result in no change, a complete disallowance, or some partial adjustment reached through negotiations or litigation.
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Consolidated Financial Statements
2. Summary of Significant Accounting Policies (continued)
Income Taxes (continued):
During the years ended March 31, 20172022, and 20162021 the Company did not incur any expense related to interest or penalties for income tax matters, and no such amounts were accrued as of March 31, 20172022, and 2016.2021. The Company’s tax years remain open for examination by the tax authorities primarily beginning 20132019 through present.
Stock-based Compensation:
The Company accounts for stock-based compensation in accordance with FASB ASC 718 which requires the measurement of stock-based compensation based on the fair value of the award on the date of grant. The Company recognizes compensation cost on awards on a straight-line basis over the vesting period, typically four years. The Company estimates the fair value of each option granted using the Black-Scholes option-pricing model.
Long-Lived Assets:
The Company assesses the recoverability of the carrying value of its long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future, undiscounted cash flows expected to be generated by an asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. No impairment losses have been recognized for the years ended March 31, 20172022, and 2016,2021, respectively.
Use of Estimates:
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The most significant estimates include income taxes, warranty claims, inventory, and accounts receivable valuations.
Accounts Receivable:
The Company performs ongoing credit evaluations of its customers and adjusts credit limits based on customer payment and current credit worthiness, as determined by review of their current credit information. The Company continuously monitors credit limits for and payments from its customers and maintains provision for estimated credit losses based on its historical experience and any specific customer issues that have been identified. While such credit losses have historically been within the Company’s expectation and the provision established, the Company cannot guarantee that this will continue.
Warranty reserves are based upon historical rates and specific items that are identifiable and can be estimated at time of sale. While warranty costs have historically been within the Company’s expectations and the provisions established, future warranty costs could be in excess of the Company’s warranty reserves. A significant increase in these costs could adversely affect the Company’s operating results for the period and the periods these additional costs materialize. Warranty reserves are adjusted from time to time when actual warranty claim experience differs from estimates. For the year ended March 31, 20172022, warranty reserve costs were $107,735$38,236 as compared to $367,935$64,092 for the year ended March 31, 20162021, and are included in Cost of Sales in the accompanying consolidated statement of operations. See Note 67 for warranty reserves.
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Consolidated Financial Statements
2. Summary of Significant Accounting Policies (continued)
Risks and Uncertainties:
The Company’s operations are subject to a number of risks, including but not limited to changes in the general economy, demand for the Company’s products, the success of its customers, research and development results, reliance on the government and commercial markets, litigation, and the renewal of its line of credit. The Company has major contracts with the U.S. Government, which like all government contracts are subject to termination.
The ongoing COVID-19 pandemic has resulted and continues to result in significant financial market volatility and uncertainty in recent months. In addition, U.S. and global markets are experiencing volatility and disruption following the escalation of geopolitical tensions and the start of the military conflict between Russia and Ukraine. A continuation or worsening of the levels of market disruption and volatility seen in the recent past could have an adverse effect on our ability to access capital and on the market price of our common stock, and we may not be able to successfully raise capital through the sale of our securities.
New Accounting Pronouncements:Pronouncements
In August 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-15, Presentation of Financial Statements - Going Concern to provide guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern. The guidance requires management to assess whether there are conditions or events, considered in the aggregate, that raise substantial doubt about an entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. When management identifies such conditions or events, a footnote disclosure is required to disclose their nature, as well as management’s plans to alleviate the substantial doubt to continue as a going concern. The standard became effective for our fiscal year end 2017 and did not have an impact on the consolidated financial statements.
No other recently issued accounting pronouncements had or are expected to have a material impact on the Company’s condensed consolidated financial statements.
3. Accounts Receivable
The following table sets forth the components of accounts receivable:
| March 31, | March 31, | |||||||||||||||
| 2017 | 2016 | 2022 | 2021 | |||||||||||||
| Government | $ | 1,392,482 | $ | 1,343,477 | $ | 697,731 | $ | 1,700,907 | ||||||||
| Commercial | 171,400 | 118,384 | 358,734 | 239,914 | ||||||||||||
| Less: Allowance for doubtful accounts | (7,500 | ) | (7,500 | ) | (7,425 | ) | (7,500 | ) | ||||||||
| $ | 1,556,382 | $ | 1,454,361 | $ | 1,049,040 | $ | 1,933,321 | |||||||||
4. Inventories
Inventories consist of:
| March 31, | March 31, | |||||||||||||||
| 2017 | 2016 | 2022 | 2021 | |||||||||||||
| Purchased parts | $ | 3,197,378 | $ | 3,420,249 | $ | 2,371,105 | $ | 2,912,599 | ||||||||
| Work-in-process | 1,272,235 | 1,446,293 | 962,460 | 1,020,402 | ||||||||||||
| Finished goods | 68,566 | 102,490 | - | 79,988 | ||||||||||||
| Less: Allowance for obsolete inventory | (330,000 | ) | (290,000 | ) | (513,068 | ) | (575,000 | ) | ||||||||
| $ | 4,208,179 | $ | 4,679,032 | $ | 2,820,497 | $ | 3,437,989 | |||||||||
Work-in-process inventory includes $870,448$838,490 and $1,331,784$1,003,514 for government contracts aton March 31, 20172022, and 2016,2021, respectively.
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Consolidated Financial Statements (Continued)
5. Equipment and Leasehold Improvements
Equipment and leasehold improvements consist of the following:
| March 31, | March 31, | |||||||||||||||
| 2017 | 2016 | 2022 | 2021 | |||||||||||||
| Leasehold Improvements | $ | 95,858 | $ | 95,858 | ||||||||||||
Leasehold improvements | $ | 127,655 | $ | 127,655 | ||||||||||||
| Machinery and equipment | 1,574,058 | 1,518,780 | 1,906,983 | 1,924,902 | ||||||||||||
| Automobiles | 23,712 | 23,712 | 23,712 | 23,712 | ||||||||||||
| Sales equipment | 599,796 | 572,236 | 595,475 | 595,475 | ||||||||||||
| Assets under capitalized leases | 637,189 | 637,189 | ||||||||||||||
Assets under finance leases | 637,189 | 637,189 | ||||||||||||||
| Less: Accumulated depreciation & amortization | (2,769,186 | ) | (2,654,257 | ) | (3,175,676 | ) | (3,108,164 | ) | ||||||||
| $ | 161,427 | $ | 193,518 | $ | 115,338 | $ | 200,769 | |||||||||
Depreciation and amortization expense related to the assets above for the years ended March 31, 20172022, and 20162021 was $120,160$95,904 and $164,774$125,120, respectively.
6. Restricted Cash to Support Appeal Bond
In January 2018, the Company transferred $2,000,000 to a restricted cash account to secure a letter of credit which was used for collateral for the appeal bond (See Note 19).
7. Accrued Expenses
Accrued vacation pay, deferred wages, payroll and payroll withholdings consist of the following:
| March 31, | March 31, | |||||||||||||||
| 2017 | 2016 | 2022 | 2021 | |||||||||||||
| Accrued vacation pay | $ | 390,348 | $ | 394,404 | $ | 185,735 | $ | 403,759 | ||||||||
Accrued profit sharing | 163,132 | - | ||||||||||||||
| Accrued compensation and payroll withholdings | 137,065 | 442,185 | 61,671 | 53,473 | ||||||||||||
| $ | 410,538 | $ | 457,232 | |||||||||||||
| $ | 527,413 | $ | 836,589 | |||||||||||||
Accrued vacation pay, payroll and payroll withholdings includes $136,731include $23,262 and $321,831 at$55,474 on March 31, 20172022, and 2016,2021, respectively, which is due to officers.
Accrued expenses - other consist of the following:
| March 31, | March 31, | |||||||||||||||
| 2017 | 2016 | 2022 | 2021 | |||||||||||||
| Accrued commissions | 72,171 | 8,189 | $ | 11,706 | $ | 14,918 | ||||||||||
| Accrued legal costs | 251,459 | 53,766 | 6,061 | 10,519 | ||||||||||||
| Warranty reserve | 188,444 | 208,102 | 87,407 | 90,752 | ||||||||||||
| Accrued – other | 86,975 | 231,630 | ||||||||||||||
Accrued purchase | 39,021 | 218,032 | ||||||||||||||
Other | 29,950 | 31,754 | ||||||||||||||
| $ | 599,049 | $ | 501,687 | $ | 174,145 | $ | 365,975 | |||||||||
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Consolidated Financial Statements (Continued)
7. Accrued Expenses (continued)
The following table provides a summary of the changes in warranty reserves for the years ended March 31, 20172022, and 2016:
| March 31, | ||||||||
| 2017 | 2016 | |||||||
| Warranty reserve, at beginning of period | $ | 208,102 | $ | 140,333 | ||||
| Warranty expense | 107,735 | 367,935 | ||||||
| Warranty deductions | (127,393 | ) | (300,166 | ) | ||||
| Warranty reserve, at end of period | $ | 188,444 | $ | 208,102 | ||||
| March 31, | ||||||||
| 2017 | 2016 | |||||||
| Interest due to the estate of the Company’s former Chairman | $ | - | $ | 107,237 | ||||
| Interest and other expenses due to the Company’s President/CEO | 45,586 | 106,107 | ||||||
| $ | 45,586 | $ | 213,344 | |||||
March 31, | ||||||||
2022 | 2021 | |||||||
Warranty reserve, at beginning of period | $ | 90,752 | $ | 118,734 | ||||
Warranty expense | 38,236 | 64,092 | ||||||
Warranty deductions | (41,581 | ) | (92,074 | ) | ||||
Warranty reserve, at end of period | $ | 87,407 | $ | 90,752 | ||||
8. Income Taxes
Income tax provision (benefit) provision::
| Fiscal Year Ended | Fiscal Year Ended | |||||||||||||||
| March 31, | March 31, | March 31, | March 31, | |||||||||||||
| 2017 | 2016 | 2022 | 2021 | |||||||||||||
| Current: | ||||||||||||||||
| Federal | $ | (1,018 | ) | $ | 52,123 | $ | - | $ | - | |||||||
| State and local | 1,500 | 1,500 | - | - | ||||||||||||
| Total current tax provision | 482 | 53,623 | - | - | ||||||||||||
| Deferred: | ||||||||||||||||
| Federal | 2,643,357 | 796,500 | 178,780 | (26,788 | ) | |||||||||||
| State and local | 276 | 1,845 | (3,327 | ) | (239 | ) | ||||||||||
Release of valuation allowance | - | - | ||||||||||||||
| Total deferred tax provision | 2,643,633 | 798,345 | ||||||||||||||
Total deferred tax provision (benefit) | 175,453 | (27,027 | ) | |||||||||||||
| Total provision | $ | 2,644,115 | $ | 851,968 | ||||||||||||
Total provision (benefit) | $ | 175,453 | $ | (27,027 | ) | |||||||||||
The approximate values of the components of the Company’s deferred taxes aton March 31, 20172022, and 20162021 are as follows:
| March 31, | March 31, | March 31, | March 31, | |||||||||||||
| 2017 | 2016 | 2022 | 2021 | |||||||||||||
| Deferred tax assets: | ||||||||||||||||
Deferred tax assets (liabilities): | ||||||||||||||||
| Net operating loss carryforwards | $ | 1,645,868 | $ | 1,802,492 | $ | 706,643 | $ | 849,387 | ||||||||
| Tax credits | 329,032 | 329,032 | 329,032 | 329,032 | ||||||||||||
| Charitable contributions | 102 | 51 | 52 | 716 | ||||||||||||
| Legal damages | 956,000 | - | 1,291,734 | 1,243,370 | ||||||||||||
| Allowance for doubtful accounts | 2,561 | 2,550 | 1,572 | 1,576 | ||||||||||||
| Reserve for inventory obsolescence | 112,671 | 98,614 | 108,696 | 120,815 | ||||||||||||
| Inventory capitalization | 105,998 | 69,918 | ||||||||||||||
| Deferred payroll | - | 88,288 | ||||||||||||||
| Vacation accrual | 133,276 | 134,116 | 39,349 | 87,579 | ||||||||||||
| Warranty reserve | 64,340 | 70,765 | 18,518 | 19,068 | ||||||||||||
| Deferred revenues | 162,757 | 75,310 | 86,629 | 101,514 | ||||||||||||
| Stock options | 25,494 | 23,544 | 15,819 | 15,689 | ||||||||||||
| Non-compete agreement | 5,941 | 7,889 | ||||||||||||||
| AMT credit | 66,106 | 52,123 | ||||||||||||||
Gain on Sale of Asset | 350 | 345 | ||||||||||||||
| Depreciation | 18,412 | 26,721 | 1,193 | 5,949 | ||||||||||||
| Deferred tax asset | 3,628,558 | 2,781,413 | 2,599,587 | 2,775,040 | ||||||||||||
| Less valuation allowance | (3,628,558 | ) | (137,780 | ) | (100,000 | ) | (100,000 | ) | ||||||||
| Deferred tax asset, net | $ | -0- | $ | 2,643,633 | $ | 2,499,587 | $ | 2,675,040 | ||||||||
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Consolidated Financial Statements (Continued)
8. Income Taxes (Continued)(continued)
The recognized deferred tax asset is based upon the expected utilization of its benefit from future taxable income. The Company has federal net operating loss (“NOL”) carryforwards of approximately $4,827,000$3,346,299 as of March 31, 2017.2022. These carryforward losses are available to offset future taxable income and begin to expire in the year 2027. New Jersey State NOL carryforwards approximate $3,357,000were $2,114,223 as of March 31, 2017.2022. New Jersey State NOL carryforwards expire in 20 years, and certain of these amounts begin to expire in 2030.
The foregoing amounts are management’s estimates, and the actual results could differ from those estimates. Future profitability in this competitive industry depends on continually obtaining and fulfilling new profitable sales agreements and modifying products. The inability to obtain new profitable contracts or the failure of the Company’s engineering development efforts could reduce estimates of future profitability, which could affect the Company’s ability to realize the deferred tax assets. It is management’s belief that the deferred tax assets is not more likely than not to be fully realized, and as a result, a valuation allowance of $3,628,558 was recorded at March 31, 2017.
A reconciliation of the income tax expense (benefit) provision at the statutory Federal tax rate of 34%21% for the years ended March 31, 2022, and 2021, respectively, to the income tax (benefit)benefit provision recognized in the financial statements is as follows:
| March 31, | March 31, | |||||||
| 2017 | 2016 | |||||||
| Income tax (benefit) provision – statutory rate | $ | (711,344 | ) | $ | 631,081 | |||
| Income tax expenses – state and local, net of federal benefit | (2,404 | ) | 2,835 | |||||
| Permanent items | 12,870 | 12,194 | ||||||
| Change in value of warrants – permanent difference | (109,209 | ) | 209,862 | |||||
| True-up of prior year’s deferred taxes | (25,178 | ) | (4,281 | ) | ||||
| Valuation allowance | 3,490,778 | - | ||||||
| Rate changes | (7,776 | ) | - | |||||
| Other | (3,622 | ) | 277 | |||||
| Income tax provision (benefit) | $ | 2,644,115 | $ | 851,968 | ||||
March 31, | March 31, | |||||||
2022 | 2021 | |||||||
Income tax provision – statutory rate | $ | 311,492 | $ | 120,704 | ||||
Income tax expenses – state and local, net of federal benefit | 2,949 | (14 | ) | |||||
Permanent items | 4,144 | 4,864 | ||||||
PPP loan forgiveness | (151,741 | ) | (151,741 | ) | ||||
Other | 8,609 | (840 | ) | |||||
Income tax provision (benefit) | $ | 175,453 | $ | (27,027 | ) | |||
9. Related Parties
The Company has obtained marketing and sales services from a brother-in-law of the Company’s CEO with the related fees and commissions amounting to $154,302$145,898 and $107,980$121,769 for the years ended March 31, 20172022, and 2016,2021, respectively. On March 31, 2022, $6,000 was due this individual, which is included in accounts payable in the accompanying consolidated balance sheet.
10. Line of Credit
| 2018 | $ | 291,991 | ||
| 2019 | 2,124 | |||
| 2020 | - | |||
| 2021 | - | |||
| 2022 | - | |||
| Total Principal | 294,115 | |||
| Less: Current Portion | (291,991 | ) | ||
| Total Long-Term Debt | $ | 2,124 |
During the year ended March 31, 2017. The line is collateralized by substantially all of the assets of the Company. In March 20172021, the Company borrowed $200,000 fromrepaid $680,000 against this line of credit. As of March 31, 20172022, and 2016,March 31, 2021, the outstanding balances were $200,000$0 and $-0-,$0, respectively. As ofThe interest rate on March 31, 20172022, was 5%.
On March 31, 2021, Bank of America further extended the remaining availability under this line is $800,000.
11. Employee Benefit Plan
The Company sponsors a 401k Plan in which employee contributions on a pre-tax basis are supplemented by matching contributions by the Company. The Company charged to operations $70,711 and $59,177 as its matching contribution to the Company’s 401k Plan for the years ended March 31, 2022, and 2021, respectively.
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Consolidated Financial Statements (Continued)
12. Operating Lease Liability
The Company leases its general office and manufacturing facility in East Rutherford, NJ with monthly payments of $18,467 under an operating lease agreement which expiresexpired July 31, 2016. The lease is for a five year period, beginning August 1, 2011, with a five year option in a one-story facility. In June 2016, the Company extended the lease term for another five years until August 2021. Under terms of the lease, the Company is also responsible for its proportionate share of the additional rent to include all real estate taxes, insurance, snow removal, landscaping, and other building charges. The Company is also responsible for the utility costs for the premises. During April 2021, the Company extended the lease term for another eight years until August 31, 2029. Under the extended lease all terms remain the same, with the exception of the monthly payment of $18,467 escalating to $23,083 commencing September 1, 2021. As a result, the Company recorded $1,830,858 of right-of-use assets and related operating leases liabilities during the year ended March 31, 2021.
The Company also leases a small office in Lawrence, Kansas under an operating lease agreement which expires Juneexpired March 30, 2018.2022, and was renewed for an additional 12 months, expiring on March 31, 2023.
The Company's leases generally do not provide an implicit rate, and therefore the Company has agreementsuses its incremental borrowing rate as the discount rate when measuring operating lease liabilities. The incremental borrowing rate represents an estimate of the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease equipment for usepayments on a collateralized basis over the term of a lease. The Company estimated its incremental borrowing rate based on its credit quality, line of credit agreement and by comparing interest rates available in the operationsmarket for similar borrowings. The Company used a discount rate of the business under operating leases.3.9% for both March 31, 2022, and 2021, respectively.
The following is a schedule of approximatetable reconciles the undiscounted future minimum rentallease payments for(displayed by year and in the aggregate) under non-cancelable operating leases subsequentwith terms of more than one year to the year endedtotal lease liabilities recognized on the consolidated balance sheet as of March 31, 2017.2022:
| Years Ended March 31, | ||||
| 2018 | $ | 322,201 | ||
| 2019 | 307,206 | |||
| 2020 | 306,153 | |||
| 2021 | 306,153 | |||
| 2022 | 127,564 | |||
| $ | 1,369,277 | |||
2023 | $ | 254,840 | ||
2024 | 254,840 | |||
2025 | 254,840 | |||
2026 | 267,767 | |||
2027 | 277,000 | |||
Thereafter | 669,416 | |||
Total undiscounted future minimum lease payments | 1,978,703 | |||
Less: Difference between undiscounted lease payments and discounted lease liabilities | (257,782 | ) | ||
Present value of net minimum lease payments | 1,720,921 | |||
Less current portion | (194,370 | ) | ||
Operating lease liabilities – long-term | $ | 1,526,551 |
Total rent expense including common charges related to the building as well as equipment rentals, was approximately $357,000 and $358,000 for the years ended March 31, 20172022, and 2016, respectively.2021 were $395,558 and $364,582, respectively
13. Significant Customer Concentrations
Domestic commercial sales are made throughout the U.S. to commercial airlines and general aviation businesses directly or through distributors. There were $2,482,424 in which employee contributions on a pre-tax basis are supplemented by matching contributions by the Company. The Company charged to operations $25,698domestic commercial sales in fiscal year 2022 and $27,916 as its matching contribution to the Company’s 401k Planthere was one (1) direct commercial customer who accounted for the years ended March 31, 2017 and 2016, respectively.
| 2018 | $ | 7,864 | ||
| 2019 | 7,864 | |||
| 2020 | 7,209 | |||
| 2021 | - | |||
| 2022 | -- | |||
| Total minimum lease payments | 22,937 | |||
| Less amounts representing interest | (2,909 | ) | ||
| Present value of net minimum lease payments | 20,028 | |||
| Less current portion | (6,268 | ) | ||
| Long-term capital lease obligation | $ | 13,760 |
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Consolidated Financial Statements (Continued)
13. Significant Customer Concentrations (continued)
Marketing to the U.S. Government is made directly by employees of the Company or through independent sales representatives, who receive similar commissions to the commercial distributors. For the years ended March 31, 20172022, and 2016,2021, sales to the U.S. Government, including shipments through the government’s logistics centers, represented approximately 64%26% and 79%38%, respectively, of nettotal sales. No other individual customerFor the year ended March 31, 2022, two (2) direct customers represented over20% and 12% of total sales and 25% and 10% of netgovernment sales, for these years. One customerrespectively. Two (2) international distributors represented 10.3%13% and 12% of total sales and two (2) represented 16% and 15% of government sales for the year ended marchMarch 31, 2017.2022. For the year ended March 31, 2021, two (2) direct customers represented 10% and 33% of total sales and 12% and 39% of government sales, respectively. No direct customer accounted for more thaninternational distributor represented 10% of commercialtotal sales or 10% of government net sales for the year ended March 31, 2016. Our U.S. distributor accounted2021.
Net sales to foreign customers, which, for 24%the most part, are international distributors were $4,757,489 and 21% of commercial sales$6,071,004 for the years ended March 31, 20172022, and 2016, respectively.
| 2017 | 2016 | 2022 | 2021 | |||||||||||||
| United States | $ | 16,962,810 | $ | 22,904,101 | $ | 8,175,301 | $ | 5,511,516 | ||||||||
| Foreign countries | 1,782,646 | 1,900,724 | 4,757,489 | 6,071,004 | ||||||||||||
| Total Avionics Sales | $ | 18,745,456 | $ | 24,804,825 | $ | 12,932,790 | $ | 11,582,520 | ||||||||
Net sales related to any single foreign country did not comprise more than 10% of consolidated net sales.sales included two (2) foreign countries for fiscal year ended March 31, 2022. They were United Kingdom (13%) and Korea (13%), none in the previous fiscal year. The Company had no assets outside the United States.
Receivables from the U.S. Government represented approximately 42%11% and 37%5.2%, respectively, of total receivables aton March 31, 20172022, and 2016,2021, respectively. As of March 31, 2017,2022, there was one individual customer that represented 16.6% and a second customer represented 10%11.2% of the Company’s total outstanding accounts receivable. As of March 31, 2016, one2021, three individual customer accounted for 27%customers represented in total 81% of the Company’s outstanding accounts receivable. No other customers representedreceivable, ranging between 38% and 19% of the Company’s outstanding accounts receivable on March 31, 2021.
Total sales by test set product that were more than 10% of outstanding accounts receivableconsolidated net sales were the T-47/M5 dual (28%), AN/USM-708 (18%) and the T-47/NH (14%) for the years endingyear ended March 31, 2022. Total sales by test set product that were more than 10% of consolidated net sales were the T-47/M5 (37%), AN/USM-708 (10%) and the T-47/NH (14%) for the year ended March 31, 2021.
14. Series A 8% Convertible Preferred Stock
On November 14, 2017, the Company entered into definitive subscription agreements with an accredited investor, pursuant to which the investor purchased an aggregate of 500,000 shares of the Company’s Series A Preferred Stock (the “Series A Preferred”) for an aggregate of $3 million. The Company used such proceeds for the payment of any Court judgment and/or settlement related to the Aeroflex Wichita, Inc. litigation, working capital purposes, and 2016.for payment of fees and expenses associated with this transaction. The Closing occurred following the satisfaction of customary closing conditions. The securities issued pursuant to the Subscription Agreements were not registered under the Securities Act of 1933, as amended (the “Securities Act”), but qualified for exemption under Section 4(a)(2) of the Securities Act. The securities were exempt from registration under Section 4(a)(2) of the Securities Act because the issuance of such securities by the Company did not involve a “public offering,” as defined in Section 4(a)(2) of the Securities Act, due to the insubstantial number of persons involved in the transaction, size of the offering, manner of the offering and number of securities offered. The Company did not undertake an offering in which it sold a high number of securities to a high number of investors. In addition, these shareholders had the necessary investment intent as required by Section 4(a)(2) of the Securities Act since they agreed to, and received, share certificates bearing a legend stating that such securities are restricted pursuant to Rule 144 of the Securities Act. This restriction ensures that these securities would not be immediately redistributed into the market and therefore not be part of a “public offering.” Based on an analysis of the above factors, the Company has met the requirements to qualify for exemption under Section 4(a)(2) of the Securities Act.
The shares of Series A Preferred have a stated value of $6.00 per share (the “Series A Stated Value”) and are convertible into Common Stock at a price of $3.00 per share. The holders of shares of the Series A Preferred shall be entitled to receive dividends out of any assets legally available, to the extent permitted by New Jersey law, at an annual rate equal to 8% of the Series A Stated Value of such shares of Series A Preferred, calculated on the basis of a 360 day year, consisting of twelve 30-day months, and shall accrue from the date of issuance of such shares of Series A Preferred, payable quarterly in cash. Any unpaid dividends shall accrue at the same rate. To the extent not paid on the last day of March, June, September and December of each calendar year, all dividends on any share of Series A
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Consolidated Financial Statements (Continued)
14. Series A 8% Convertible Preferred Stock (continued)
Preferred shall accumulate whether or not declared by the Board and shall remain accumulated dividends until paid. As of March 31, 2022, the Company recognized $695,998 as deemed dividends and are included in the carrying value of the Series A Convertible Preferred Stock. The Holders will vote together with the holders of the Company’s Common Stock on an as-converted basis on each matter submitted to a vote of holders of Common Stock (whether at a meeting of shareholders or by written consent). Effective beginning on the third anniversary of the Original Issue Date, and upon 30 days’ written notice to the Holders of Series A Preferred, the Company may, in its sole discretion, redeem the Series A Preferred at the aggregate Series A Stated Value plus any accrued and accumulated but unpaid dividends. During the years ended March 31, 2022 and 2021, the Company paid dividends of $240,000 and $20,000, respectively.
15. Series B 8% Convertible Preferred Stock
On October 5, 2018, the Company entered into definitive subscription agreement with an accredited investor, pursuant to which the investor purchased an aggregate of 166,667 shares of the Company’s Series B Preferred Stock (the “Series B Preferred”) for an aggregate of $1 million. The Company used such proceeds for working capital to finance its operations based on the current and expected increase in business, and for payment of fees and expenses associated with this transaction. The Closing occurred following the satisfaction of customary closing conditions. The securities issued pursuant to this subscription agreement were not registered under the Securities Act of 1933, as amended (the “Securities Act”), but qualified for exemption under Section 4(a)(2) of the Securities Act. The securities were exempt from registration under Section 4(a)(2) of the Securities Act because the issuance of such securities by the Company did not involve a “public offering,” as defined in Section 4(a)(2) of the Securities Act, due to the insubstantial number of persons involved in the transaction, size of the offering, manner of the offering and number of securities offered. The Company did not undertake an offering in which it sold a high number of securities to a high number of investors. In addition, this individual had the necessary investment intent as required by Section 4(a)(2) of the Securities Act since he agreed to receive share certificates bearing a legend stating that such securities are restricted pursuant to Rule 144 of the Securities Act. This restriction ensures that these securities would not be immediately redistributed into the market and therefore not be part of a “public offering.” Based on an analysis of the above factors, the Company has met the requirements to qualify for exemption under Section 4(a)(2) of the Securities Act.
The shares of Series B Preferred have a stated value of $6.00 per share (the “Series B Stated Value”) and are convertible into Common Stock at a price of $2.00 per share. The holder of shares of the Series B Preferred shall be entitled to receive dividends out of any assets legally available, to the extent permitted by New Jersey law, at an annual rate equal to 8% of the Series B Stated Value of such shares of Series B Preferred, calculated on the basis of a 360 day year, consisting of twelve 30-day months, and shall accrue from the date of issuance of such shares of Series B Preferred, payable quarterly in cash. Any unpaid dividends shall accrue at the same rate. To the extent not paid on the last day of March, June, September and December of each calendar year, all dividends on any share of Series B Preferred shall accumulate whether or not declared by the Board and shall remain accumulated dividends until paid. As of March 31, 2022, the Company recognized $147,367 as deemed dividends and are included in the carrying value of the Series B Convertible Preferred Stock. The Holders will vote together with the holders of the Company’s Common Stock on an as-converted basis on each matter submitted to a vote of holders of Common Stock (whether at a meeting of shareholders or by written consent). Effective beginning on the third anniversary of the Original Issue Date, and upon 30 days’ written notice to the Holders of Series B Preferred, the Company may, in its sole discretion, redeem the Series B Preferred at the aggregate Series B Stated Value plus any accrued and accumulated but unpaid dividends. During the years ended March 31, 2022 and 2021, the Company paid dividends of $80,000 and $60,000, respectively.
16. Stock Option Plans
The Board of Directors (the “Board”) adopted on January 18, 2017, and ratified by the Board adoptedshareholders at the Annual Meeting on January 18, 2017, the Company’s 2016 Stock Option Plan (the “2016 Plan”“Plan”). The Plan provides for the granting of incentive stock options, by a committee to be appointed by the Board (both the Board and the Committee are referred to herein as the “Committee”) which reserved for issuance optionsto directors, officers, and employees (excluding directors and officers who are not employees) to purchase up to 250,000 shares of itsthe Common Stock. The stockholders approved the Plan at the January 2017 annual meeting
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Consolidated Financial Statements (Continued)
16. Stock Option Plans (continued)
The fair value of each option awarded is estimated on the date of grant using the Black-Scholes option valuation model that uses the assumptions noted in the following table. Expected volatilities are based on historical volatility of Common Stock. The expected life of the options granted represents the period of time from date of grant to expiration (5 years). The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant. There were no stock options granted for the year ended March 31, 2017. The per share weighted-average fair value of stock options granted for the yearyears ended March 31, 2016 was $2.362022, and 2021 were $1.02 and $1.03, respectively, on the date of grant using the Black Scholes option-pricing model with the following assumptions:
Dividend | Risk-free | |||||||||||||
Yield | Interest rate | Volatility | Life | |||||||||||
2022 | 0.0 | % | 0.78 | % | 82.69 | % | 5 years | |||||||
2021 | 0.0 | % | 0.50 | % | 37.32 | % | 5 years | |||||||
| Dividend | Risk-free | |||||||||||||
| Yield | Interest rate | Volatility | Life | |||||||||||
| 2016 | 0.0 | % | 1.39 | % | 44.54 | % | 5 years | |||||||
A summary of the status of the Company’s stock option plans for the fiscal years ended March 31, 20172022, and 20162021 and changes during the years are presented below (in number of options):
| Number of Options | Average Exercise Price | Average Remaining Contractual Term | Aggregate Intrinsic Value | Number of Options | Average Exercise Price | Average Remaining Contractual Term | Aggregate Intrinsic Value | |||||||||||||||||||||
| Outstanding options at April 1, 2015 | 71,500 | $ | 6.06 | |||||||||||||||||||||||||
Outstanding options on April 1, 2020 | 118,500 | $ | 3.98 | 2.8 years | $ | 13,295 | ||||||||||||||||||||||
| Options granted | 51,000 | $ | 5.85 | 15,000 | $ | 3.11 | ||||||||||||||||||||||
| Options exercised | - | $ | - | - | $ | - | ||||||||||||||||||||||
| Options canceled/forfeited | (37,500 | ) | $ | 7.43 | (35,000 | ) | $ | 5.85 | ||||||||||||||||||||
| Outstanding options at March 31, 2016 | 85,000 | $ | 5.33 | 3.4 years | $ | 9,000 | ||||||||||||||||||||||
Outstanding options on March 31, 2021 | 98,500 | $ | 3.19 | 3.3 years | $ | 30,835 | ||||||||||||||||||||||
| Options granted | - | $ | - | 23,000 | $ | 2.94 | ||||||||||||||||||||||
| Options exercised | - | $ | - | - | $ | - | ||||||||||||||||||||||
| Options canceled/forfeited | (6,000 | ) | $ | 6.34 | (10,000 | ) | $ | 3.19 | ||||||||||||||||||||
| Outstanding options at March 31, 2017 | 79,000 | $ | 5.26 | 2.5 years | $ | 28,900 | ||||||||||||||||||||||
Outstanding options on March 31, 2022 | 111,500 | $ | 3.14 | 2.72 years | $ | 3,680 | ||||||||||||||||||||||
| Vested Options: | ||||||||||||||||||||||||||||
| March 31, 2017: | 33,800 | $ | 4.59 | 1.9 years | $ | 28,460 | ||||||||||||||||||||||
| March 31, 2016: | 26,000 | $ | 4.38 | 2.1 years | $ | 9,000 | ||||||||||||||||||||||
March 31, 2022: | 36,900 | $ | 3.21 | 2.0 years | $ | - | ||||||||||||||||||||||
March 31, 2021: | 19,700 | $ | 3.22 | 2.8 years | $ | 5,567 | ||||||||||||||||||||||
Remaining options available for grant were 250,000138,500 and -0-151,500 as of March 31, 20172022, and 2016,2021, respectively.
For the years ended March 31, 20172022, and 2016,2021, the unamortized compensation expense for stock options was $60,819$45,924 and $95,792,$60,013, respectively. Unamortized compensation expense is expected to be recognized over a weighted-average period of approximately 1 year.2.16 years.
| Non-vested Shares | Shares | Weighted-Average Grant-Date Fair value | ||||||
| Non-vested at April 1, 2016 | 59,000 | $ | 5.75 | |||||
| Granted | - | $ | - | |||||
| Vested | (11,800 | ) | $ | 5.73 | ||||
| Forfeited | (1,600 | ) | $ | 5.85 | ||||
| Non-vested at March 31, 2017 | 45,600 | $ | 5.76 | |||||
The compensation cost that has been charged was $32,714$19,733 and $32,277$21,996 for the fiscal years ended March 31, 20172022, and 2016,2021, respectively.
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Consolidated Financial Statements (Continued)
17. Net Diluted Income (Loss) per Share
Net income (loss) per share attributable to common stockholders has been computed according to FASB Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC 260,260”), “Earnings per Share,” which requires a dual presentation of basic and diluted earningsincome (loss) per share (“EPS”). Basic EPS attributable to common stockholders represents net income (loss) incomeless preferred dividends divided by the weighted average number of common shares outstanding during a reporting period. Diluted EPS attributable to common stockholders reflects the potential dilution that could occur if securities, including preferred stock, warrants and options, were converted into common stock. The dilutive effect of outstanding warrants and options is reflected in earnings per share by use of the treasury stock method. The dilutive effect of preferred stock is reflected in earnings per share by use of the if-converted method. In applying the treasury stock method for stock-based compensation arrangements, the assumed proceeds are computed as the sum of the amount the employee must pay upon exercise and the amounts of average unrecognized compensation costs attributed to future services.compensation.
March 31, 2022 | March 31, 2021 | |||||||
Basic net income per share computation: | ||||||||
Net income | $ | 1,309,738 | $ | 600,057 | ||||
Less: Preferred dividends | (320,000 | ) | (320,000 | ) | ||||
Net income attributable to common shareholders | 989,738 | 280,057 | ||||||
Weighted-average common shares outstanding | 3,255,887 | 3,255,887 | ||||||
Basic net income per share | $ | 0.30 | $ | 0.09 | ||||
Diluted net income per share computation | ||||||||
Net income attributable to common shareholders | $ | 989,738 | $ | 280,057 | ||||
Add: Preferred dividends | 320,000 | 320,000 | ||||||
Diluted income attributable to common shareholders | $ | 1,309,738 | $ | 600,057 | ||||
Weighted-average common shares outstanding | 3,255,887 | 3,255,887 | ||||||
Incremental shares attributable to the assumed conversion of preferred stock | 1,839,778 | 1,817,278 | ||||||
Total adjusted weighted-average shares | 5,095,665 | 5,073,165 | ||||||
Diluted net income per share | $ | 0.26 | $ | 0.12 | ||||
| March 31, 2017 | March 31, 2016 | |||||||
| Basic net (loss) income per share computation: | ||||||||
| Net (loss) income | $ | (4,759,439 | ) | $ | 1,004,153 | |||
| Weighted-average common shares outstanding | 3,255,887 | 3,256,887 | ||||||
| Basic net (loss) income per share | $ | (1.46 | ) | $ | 0.31 | |||
| Diluted net (loss) income per share computation | ||||||||
| Net (loss) income | $ | (4,759,439 | ) | $ | 1,004,153 | |||
| Less: Change in fair value of warrants | 103,000 | - | ||||||
| Diluted (loss) income | (4,862,439 | ) | 1,004,153 | |||||
| Weighted-average common shares outstanding | 3,255,887 | 3,256,887 | ||||||
Incremental shares attributable to the assumed exercise of outstanding stock options and warrants | 10,955 | 4,266 | ||||||
| Total adjusted weighted-average shares | 3,266,842 | 3,261,153 | ||||||
| Diluted net (loss) income per share | $ | (1.49 | ) | $ | 0.31 | |||
The following table summarizes securities that, if exercised, would have an anti-dilutive effect on earnings per share:
March 31, 2017 | March 31, 2016 | |||||||
| Stock options | 61,000 | 65,000 | ||||||
| Warrants | - | 286,920 | ||||||
| 61,000 | 351,920 | |||||||
March 31, 2022 | March 31, 2021 | |||||||
Stock options | 111,500 | 98,500 | ||||||
| 111,500 | 98,500 | |||||||
18. Segment Information
In accordance with FASB ASC 280, “Disclosures about Segments of an Enterprise and related information”, the Company determined it has two2 reportable segments - avionics government and avionics commercial. There are no inter-segment revenues.
The Company is organized primarily on the basis of its avionics products. The avionics government segment consists primarily of the design, manufacture, and sale of test equipment to the U.S. and foreign governments and militaries either directly or through distributors. The avionics commercial segment consists of design, manufacture, and sale of test equipment to domestic and foreign airlines, directly or through commercial distributors, and to general aviation repair and maintenance shops. The Company develops and designs test equipment for the avionics industry and as such, the Company’s products and designs cross segments.
Management evaluates the performance of its segments and allocates resources to them based on gross margin. The Company’s general and administrative costs and sales and marketing expenses, and engineering costs are not segment specific. As a result, all operating expenses are not managed on a segment basis. Net interest includes expenses on debt and income earned on cash balances, both maintained at the corporate level. Segment assets include accounts receivable and work-in-process inventory. Asset information, other than accounts receivable and work-in-process inventory, is not reported since the Company does not produce such information internally. All long-lived assets are located in the U.S.
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Consolidated Financial Statements (Continued)
18. Segment Information (continued)
The tables below present information about reportable segments for the years ended March 31:
| Avionics | Avionics | Avionics | Corporate/ | |||||||||||||||||
| 2017 | Government | Commercial | Total | Reconciling Items | Total | |||||||||||||||
| Net sales | $ | 16,531,913 | $ | 2,213,543 | $ | 18,745,456 | $ | - | $ | 18,745,456 | ||||||||||
| Cost of Sales | 10,363,318 | 1,698,023 | 12,061,341 | - | 12,061,341 | |||||||||||||||
| Gross Margin | 6,168,595 | 515,520 | 6,684,115 | - | 6,684,115 | |||||||||||||||
| Engineering, research, and development | 2,430,322 | - | 2,430,322 | |||||||||||||||||
| Selling, general, and administrative | 1,260,388 | 1,320,697 | 2,581,085 | |||||||||||||||||
| Litigation expenses | 1,244,639 | 1,244,639 | ||||||||||||||||||
| Legal damages | 2,800,000 | 2,800,000 | ||||||||||||||||||
| Amortization of deferred financing costs | - | 5,429 | 5,429 | |||||||||||||||||
| Change in fair value of common stock warrant | - | (321,203 | ) | (321,203 | ) | |||||||||||||||
| Interest expense, net | - | 59,167 | 59,167 | |||||||||||||||||
| 3,690,710 | 5,108,729 | 8,799,439 | ||||||||||||||||||
| Income (loss) before income taxes | $ | 2,993,405 | $ | (5,108,729 | ) | $ | (2,115,324 | ) | ||||||||||||
| Segment Assets | $ | 4,264,168 | $ | 1,500,393 | $ | 5,764,561 | $ | 671,387 | $ | 6,435,948 | ||||||||||
Corporate/ | ||||||||||||||||||||
Avionics | Avionics | Avionics | Reconciling | |||||||||||||||||
2022 | Government | Commercial | Total | Items | Total | |||||||||||||||
Net sales | $ | 10,363,831 | $ | 2,568,959 | $ | 12,932,790 | $ | - | $ | 12,932,790 | ||||||||||
Cost of sales | 5,447,287 | 1,720,163 | 7,167,450 | - | 7,167,450 | |||||||||||||||
Gross margin | 4,916,544 | 848,796 | 5,765,340 | - | 5,765,340 | |||||||||||||||
Engineering, research, and development | 2,548,626 | - | 2,548,626 | |||||||||||||||||
Selling, general, and administrative | 770,178 | 1,480,398 | 2,250,576 | |||||||||||||||||
Litigation expenses | - | 29,479 | 29,479 | |||||||||||||||||
Forgiveness of PPP loan | - | (722,577 | ) | (722,577 | ) | |||||||||||||||
Other income, net | - | (30,254 | ) | (30,254 | ) | |||||||||||||||
Interest income | - | (3,951 | ) | (3,951 | ) | |||||||||||||||
Interest expense - judgment | - | 208,250 | 208,250 | |||||||||||||||||
| 3,318,804 | 961,345 | 4,280,149 | ||||||||||||||||||
Income (loss) before income taxes | $ | 2,446,536 | $ | (961,345 | ) | $ | 1,485,191 | |||||||||||||
Segment Assets | $ | 3,273,819 | $ | 595,718 | $ | 3,869,537 | $ | 11,575,735 | $ | 15,445,272 | ||||||||||
| Avionics | Avionics | Avionics | Corporate/ | |||||||||||||||||
| 2016 | Government | Commercial | Total | Reconciling Items | Total | |||||||||||||||
| Net sales | $ | 23,011,016 | $ | 1,793,809 | $ | 24,804,825 | $ | - | $ | 24,804,825 | ||||||||||
| Cost of Sales | 15,446,232 | 1,373,003 | 16,819,235 | - | 16,819,235 | |||||||||||||||
| Gross Margin | 7,564,784 | 420,806 | 7,985,590 | - | 7,985,590 | |||||||||||||||
| Engineering, research, and development | 2,038,126 | - | 2,038,126 | |||||||||||||||||
| Selling, general, and administrative | 1,218,327 | 1,700,838 | 2,919,165 | |||||||||||||||||
| Litigation expenses | 448,379 | 448,379 | ||||||||||||||||||
| Amortization of deferred financing costs | - | 5,429 | 5,429 | |||||||||||||||||
| Change in fair value of common stock warrant | - | 617,241 | 617,241 | |||||||||||||||||
| Interest expense, net | - | 101,129 | 101,129 | |||||||||||||||||
| 3,256,453 | 2,873,016 | 6,129,469 | ||||||||||||||||||
| Income (loss) before income taxes | $ | 4,729,137 | $ | (2,873,016 | ) | $ | 1,856,121 | |||||||||||||
| Segment Assets | $ | 5,644,551 | $ | 488,842 | $ | 6,133,393 | $ | 3,974,726 | $ | 10,108,119 | ||||||||||
Corporate/ | ||||||||||||||||||||
Avionics | Avionics | Avionics | Reconciling | |||||||||||||||||
2021 | Government | Commercial | Total | Items | Total | |||||||||||||||
Net sales | $ | 9,858,537 | $ | 1,723,983 | $ | 11,582,520 | $ | - | $ | 11,582,520 | ||||||||||
Cost of sales | 5,474,587 | 1,325,434 | 6,800,021 | - | 6,800,021 | |||||||||||||||
Gross margin | 4,383,950 | 398,549 | 4,782,499 | - | 4,782,499 | |||||||||||||||
Engineering, research, and development | 2,295,901 | - | 2,295,901 | |||||||||||||||||
Selling, general, and administrative | 767,579 | 1,397,611 | 2,165,190 | |||||||||||||||||
Litigation expenses | - | 248,004 | 248,004 | |||||||||||||||||
Forgiveness of PPP loan | - | (722,577 | ) | (722,577 | ) | |||||||||||||||
Other income | - | (30,819 | ) | (30,819 | ) | |||||||||||||||
Interest income | - | (7,483 | ) | (7,483 | ) | |||||||||||||||
Interest expense - judgment | - | 231,474 | 231,474 | |||||||||||||||||
Interest expense - other | - | 29,779 | 29,779 | |||||||||||||||||
| 3,063,480 | 1,145,989 | 4,209,469 | ||||||||||||||||||
Income (loss) before income taxes | $ | 1,719,019 | $ | (1,145,989 | ) | $ | 573,030 | |||||||||||||
Segment Assets | $ | 4,920,076 | $ | 451,234 | $ | 5,371,310 | $ | 10,593,116 | $ | 15,964,426 | ||||||||||
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Consolidated Financial Statements (Continued)
| Quarter Ended | ||||||||||||||||
| FY 2017 | June 30 | September 30 | December 31 | March 31 | ||||||||||||
| (See Notes 7 and 19) | ||||||||||||||||
| Net sales | $ | 5,342,369 | $ | 5,076,029 | $ | 4,236,519 | $ | 4,090,539 | ||||||||
| Gross margin | 1,876,653 | 1,825,588 | 1,634,251 | 1,347,623 | ||||||||||||
| Income (loss) before taxes | 578,053 | 381,815 | 177,895 | (3,253,087 | ) | |||||||||||
| Net income (loss) | 410,309 | 272,055 | 141,513 | (5,583,316 | ) | |||||||||||
| Basic income (loss) per share | 0.13 | 0.08 | 0.04 | (1.71 | ) | |||||||||||
| Diluted income (loss) per share | 0.10 | 0.07 | 0.03 | (1.72 | ) | |||||||||||
| FY 2016 | June 30 | September 30 | December 31 | March 31 | ||||||||||||
| Net sales | $ | 5,845,919 | $ | 6,818,390 | $ | 5,970,865 | $ | 6,169,651 | ||||||||
| Gross margin | 1,815,295 | 2,243,466 | 2,034,757 | 1,892,072 | ||||||||||||
| Income before taxes | 494,244 | 370,153 | 453,537 | 538,187 | ||||||||||||
| Net income | 279,066 | 199,466 | 226,586 | 299,035 | ||||||||||||
| Basic income per share | 0.09 | 0.06 | 0.07 | 0.09 | ||||||||||||
| Diluted income per share | 0.02 | 0.06 | 0.07 | 0.09 | ||||||||||||
| March 31, 2017 | Level I | Level II | Level III | Total | ||||||||||||
| Warrant Liability | $ | - | $ | - | $ | 95,000 | $ | 95,000 | ||||||||
| Total Liabilities | $ | - | $ | - | $ | 95,000 | $ | 95,000 | ||||||||
| March 31, 2016 | Level I | Level II | Level III | Total | ||||||||||||
| Warrant Liability | $ | - | $ | - | $ | 1,136,203 | $ | 1,136,203 | ||||||||
| Total Liabilities | $ | - | $ | - | $ | 1,136,203 | $ | 1,136,203 | ||||||||
| March 31, 2017 | March 31, 2016 | |||||||
| Fair value, at beginning of period | $ | 1,136,203 | $ | 518,962 | ||||
| New purchases and issuances | - | - | ||||||
| Sales and settlements | (720,000 | ) | - | |||||
| Change in fair value | (321,203 | ) | 617,241 | |||||
| Fair value, at end of period | $ | 95,000 | $ | 1,136,203 | ||||
Date of Warrant | Expiration Date | Number of Warrants | Exercise Price | |||||||||||
| 09-10-2010 | 09-10-2019 | 136,920 | $ | 6.70 | ||||||||||
| 07-26-2012 | 09-10-2019 | 20,000 | $ | 3.35 | ||||||||||
| 11-20-2012 | 09-10-2019 | 20,000 | $ | 3.56 | ||||||||||
| 02-14-2013 | 09-10-2019 | 20,000 | $ | 3.58 | ||||||||||
| 07-12-2013 | 09-10-2019 | 20,000 | $ | 3.33 | ||||||||||
| 08/12/2013 | 09-10-2019 | 20,000 | $ | 3.69 | ||||||||||
Date of Warrant | Expiration Date | Number of Warrants | Exercise Price | Fair Market Value Per Share | Expected Volatility | Remaining Life in Years | Risk Free Interest Rate | Warrant Liability | ||||||||||||||||||||||||||
| 09-10-2010 | 09-10-2019 | 136,920 | $ | 6.70 | $ | 6.70 | 28.51 | % | 9 | 2.81 | % | $ | 267,848 | |||||||||||||||||||||
| 09-10-2010 | 09-10-2015 | 10,416 | $ | 6.70 | $ | 6.70 | 28.51 | % | 5 | 1.59 | % | $ | 13,808 | |||||||||||||||||||||
| 07-26-2012 | 09-10-2019 | 50,000 | $ | 3.35 | $ | 3.90 | 42.04 | % | 7 | 0.94 | % | $ | 66,193 | |||||||||||||||||||||
| 07-26-2012 | 09-10-2019 | 20,000 | $ | 3.35 | $ | 3.90 | 42.04 | % | 7 | 0.94 | % | $ | 26,477 | |||||||||||||||||||||
| 11-20-2012 | 09-10-2019 | 20,000 | $ | 3.56 | $ | 3.50 | 42.45 | % | 6.83 | 1.09 | % | $ | 21,441 | |||||||||||||||||||||
| 02-14-2013 | 09-10-2019 | 20,000 | $ | 3.58 | $ | 3.80 | 41.72 | % | 6.58 | 1.43 | % | $ | 23,714 | |||||||||||||||||||||
| 07-12-2013 | 09-10-2019 | 20,000 | $ | 3.33 | $ | 3.32 | 40.26 | % | 6.17 | 2.00 | % | $ | 19,523 | |||||||||||||||||||||
| 08-12-2013 | 09-10-2019 | 20,000 | $ | 3.69 | $ | 3.69 | 40.20 | % | 6.08 | 2.01 | % | $ | 21,587 | |||||||||||||||||||||
Date of Warrant | Expiration Date | Number of Warrants | Exercise Price | Fair Market Value Per Share | Put Option Value | Market Price Option | Remaining Life in Years | Warrant Liability | ||||||||||||||||||||||||||
| 09-10-2010 | 09-10-2019 | 136,920 | $ | 6.70 | $ | 4.31 | 542,203 | NA | 3.45 | $ | 542,203 | |||||||||||||||||||||||
| 07-26-2012 | 09-10-2019 | 50,000 | $ | 3.35 | $ | 4.31 | 198,000 | 48,000 | 3.45 | $ | 198,000 | |||||||||||||||||||||||
| 07-26-2012 | 09-10-2019 | 20,000 | $ | 3.35 | $ | 4.31 | 79,200 | 19,200 | 3.45 | $ | 79,200 | |||||||||||||||||||||||
| 11-20-2012 | 09-10-2019 | 20,000 | $ | 3.56 | $ | 4.31 | 79,200 | 15,000 | 3.45 | $ | 79,200 | |||||||||||||||||||||||
| 02-14-2013 | 09-10-2019 | 20,000 | $ | 3.58 | $ | 4.31 | 79,200 | 12,800 | 3.45 | $ | 79,200 | |||||||||||||||||||||||
| 07-12-2013 | 09-10-2019 | 20,000 | $ | 3.33 | $ | 4.31 | 79,200 | 19,600 | 3.45 | $ | 79,200 | |||||||||||||||||||||||
| 08/12/2013 | 09-10-2019 | 20,000 | $ | 3.69 | $ | 4.31 | 79,200 | 12,400 | 3.45 | $ | 79,200 | |||||||||||||||||||||||
Date of Warrant | Expiration Date | Number of Warrants | Exercise Price | Fair Market Value Per Share | Put Option Value | Market Price Option | Remaining Life in Years | Warrant Liability | ||||||||||||||||||||||||||
| 07-26-2012 | 09-10-2019 | 50,000 | $ | 3.35 | $ | 5.25 | NA | 95,000 | 2.45 | $ | 95,000 | |||||||||||||||||||||||
Contingencies are recorded in the consolidated financial statements when it is probable that a liability will be incurred and the amount of the loss is reasonably estimable, or otherwise disclosed, in accordance with Accounting Standards Codification 450, Contingencies (ASC 450). Significant judgment is required in both the determination of probability and the determination as to whether a loss is reasonably estimable. In the event the Company determines that a loss is not probable, but is reasonably possible, and it becomes possible to develop what the Company believes to be a reasonable range of possible loss, then the Company will include disclosures related to such matter as appropriate and in compliance with ASC 450. To the extent there is a reasonable possibility that the losses could exceed the amounts already accrued, the Company will, when applicable, adjust the accrual in the period the determination is made, disclose an estimate of the additional loss or range of loss or if the amount of such adjustment cannot be reasonably estimated, disclose that an estimate cannot be made.
In December 2009, the Kansas District Court dismissed the Aeroflex Action on jurisdiction grounds. Aeroflex appealed this decision. In May 2012, the Kansas Supreme Court reversed the decision and remanded the Aeroflex Action to the Kansas District Court for further proceedings. The case then entered an extended discovery period in the District Court.
On May 23, 2016, the Company filed a motion for summary judgment based on Aeroflex’s lack of jurisdictional standing to bring the case. The motion asserts that Aeroflex does not own the intellectual property at issue since it is a bare licensee of Northrop Grumman. Northrop Grumman has declined to join this suit as plaintiff. The motion asserted Aeroflex lacks standing to sue alone. Also, the motion raises the fact that Aeroflex allowed the license to expire, Aeroflex’s claims are either moot or Aeroflex lacks standing to sue for damages alleged to have accrued after the license ended in December 2011. The motion for summary judgment was denied.
The Aeroflex trial on remand in the Kansas District Court began in March 2017. After a six-weeknine-week trial, the jury rendered its verdict. The jury found no misappropriation of Aeroflex trade secrets, but it did rule that the Company tortiously interfered with a prospective business opportunity and awarded damages of $1.3 million for lost profits. The jury also ruled that Tel tortiously interfered with Aeroflex’s non-disclosure agreements with two former Aeroflex employees and awarded damages of $1.5 million for lost profits, resulting in total damages against the Company of $2.8 million. The jury also found that the former Aeroflex employees breached their non-disclosure agreements with Aeroflex and awarded damages against these two individuals totaling $525,000. The jury also decided that punitive damages should be allowed against the Company. The court has not yet entered final judgment on the verdict.
Following the verdict, the Company filed a motion for judgment as a matter of law, which is pending.law. In the motion, the Company renewed its motion for judgment on Aeroflex’s tortious interference with prospective business opportunity claim arguing that such claim is barred by the statute of limitations. Alternatively, the motion asserts there is insufficient evidence supporting the lost profit award on that claim. Additionally, the motion for judgment addresses inconsistency between the awards against the former Aeroflex employees for breach of the non-disclosure agreements and the award against the Company for interfering with those agreements. Alternatively, the motion asserts there is insufficient evidence supporting the lost profit award on that claim. While we believe that this motion has merit, there is no assurance that the judge will reduce the jury awards.
During July 2017, the Court will hearheard the Company’s motion for judgment. The Court will also conductjudgment as well as conducting a hearing as to the amount of a punitive damages award. Kansas statutes limit punitive damages to a maximum of $5 million.
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Consolidated Financial Statements (Continued)
19. Litigation (continued)
Aeroflex has submitted a motion to the Court requesting that the judge award punitive damages at the maximum $5 million amount. In Kansas, punitive damages areOctober 2017, the Court denied the Company’s motions and awarded to “punish the wrongdoer for his malicious, vindictive or willful and wanton invasion of another’s rights, with the ultimate purpose being to restrain and deter others from the commission of similar wrongdoings.” Importantly, Kansas courts have ruled that the purposeAeroflex an additional $2.1 million of punitive damages, “iswhich brings the total Tel damages awarded in this case to sting, not to kill”. approximately $4.9 million.
The Court will also take into considerationJournal Entry of Judgment including judgment against the Company’s financial conditionCompany in setting the amount of $1.3 million for tortious interference with prospective business advantage, of $1.5 million for tortious interference with existing contracts, and $2.1 million in punitive damages. damages was entered on November 22, 2017. Pursuant to K.S.A. 16-204(d) “any judgment rendered by a court of this state on or after July 1, 1986, shall bear interest on and after the day on which judgment is rendered at the rate provided by subsection (e). The Kansas Secretary of State publishes the rate amount. The amount published for July 1, 2017, through June 30, 2018, was 5.75%, 6.5% July 1, 2018, through June 30, 2019, 7.0% July 1, 2019, through June 30, 2020, and 4.25% July 1, 2020, through June 30, 2021. The interest rate as of March 31, 2022, was 4.25%. Interest on the $4,900,000 judgment started to accrue on November 22, 2017, the date the judgment was entered. As of March 31, 2022, the outstanding amount of the judgement and accrued interest is $6,097,273.
The Company does not believe that punitive damages, in any amount are appropriate. Regardless,filed post-trial motions to avoid damage duplication and inconsistency, and to secure judgment as a matter of law or a new trial. The trial court denied those motions. The Company appealed the Company will vigorously defend against an award.
The Company is very optimistic about the prospects of its appeal for a judgment onas a matter of law. The Company was hoping for a decision from the verdict is speculative. Atcourt this stage, the Company has recorded a $2.8 million liabilitycalendar year, but this could materially change basedtiming will likely be delayed due to the three month COVID-19 related shutdown of the Kansas court system. The appeal decision has been delayed due to the COVID-19 related shutdown of the Kansas court system and the inability of court staff to work remotely on confidentiality issues. During August 2021, in an effort to move the judge’s ruling which could come as early as July, 2017. Punitive damages can also range between $-0-appeal forward, all parties agreed to supply the appeal information to the court on a dedicated and $5 million. Depending onsecured laptop that would be used by the outcome of these hearings, both sides haveresearch attorney remotely. The Company has the ability to settle this case at its sole discretion by withdrawing the appeal and paying the decision orjudgment plus interest amount. The Company currently has sufficient cash on hand to pay off this liability if the judge could vacateappeal is lost.
On January 28, 2022, Aeroflex filed a Motion to Require Supplemental Appeal Bond with the jury decision and scheduleCourt of Appeals of the State of Kansas, seeking a new trial. If the judge enters a final damages award, both sides have approximately 30 days to file an appeal or a request a new trial. Ifbond from the Company files the appeal on its own, it will be required to post a bond in the equal to the lesser of: (1) the final damages award; or (2) $1 million plus 25% of the amount of $6 million to supplement the verdict in excessexisting bond of $1 million, which would currently total $1.45$2 million.
Other than the matters outlined above, we are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of executive officers of our Company, threatened against or affecting our Company, or our common stock in which an adverse decision could have a material effect.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNone.
Item 9A.
Controls and Proceduresa) Evaluation of disclosure controls and procedures.
As of March 31, 2017,2022, management performed, with the participation of our Chief Executive Officer and PrincipalChief Accounting Officer, an evaluation of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(f) under the Securities Exchange Act of 1934. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and PrincipalChief Accounting Officer, as appropriate to allow timely decisions regarding required disclosures. The Company is considered a smaller reporting company under the appropriate SEC guidance and is currently exempt, based on Section 404(b), from attestation requirements on their internal control over financial reporting. Based on the evaluation required by Rule 13a-15(b) under the Securities Exchange Act of 1934, our Chief Executive Officer and PrincipalChief Accounting Officer concluded that as of March 31, 2017,2022, such disclosure controls and procedures were effective.
b) Management’sManagement’s Annual Report on Internal Control over Financial Reporting
Tel’s management is responsible for establishing and maintaining an adequate system of internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with Generally Accepted Accounting Principles (“GAAP”).
Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance of such reliability and may not prevent or detect misstatements. Also, projection of any evaluation of effectiveness to future periods is subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management has conducted, with the participation of our Chief Executive Officer and our Principal Accounting Officer, an assessment ofassessed the effectiveness of ourthe Company’s internal control over financial reporting as of March 31, 2017. Management’s2022. In making this assessment, of internal control over financial reportingManagement used the criteria set forth in the framework was included in Internal Control — Integrated Framework (2013) issuedestablished by the Committee of Sponsoring Organizations of the Treadway Commission.Commission 2013 Internal Control - Integrated Framework (“COSO”). Based on our evaluation underthis assessment, Management has not identified any material weaknesses. A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the Company’s financial reporting.
Management has concluded that the Company did maintain effective internal control over financial reporting as of March 31, 2022, based on the criteria set forth in 2013 Internal Control — Control—Integrated Framework (2013), Chief Executive Officer and Principal Accounting Officer t concluded that our system of internal control over financial reporting was effective as of March 31, 2017.issued by the COSO.
c) Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.
Item 9B.
Other InformationNone.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
PART III
Item 10.
Directors, Executive Officers, and Corporate GovernanceEach of our directors holds office until the next annual meeting of our stockholders or until his or her successor has been elected and qualified, or until his or her earlier death, resignation, or removal. Our executive officers are appointed by our Board and serve until their respective successors are elected and appointed and qualify until their earlier resignation or removal from office.
Our current directors and executive officers, their ages, positions held, and duration of such, are as follows:
Name (age) | Position | Year First Elected a | ||
Stephen A. Fletcher (1) (61) | Director | 2011 | ||
George J. Leon (2) (3) (78) | Director | 1986 | ||
Jeffrey C. O’Hara, CPA (1) (4) (64) | Director; President since August 2007; Chief Executive Officer since December 2010; Chief Operating Officer since June 2006; Vice President since 2005 | 1998 | ||
Robert A. Rice (2) (3) (66) | Director | 2004 | ||
Robert H. Walker (2) (3) (5) (86) | Director and Chairman of the Board since April 2011 | 1984 | ||
(1) | Mr. Fletcher is the son of Mr. Harold K. Fletcher, the former Chairman of the Company who passed away in April 2011, and the brother-in-law of Jeffrey C. O’Hara, the Company’s Chief Executive Officer |
(2) | Member of the Audit Committee |
(3) | Member of the Compensation Committee |
(4) | Mr. O’Hara has served as a member of the Board since 1998 and was appointed President of the Company in 2007, and as Chief Executive Officer in December 2010. |
(5) | Mr. Walker has served as a member of the Board since 1984 and was appointed Chairman of the Board in April 2011. |
Background of Directors and Officers
Stephen A. Fletcher
is the former Chief Executive Officer of Rand McNally, the country’s most trusted source for maps, navigation, and travel content (“Rand”). At Rand, Mr. Fletcher is driving growth of the Company’s consumer and enterprise businesses through rapid expansion of core product lines and continued innovation of commercial transportation solutions ranging from advanced mileage and routing software to fleet management and electronic tracking. Prior to Rand, Mr. Fletcher served as a WW general manager at Kodak for more than six years and led a far-reaching organization with operations around the globe including research and development in the US, Germany and Singapore and manufacturing in the US, China, and Mexico. Before Kodak, he was President and COO of Konica Minolta Printing Solutions in Ramsey, New Jersey where he quadrupled the business over six years. Mr. Fletcher was also President and CEO of the Tally Printer Corporation in Seattle, Washington and held marketing management positions at Apple Computer and Hewlett Packard.George J. Leon
has served as a member of the Board since 1986. Mr. Leon has substantial experience in finance, and as an investment manager. He is and has been an Investment Manager and beneficiary of the George Leon Family Trust for more than five (5) years.Jeffrey C. O’Hara,O’Hara, CPA
Item 10. Directors, Executive Officers, and Corporate Governance (continued)
Background of Directors and Officers (continued)
Robert H. Walker has served as member of our Board since 1984 and was elected Chairman of the Board in April 2011. Mr. Walker, prior to his retirement in 1998, had served as Executive Vice President of Robotic Vision Systems, Inc., which designs, manufactures, markets, and sells automated two-dimensional and three-dimensional machine vision-based products and systems for inspection, measurement, and identification. Mr. Walker also served as Chief Financial Officer of that company, whose shares were listed on the NASDAQ National Market. Mr. Walker qualifies as the Company’s “Audit Committee Financial Expert” as defined in the regulations promulgated under the Securities Exchange Act.
Robert A. Rice
has served as a member of the Board since 2004. Mr. Rice is, and has been for more than 5 years, President and Owner of Spurwink Cordage, Inc., a textile manufacturing company located in New England, and is experienced in securities matters and business management.Family Relationships
As described above, Stephen Fletcher is the son of the Company’s former Chairman and the brother-in-law of the Company’s Chief Executive Officer, Jeffrey O’Hara.
Corporate Governance and Board Meetings
The Board is responsible for supervision of the overall affairs of the Company. The Board held fourtwo meetings during the fiscal year 2017,2022 and each of the nominee directors attended all of the meetings. The Company expects directors to attend all formal Board, committee, and shareholder meetings. Three of the directors, Messrs. Leon, Rice, and Walker, are independent as that term is defined under the RulesSecurities Exchange Act of the NYSE-MKT. 1934.
Robert H. Walker was elected Chairman of the Board by the directors at their April 13, 2011 meeting of the Board upon the passing of Harold K. Fletcher who had been Chief Executive Officer and Chairman of the Board since 1982. Jeffrey C. O’Hara was elected the Chief Executive Officer in December 2010.
The Board and, separately, the Audit Committee review and provide oversight of risks and potential risks involving the Company’s operations. The Board reviews and evaluates the process used to assess major risks facing the company and to periodically review assessments prepared by senior management of such risks, as well as options for their mitigation. Frequent interaction between the directors and members of senior management assists in this effort. The Board regularly reviews information regarding our liquidity and operations, as well as the risks associated with each. The Audit Committee is responsible for overseeing the management of financial and accounting risks. The Compensation Committee is responsible for overseeing the management of risk-taking relating to executive compensation plans and arrangements.
To assist it in carrying out its duties, the Board has delegated certain authority to committees. The Board has established standing Audit and Compensation Committees and has delegated nominating responsibility to the three directors who are independent as that term is defined under the RulesSecurities Exchange Act of the NYSE MKT (“NYSE MKT Rules”).1934. Our Audit and Compensation Committees consist of only independent, non-employee directors.
Audit Committee
The Board established a separately designated standing Audit Committee in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934 and of the Rules of the NYSE MKT.1934. The Audit Committee is comprised of Messrs. Walker (Chairman), Leon, and Rice. Messrs. Walker, Leon, and Rice are independent, as that term is defined under the Securities Exchange Act of 1934, and1934. Mr. Walker is a financial expert as defined in the rules promulgated by the SEC pursuant to that Act. Mr. Walker served as director and Executive Vice President of Robotic Vision Systems, Inc., a reportingpublic company, and as its principal financial officer for over 15 years.
The Audit Committee reviews the Company’s financial statements, and oversees the Company’s accounting, audits, internal controls, and adherence to its Business Conduct Guidelines. The Committee also appoints and recommends to the Board the Company’s independent registered public accounting firm and reviews, evaluates, and approves the independent registered public accountants’ compensation, services performed, and procedures for ensuring its independence with respect to the Company. The Board has adopted a written charter for the Audit Committee, a copy of which is annexed as Exhibit A.
Item 10. Directors, Executive Officers, and Corporate Governance (continued)
During fiscal 2017,2022, all three members of the Audit Committee attended all four (4) of the Audit Committee meetings. In the opinion of the Board, and as defined under NYSE MKT Rules,the Securities Exchange Act of 1934, Messrs. Walker, Leon, and Rice are independent of management and free of any relationship which might interfere with their exercise of independent judgment as members of this committee.
The Audit Committee has: (i) reviewed and discussed with management, and with BDO USA,Friedman LLP, (the “Auditors”“Auditor”) the Company’s audited financial statements for the fiscal year ended March 31, 2016;2022; (ii) reviewed and discussed with management, and with our Auditor the Company’s interim financial statements for the periods ended June 30, 2021, September 30, 2021 and December 31, 2021; (iii) discussed with the AuditorsAuditor the matters required to be discussed by PCAOB Standard 16, as amended, as adopted by the Public Company Accounting Oversight Board; (iii)(iv) received the written disclosures and the letter from the AuditorsAuditor required by applicable requirements of the Public Company Accounting Oversight Board regarding the Auditors’Auditor’ communications with the Audit Committee concerning independence; and (iv)(v) discussed with the AuditorsAuditor their independence from the Company. The Audit Committee has also discussed with management of the Company and the AuditorsAuditor such other matters and received such assurances from them as it deemed appropriate. The Audit Committee meets regularly with management and the Auditors,Auditor, and then with the AuditorsAuditor without management present, to discuss the result of the AuditorsAuditor examination, the evaluation of the Company’s internal control over financial reporting and the overall quality of the Company’s accounting.
Compensation Committee
The Compensation Committee, consisting of the independent directors George J. Leon, Chairman, Robert A. Rice, and Robert H. Walker, is responsible for (1) reviewing and evaluating employee stock and other compensation programs and plans, (2) determining the compensation of the Chief Executive Officer, and (3) approving compensation arrangements, including keyman incentive compensation and stock option grants, for management and other employees. The Board created the Compensation Committee by resolution giving it the foregoing authority.
The Compensation Committee met twiceonce during the 20172022 fiscal year; Messrs. Leon, Rice and Walker attended the meeting. Messrs. Leon, Rice, and Walker are independent, as defined inunder the NYSE MKT Rules.Securities Exchange Act of 1934. See “Executive Compensation” below for a discussion of the Committee’s processes and procedures for reviewing and determining compensation.
Section 16(a) Beneficial Ownership Reporting Compliance
As of March 31, 2016,2022, the end of the last fiscal year, the Company believes that all officers, directors and 10% beneficial owners, known to the Company, had, during such last fiscal year, timely filed required forms reporting beneficial ownership of Company securities, other than the Form 3 for Pauline Romeo, based solely on review of certain reports filed with the Securities and Exchange Commission pursuant to Section 16(a) of the Securities Exchange Act of 1934, as amended, and information furnished to the Company.
Code of Ethics
The Company has had corporate governance standards and policies, regulating officer, director, and employee conduct for many years. In fiscal 2004, we reviewed our standards and policies and incorporated them into our Code of Business Conduct, which we believe satisfies the rules promulgated by the SEC and the NYSE MKT.SEC. The Board has adopted this written Code of Ethics that applies to all of the Company’s officers and employees, including the Chief Executive Officer and the PrincipalChief Accounting Officer. A copy of the Code of Ethics has been previously filed. A copy of the Code of Ethics is available to anyone requesting a copy without cost by writing to the Company, attention Joseph P. Macaluso.
Shareholder Recommendations
There have been no material changes to the Company’s procedures by which shareholders may recommend nominees to the Board of Directors since the Company’s last Annual Report on Form 10-K.
Legal Proceedings
There are no material proceedings to which any director or officer, or any associate of any such director or officer, is a party that is adverse to our Company or any of our subsidiaries or has a material interest adverse to our Company or any of our subsidiaries. No director or executive officer has been a director or executive officer of any business which has filed a bankruptcy petition or had a bankruptcy petition filed against it during the past ten years. No director or executive officer has been convicted of a criminal offense or is the subject of a pending criminal proceeding during the past ten years. No director or executive officer has been the subject of any order, judgment or decree of any court permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities, or banking activities during the past ten years. No director or officer has been found by a court to have violated a federal or state securities or commodities law during the past ten years.
Item 11.
Executive CompensationThe following table presents information regarding compensation of our principal executive officer, and the two most highly compensated executive officers other than the principal executive officer for services rendered during fiscal years 20172022 and 2016.2021.
Summary Compensation Table
Name and Principal Position | Fiscal Year | Salary ($) (1) | Incentive ($) (2) | Option Awards ($) (3) | All Other Compensation ($) (4) | Total ($) | ||||||||||||||||
| Jeffrey C. O’Hara, CEO President | 2017 | 175,000 | - | - | 22,693 | 197,693 | ||||||||||||||||
| 2016 | 175,000 | 64,909 | 47,150 | 19,578 | 306,637 | |||||||||||||||||
| Michael Schirmer, Vice President of Operations (5) | 2017 | 167,500 | - | - | 21,794 | 189,294 | ||||||||||||||||
| 2016 | 167,500 | 64,909 | 23,575 | 19,488 | 275,472 | |||||||||||||||||
| Joseph P. Macaluso PAO | 2017 | 140,000 | - | - | 12,867 | 152,867 | ||||||||||||||||
| 2016 | 139,375 | 14,000 | 4,715 | 12,680 | 170,770 | |||||||||||||||||
Grants of Plan-based Awards Table for Fiscal Year
Name and Principal Position | Fiscal Year | Salary ($) (1) | Incentive ($) (2) | Option Awards ($) (3) | All Other Compensation ($) (4) | Total ($) | ||||||||||||||||
Jeffrey C. O’Hara, CEO President | 2022 | 227,699 | - | 5,080 | 24,333 | 257,112 | ||||||||||||||||
2021 | 180,000 | 9,999 | - | 28,575 | 218,574 | |||||||||||||||||
Pauline X. Romeo CAO | 2022 | 130,930 | - | 2,032 | 29,408 | 162,370 | ||||||||||||||||
2021 | 17,500 | - | 15,488 | - | 32,988 | |||||||||||||||||
Joseph P. Macaluso, former PAO | 2022 | - | - | - | - | - | ||||||||||||||||
2021 | 135,876 | 12,500 | - | 11,706 | 160,082 | |||||||||||||||||
(1) | The amounts shown in this column represent the dollar value of base cash salary earned by each named executive officer (“NEO”). |
(2) | Incentive compensation |
(3) | Amounts in this column represent the fair value required by ASC Topic 718 to be included in our financial statements for all options granted during that year (see Note |
(4) | The amounts shown in this column represent amounts for medical and life insurance as well as the Company’s match in the 401(k) Plan. |
The following table sets forth information on stock options granted during or for the 20172022 fiscal year to our named executive officers.officers:
Name |
| Approval Date |
| Grant Date |
| All Other Option Awards: Number of Shares of Stock (#) |
|
| Exercise or Base Price of Option Awards ($/Share) |
|
| Grant date Fair Value of Option Awards ($) |
| |||
Jeffrey C. O’Hara |
| 09/02/21 |
| 09/02/21 |
|
| 5,000 |
|
| $ | 2.94 |
|
| $ | 5,100 |
|
Pauline X. Romeo |
| 09/02/21 |
| 09/02/21 |
|
| 2,000 |
|
| $ | 2.94 |
|
| $ | 2,040 |
|
The exercise price of the options granted was the fair market value at the date of grant of the shares underlying such options. The estimated fair value of the shares underlying such options was determined utilizing the methodology described in Note 16 of the notes to the consolidated financial statements.
Item 11.Executive Compensation (continued)
Outstanding Equity Awards at Fiscal Year End
The following table sets forth the outstanding stock option grants held by named executive officers at the end of the 20172022 fiscal year. The option exercise price set forth in the table is based on the closing market price on the date of grant.
Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable (1) | Option Exercise Price ($) | Option Expiration Date |
| Number of Securities Underlying Unexercised Options (#) Exercisable |
| Number of Securities Underlying Unexercised Options (#) Unexercisable (1) |
| Option Exercise Price ($) |
| Option Expiration Date | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
| Joseph P. Macaluso | 400 | 1,600 | $ | 5.85 | 4/28/20 | |||||||||||||||||||||||
Pauline X. Romeo |
| - |
| 2,000 |
| $ | 2.94 |
| 9/2/26 | |||||||||||||||||||
| Jeffrey C. O’Hara | 4,000 | 16,000 | $ | 5.85 | 4/28/20 | - | 5,000 | 2.94 | 9/2/26 | |||||||||||||||||||
| Michael Schirmer | 10,000 | - | $ | 4.22 | 11/01/18 | |||||||||||||||||||||||
| 4,000 | 6,000 | $ | 5.14 | 5/05/19 | ||||||||||||||||||||||||
| 2,000 | 8,000 | $ | 5.85 | 4/28/20 | ||||||||||||||||||||||||
Pauline X. Romeo | 3,000 |
| 12,000 | 3.11 | 1/12/26 | |||||||||||||||||||||||
Jeffrey C. O’Hara |
| 10,000 |
| 15,000 |
| 3.19 |
| 5/08/24 | ||||||||||||||||||||
(1) | Options are exercisable, on a cumulative basis, 20% at or after each of the first, second, and third anniversary of the grant and 40% after the fourth year anniversary. |
Employment Contracts and Termination of Employment and Change-in-Control
There are no employment contracts, compensatory plans, or arrangements, including payments to be received from the Company with respect to any executive officer of Tel which would in any way result in payments to any such person because of his or her resignation, retirement, or other termination of employment with the Company, any change in control of the Company or a change in the person’s responsibilities following a change in control of the Company.
Options Exercised and Stock Vested During Fiscal Year 20162022
No shares were acquired upon exercising options awards by our NEO’s during fiscal year 2017.2022.
Options granted to NEOs are consistent with the terms of options granted to other employees pursuant to the Employee Stock Option Plans (see Note 1517 of the Notes to the Consolidated Financial Statements). Options granted to NEOs may be tax sheltered to the grantee, and their value constitutes a charge to the Company (see Notes 2 and 1416 to the Consolidated Financial Statements).
Incentive Plan
The Company has a key manperson incentive compensation program. Each year the Compensation Committee determines a percentage of operating profits to be distributed among senior employees, including NEOs. The percentage determined is based on the general performance of the Company, and the amount of operating profits available for shareholders and for reinvestment in the business. This element of compensation provides an incentive for short-term performance.
The percentage of operating profits so determined is then distributed to senior employees, including NEOs and to a category entitled “incentive”, based on (a) the amount of the employee’s base salary, (b) his contribution to the Company, (c) the results of that contribution, (d) an estimated amount of his “special effort” on behalf of the Company, (e) his technical expertise, leadership, and management skills, and (f) the level of the overall compensation paid employees performing similar work in competitive companies. No incentive awards were made to the NEOs for the year ended March 31, 2017.
For the year ended March 31, 2016,2022, the CEO received $64,909, COO received $64,909,$0, and the PAOCAO received $14,000. $0. For the year ended March 31, 2021, the CEO received $9,999 and the CAO received $12,500
Other Benefits
The Company sponsors the Tel-Instrument Electronics Corp. 401(k) Plan (the “401k Plan”), a tax qualified Code Section 401(k) retirement savings plan, for the benefit of its employees, including its NEOs. The 401k Plan encourages savings for retirement by enabling participants to make contributions on a pre-tax basis and to defer taxation on earnings on funds contributed to the 401k Plan. The Company makes matching contributions to the Plan. All NEOs can make contributions to the 401k Plan. The NEOs also participate in group health and life benefits generally on the same terms and conditions that apply to other employees.
Item 11.Executive Compensation (continued)
Director Compensation
Directors who are not employees or officers of the Company receive $1,250 in cash and options, at the then market price, to purchase 1,000 shares of Common Stock for attendance at each in-person meeting and $625 in cash and options to purchase 500 shares of Common Stock for attendance at each formal telephonic meeting of the Board or of a standing committee.committee of the Board. Non-employee directors may elect annually to accept the foregoing compensation or waive the stock option element and receive the $2,500 in cash for attendance at the in-person meeting and $1,250 in cash for each formal telephone meeting. During fiscal year 20172022 non-employee directors earned the following compensation pursuant to this plan.
| Name | Cash Compensation | Option Awards ($)(1)(2) | Total $ | Cash Compensation | Option Awards ($)(1)(2) | Total $ | ||||||||||||||||||
| George J. Leon | $ | 10,000 | $ | -0- | $ | 10,000 | $ | 8,750 | $ | -0- | $ | 8,750 | ||||||||||||
| Robert A. Rice | $ | 10,000 | $ | -0- | $ | 10,000 | $ | 10,000 | $ | -0- | $ | 10,000 | ||||||||||||
| Robert H. Walker (3) | $ | 10,000 | $ | -0- | $ | 10,000 | $ | 10,000 | $ | -0- | $ | 10,000 | ||||||||||||
| Stephen A. Fletcher | $ | 5,000 | $ | -0- | $ | 5,000 | $ | 3,750 | $ | -0- | $ | 3,750 | ||||||||||||
(1) | Amounts in this column, if any, represent the fair value required by ASC 718 to be included in our financial statements for all options granted during fiscal year |
(2) | There are no options outstanding for the directors. |
(3) | Mr. Walker also receives a monthly stipend of $2,400 for his additional responsibility as Chairman of the Board. |
Compensation Policy
The Company does not believe that its compensation policies are reasonably likely to increase corporate risk or have a material adverse effect on the Company.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersThe following table sets forth certain information known to the Company with respect to the beneficial ownership as of June 20, 2016,16, 2022, by (i) all persons who are beneficial owners of five percent (5%) or more of the Company’s Common Stock, (ii) each director and nominee, (iii) the executive officers, and (iv) all current directors and executive officers as a group. A person is considered to beneficially own any shares: (i) over which such person, directly or indirectly, exercises sole or shared voting or investment power, or (ii) of which such person has the right to acquire beneficial ownership at any time within 60 days through an exercise of stock options or warrants. Unless otherwise indicated, voting and investment power relating to the shares shown in the tables for our directors and executive officers is exercised solely by the beneficial owner or shared by the owner and the owner’s spouse or children.
| Name and Address | Number of Shares Beneficially Owned | Percentage of Class (1) | |||||||
| Named Directors and Officers | |||||||||
| Stephen A. Fletcher, Director | 3,200 | (2 | ) | 0 | % | ||||
| 7378 E. Main Street | |||||||||
| Lima, NY 14485 | |||||||||
| George J. Leon, Director | 455,971 | (3 | ) | 14.0 | % | ||||
| 168 Redpath Avenue | |||||||||
| Toronto, Ontario, Canada M4P 2K6 | |||||||||
| Jeffrey C. O’Hara, Director | 252,356 | (4 | ) | 7.7 | % | ||||
| 853 Turnbridge Circle | |||||||||
| Naperville, IL 60540 | |||||||||
| Robert A. Rice, Director | 113,404 | 3.5 | % | ||||||
| 5 Roundabout Lane | |||||||||
| Cape Elizabeth, ME 04107 | |||||||||
| Robert H. Walker, Director | 75,053 | 2.3 | % | ||||||
| 27 Vantage Court | |||||||||
| Port Jefferson, NY 11777 | |||||||||
| Michael Schirmer | 20,000 | (5 | ) | 0.6 | % | ||||
| 14 Turnberry Lane | |||||||||
| Pittsford, NY 14534 | |||||||||
| Joseph P. Macaluso, PAO | 13,813 | (6 | ) | 0.4 | % | ||||
| 167 Tennis Court | |||||||||
| Wall Township, NJ 07719 | |||||||||
| All officers and directors as a group (6 persons) | 933,797 | (7 | ) | 28.4 | % | ||||
| Mrs. Sadie Fletcher | 640,907 | (8 | ) | 19.7 | % | ||||
| 657 Downing Lane | |||||||||
| Williamsville, NY 14221 | |||||||||
| Vincent J. Dowling, Jr. | 285,400 | (9 | ) | 8.8 | % | ||||
| 54 Ledyard Road | |||||||||
| West Hartford, CT 06117 | |||||||||
| All officers, directors and 5% holders as a group (8 persons) | 1,860,104 | 56.6 | % | ||||||
For purposes of these tables, a person or group of persons is deemed to have “beneficial ownership” of any shares of Common Stock that such person has the right to acquire within 60 days of June 16, 2022. For purposes of computing the percentage of outstanding shares of our Common Stock held by each person or group of persons, any shares that such person or persons has the right to acquire within 60 days of June 16, 2022, is deemed to be outstanding, but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. The inclusion herein of any shares listed as beneficially owned does not constitute an admission of beneficial ownership.
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters (continued)
Name and Address | Number of Shares Beneficially Owned | Percentage of Class (1) | |||||||
Named Directors and Officers | |||||||||
Stephen A. Fletcher, Director | 7,254 | (2) | 0.2 | % | |||||
3995 Oleander Court | |||||||||
Orange Beach, AL 36561 | |||||||||
George J. Leon, Director | 455,971 | (3) | 14.0 | % | |||||
168 Redpath Avenue | |||||||||
Toronto, Ontario, Canada M4P 2K6 | |||||||||
Jeffrey C. O’Hara, CEO, Director | 218,156 | (4) | 6.7. | % | |||||
853 Turnbridge Circle | |||||||||
Naperville, IL 60540 | |||||||||
Robert A. Rice, Director | 75,564 | 2.3 | % | ||||||
5 Roundabout Lane | |||||||||
Cape Elizabeth, ME 04107 | |||||||||
Robert H. Walker, Director | 75,083 | 2.3 | % | ||||||
27 Vantage Court | |||||||||
Port Jefferson, NY 11777 | |||||||||
| Pauline X. Romeo, CAO | 3,000 | (4) | 0.1 | % | |||||
1 Branca Road East Rutherford, NJ 07073 | |||||||||
All officers and directors as a group (6 persons) | 835,028 | (7) | 25.6 | % | |||||
Vincent J. Dowling, Jr. | 703,484 | (5) | 21.6 | % | |||||
54 Ledyard Road | |||||||||
West Hartford, CT 06117 | |||||||||
Mrs. Sadie Fletcher | 486,293 | (6) | 14.94 | % | |||||
657 Downing Lane | |||||||||
Williamsville, NY 14221 | |||||||||
Vincent J. Dowling, Sr. | 506,297 | (8) | 15.6 | % | |||||
102 Island Creek Drive | |||||||||
Indian River Shores, FL 32963 | |||||||||
All officers, directors and 5% holders as a group (8 persons) | 2,531,102 | (9) | 77.7 | % | |||||
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters (continued)
(1) | The class includes 3,255,887 shares outstanding in the calculation of the percentage of shares owned by a party. The Common Stock deemed to be owned by the named party includes stock which is not outstanding but subject to currently exercisable options held by the individual named in accordance with Rule 13d-3(d)c) of the Exchange Act. The foregoing information is based on reports made by the named individuals. |
(2) | Mr. Stephen A. Fletcher is the son of Mr. Harold K. Fletcher, former Chief Executive Officer, and director of the Company. Mr. Stephen A. Fletcher is the son of Mrs. Sadie Fletcher who beneficially owns |
(3) | Includes |
(4) | Includes |
(5) | Includes |
(6) | Represents |
(7) | Includes 13,000 shares subject to currently exercisable options held by all executive officers and directors of the Company (including those individually named above). |
(8) | Includes 166,667 shares of common stock that may be acquired upon conversion of the Series B Convertible Preferred Stock as well as an additional 89,556 shares that may be acquired based on Also includes 166,667 shares of common stock that may be acquired upon conversion of the Series A Convertible Preferred Stock as well as an additional 83,408 shares that may be acquired based on accrued dividends. The Holder(s) of the Series A Convertible Preferred Stock can vote together with the holders of the Company’s common stock (“Common Stock”) on an as-converted basis on each matter submitted to a vote of holders of Common Stock (whether at a meeting of shareholders or by written consent). In any such vote, the number of votes that may be cast by a Holder shall be equal to one (1) vote for each Conversion Share underlying such Holder’s outstanding shares of Series A Convertible Preferred Stock, subject to adjustment based on the applicable Maximum Conversion Amount, as of the record date for such vote or written consent or, if there is no specified record date, as of the date of such vote or written consent (see Note 15 to the consolidated financial statements). |
(9) | Includes 13,000 shares subject to currently exercisable options held by all executive officers and directors of the Company (including those individually named above). Also 333,333 and 166,815 shares of common stock that may be acquired upon conversion of the Series A Convertible Preferred Stock. |
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters (continued)
Equity Compensation Plan Information
In December 2016, the Board adopted the 2016 Stock Option Plan (the “2016 Plan”) which reserved for issuance options to purchase up to 250,000 shares of its Common Stock. The stockholders approved the 2016 Plan at the January 2017 annual meeting
The 2016 Plan reserves for issuance options to purchase up to 250,000 shares of its common stock. All employees, directors and consultants are eligible to receive stock option grants under this plan. The 2016 Plan, which has a term of ten years from the date of adoption, is administered by the Board or by a committee appointed by the Board. The selection of participants, allotment of shares, and other conditions related to the grant of options, to the extent not set forth in the Plan, are determined by the Board. Options granted under the Plan are exercisable up to a period of five years from the date of grant at an exercise price which is not less than the fair market value of the common stock at the date of grant, except to a shareholder owning 10% or more of the outstanding common stock of the Company, as to which the exercise price must be not less than 110% of the fair market value of the common stock at the date of grant. Options, for the most part, are exercisable on a cumulative basis, 20% at or after each of the first, second, and third anniversary of the grant and 40% after the fourth year anniversary. These terms can be modified based upon approval of the Board.
The following table provides information as of March 31, 20172022, regarding compensation plans under which equity securities of the Company are authorized for issuance. See “Equity Compensation Plan Information” under Item 12 below.
| Plan category | Number of securities to be issued upon exercise of outstanding options | Weighted average exercise price of outstanding options | Number of options remaining available for future issuance under Equity Compensation Plans |
| Number of securities to be issued upon exercise of outstanding options |
| Weighted average exercise price of outstanding options |
| Number of options remaining available for future issuance under Equity Compensation Plans |
| ||||||||||||||
| Equity Compensation Plans approved by shareholders | 79,000 | $ | 5.26 | 250,000 |
| 111,500 |
| $ | 3.14 |
| 138,500 |
| ||||||||||||
| Equity Compensation Plans not approved by shareholders | -- | -- | -- |
|
| - |
|
| - |
|
| - |
| |||||||||||
| Total | 79,000 | $ | 5.26 | 250,000 |
|
| 111,500 |
| $ | 3.14 |
|
| 138,500 |
| ||||||||||
* See discussion above and Note 1416 of Notes to the Consolidated Financial Statements.
Item 13.
Certain Relationships and Related Transactions and Director IndependenceThe Company has obtained marketing and sales services from a brother-in-law of the Company’s CEO with the related fees and commissions amounting to $150,302$145,898 and $107,980$121,769 for the years ended March 31, 20172022, and 2016,2021, respectively. At fiscal year ended March 31, 2022, $6,000 remained accrued and unpaid.
Director Independence
On an annual basis, each director and executive officer will beis obligated to disclose any transactions with the Company in which a director or executive officer, or any member of his or her immediate family, have a direct or indirect material interest in accordance with Item 407(a) of Regulation S-K. Following completion of these disclosures, the Board will make an annual determination as to the independence of each director pursuant to the Rules of the NYSE MKT.
As of July 7, 2017,June 17, 2022, the Board determined that the following directors are independent under these standards:
Robert Walker, George Leon, and Robert Rice.
Item 14.
Principal Accounting Fees and ServicesAs previously reported, the Audit Committee appointed Friedman, LLP to serve as the Company's independent auditor for fiscal year 2022.
For the fiscal years ended March 31, 20172022, and 2016,2021, professional services were performed by BDO USA,Friedman, LLP, the Company’s independent registered public accountant. Feesaccountants for those years were as follows:
| 2017 | 2016 | 2022 | 2021 | |||||||||||||
| Audit Fees | $ | 142,100 | $ | 140,800 | $ | 124,991 | $ | 147,050 | ||||||||
| Audit-Related Fees | - | - | - | - | ||||||||||||
| Total Audit and Audit-Related Fees | 142,100 | 140,800 | 124,991 | 147,050 | ||||||||||||
| Tax Fees | - | - | - | - | ||||||||||||
| All Other Fees | - | - | - | - | ||||||||||||
| Total | $ | 142,100 | $ | 140,800 | $ | 124,991 | $ | 147,050 | ||||||||
Audit Fees.This category includes the audit of the Company’s consolidated financial statements and reviews of the financial statements included in the Company’s Quarterly Reports on Form 10-Q.10-Q and Form 10-K. It also includes advice on accounting matters that arose during, or as a result of, the audit or the review of interim financial statements, and services which are normally provided in connection with regulatory filings, or in an auditing engagement. Friedman, LLP performed the audit for the fiscal year ended March 31, 2021, and reviews. Friedman, LLP performed the audit for the fiscal year ended March 31, 2022, and the reviews.
Audit Related Fees, tax, and other fees
. No fees under these categories were paid toPolicy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditor
The Audit Committee has established a policy which requires it to pre-approve all audit and permissible non-audit services, including audit-related and tax services, if any, to be provided by the independent auditor. Pre-approval is generally provided for up to one year and is detailed as to the particular service or category of service to be performed, and is subject to a detailed budget. The auditor and management are required to report periodically to the Audit Committee regarding the extent of services performed and the amount of fees paid to date, in accordance with the pre-approval.
PART IV
Item 15.
Exhibits and Financial Statement Schedulesa.) The following documents are filed as a part of this report:
Pages | |
Financial Statements: | |
| (PCAOB Firm ID: 711) | 25 |
| 2021 | 26 |
| 2021 | 27 |
| 2021 | 28 |
| 2021 | 29 |
31 |
Item 15.Exhibits and Financial Statement Schedules (continued)
c.) Exhibits identified in parentheses below on file with the Securities and Exchange Commission, are incorporated herein by reference as exhibits hereto.
(3.1) | ||
(3.2) | ||
(3.3) | Tel-Instrument Electronics Corp.’s | |
(3.4) | ||
(10.1) | ||
(10.2) | ||
(10.3) | ||
(10.4) | 2006 Stock Option Plan | |
(10.5) | ||
(10.6) | ||
(10.7) | ||
(10.8) | ||
(10.9) | ||
(10.10) | ||
(10.11) | ||
(10.12) |