UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                    -------------------------------------------------------------------------

                                    FORM 10-Q

      X               QUARTERLY REPORT PURSUANT TO SECTION 13 OR
     ---               15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

                      For the quarterly period ended SeptemberJune 30, 19981999

      ___             TRANSITION REPORT PURSUANT TO SECTION 13 OR
                         15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

                      Commission File No. 33-18978

                        TEL-INSTRUMENT ELECTRONICS CORP.
             (Exact name of the Registrant as specified in Charter)

 New Jersey                                     22-1441806
(State of Incorporation)                (I.R.S. Employer ID Number)

728 Garden Street, Carlstadt, New Jersey           07072
(Address of Principal Executive Offices)         (Zip Code)

          Registrant's Telephone No. including Area Code: 201-933-1600

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed  by  Section  13 or 15 (d) of the  Securities  Exchange  Act of 1934
during the preceding 12 months (or for such shorter  period that the  registrant
was  required  to file such  reports),  and (2) has been  subject to such filing
requirements for the past 90 days.

                                         Yes   _X_X                       No ____

Indicate the number of shares  outstanding of the issuer's  common stock,  as of
the latest practical date:

2,096,9852,109,957 shares of Common stock, $.10 par value as of October 28, 1998.August 9, 1999.




                     TEL-INSTRUMENT ELECTRONICS CORPORATION

                                TABLE OF CONTENTS


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Item 1. Financial Statements (Unaudited):

        Condensed Comparative Balance Sheets
           SeptemberJune 30, 19981999 and March 31, 19981999                                  1

        Condensed Comparative Statements of Operations -
           Three and Six Months Ended SeptemberJune 30, 19981999 and 19971998                         2

        Condensed Comparative Statements of Cash Flows -
           SixThree Months Ended SeptemberJune 30, 19981999 and 19971998                         3

        Notes to Condensed Financial Statements                              4-54-6

Item 2. Management's Discussion and Analysis of Financial
           Condition and Results of Operations                               6-9

Part II.   Other Information                                                 107-9


        SIGNATURES                                                           10



Item 1 - Financial Statements

TEL-INSTRUMENT ELECTRONICS CORPORATION
                      CONDENSED COMPARATIVE BALANCE SHEETS
                                   (Unaudited)

                      September 30, 1998 and March 31, 1998

TEL-INSTRUMENT ELECTRONICS CORPORATION CONDENSED COMPARATIVE BALANCE SHEETS June 30, 1999 and March 31, 1999 (Unaudited) (Audited) ASSETS SeptemberJune 30, March 31, 1998 1998 ------------- ------------1999 1999 ----------- ----------- Current assets: Cash $ 79,68153,831 $ 585,28170,617 Accounts receivable, net of allowance for doubtful 399,904 374,506871,865 638,721 accounts of $15,923$15,598 at September 30,1998June 30, 1999 and $16,164$15,585 at March 31, 1998 Unbilled revenues (see note 2) 195,272 --1999 Inventories 462,998 383,030929,854 713,700 Prepaid expenses and other current assets 38,333 24,01743,130 39,173 Deferred income tax benefit - current 78,300 78,300 ----------- ----------- Total current assets 1,254,488 1,445,134 ----------- -----------1,976,980 1,540,511 Property, plant and equipment, net 112,671 79,321170,943 130,901 Other assets 120,723 96,067129,256 128,892 Deferred income tax benefit 372,415 320,619392,064 418,204 ----------- ----------- Total assets 1,860,297 1,941,1412,669,243 2,218,508 =========== =========== LIABILITIESLIABILITES & STOCKHOLDERS EQUITY Current liabilities: Note payable - related party - current portion 50,000 50,000100,000 100,000 Note payable - bank 250,000 -- Convertible subordinatesubordinated notes - related party 15,000 15,000 Capitalized lease obligations - current portion 9,941 9,667 Advance payments 55,601 134,767 Accrued payroll, vacation pay, deferred wages payroll taxes and interest on deferred wages 210,592 211,400263,981 218,289 Accounts payable and accrued expenses 301,651 304,673711,799 555,206 ----------- ----------- Total current liabilities 577,243 581,073 ----------- -----------1,406,322 1,032,929 Notes payable - related party - non-current portion 300,000 300,000250,000 250,000 Capitalized lease obligations - excluding current port 54,538 16,486 ----------- ----------- Total liabilities 877,243 881,0731,710,860 1,299,415 Stockholders' equityequity: Common stock 209,701 209,476210,998 210,998 Additional paid-in capital 3,922,288 3,921,6703,925,854 3,925,854 Accumulated deficit (3,148,935) (3,071,078)(3,178,469) (3,217,759) ----------- ----------- Total stockholders' equity 983,054 1,060,068958,383 919,093 ----------- ----------- Total liabilities and stockholders' equity $ 1,860,2972,669,243 $ 1,941,1412,218,508 =========== ===========
See accompanying notes to condensed financial statements 1 TEL-INSTRUMENT ELECTRONICS CORPORATION CONDENSED COMPARATIVE STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Six Months Ended September 30, September 30, September 30, September 30, 1998 1997 1998 1997 ------------- ------------- ------------- ------------- Sales Government, net $ 418,472 567,191 $ 801,212 1,124,705 Commercial, net 607,204 276,850 889,657 590,159 ----------- ----------- ----------- ----------- Total Sales 1,025,676 844,041 1,690,869 1,714,864 Cost of sales 425,504 351,674 764,810 687,894 ----------- ----------- ----------- ----------- Gross Margin 600,172 492,367 926,059 1,026,970 Operating expenses Selling, general & administrative 258,704 184,245 473,228 403,175 Engineering, research, & development 327,532 205,981 569,544 363,926 ----------- ----------- ----------- ----------- Total operating expenses 586,236 390,226 1,042,772 767,101 Income/ (Loss) from operations 13,936 102,141 (116,713) 259,869 Other income (expense): Interest income 2,484 5,651 8,554 11,733 Interest expense (9,611) (19,849) (21,494) (37,592) ----------- ----------- ----------- ----------- Income/ (Loss) before taxes 6,809 87,943 (129,653) 234,010 Provision/(Benefit) for income taxes 2,720 35,125 (51,796) 93,464 ----------- ----------- ----------- ----------- (Loss)/net income $ 4,089 52,818 $ (77,857) 140,546 =========== =========== =========== =========== Basic and diluted income (loss) per common share $ 0.00 0.03 $ (0.04) 0.07 Dividends per share None None None None Weighted average shares outstanding Basic 2,095,298 2,034,123 2,095,056 2,032,762 Diluted 2,118,317 2,101,731 2,118,075 2,100,370
Three Months Ended June 30, 1999 1998 ----------- ----------- Sales - government, net $ 553,428 $ 382,740 Sales - commercial, net 558,401 282,453 ----------- ----------- Total sales 1,111,829 665,193 Cost of sales 465,424 339,306 ----------- ----------- Gross margin 646,405 325,887 Operating expenses: Selling, general and administrative 290,559 214,524 Engineering, research and development 278,443 242,012 ----------- ----------- Total operating expenses 569,002 456,536 ----------- ----------- Income (loss) from operations 77,403 (130,649) Other income (expenses): Interest income 1,615 6,070 Interest expenses (13,588) (11,883) ----------- ----------- Income (loss) before taxes 65,430 (136,462) Provision (benefit) for income taxes 26,140 (54,516) ----------- ----------- Net income (loss) 39,290 (81,946) =========== =========== Basic and diluted income (loss) per common share $ 0.02 $ (0.04) =========== =========== Dividends per share None None Weighted average shares outstanding Basic 2,109,957 2,094,735 Diluted 2,119,452 2,094,735 See accompanying notes to condensed financial statements 2
TEL-INSTRUMENT ELECTRONICS CORPORATION CONDENSED COMPARATIVE STATEMENTS OF CASH FLOWS (Unaudited)
SixThree Months Ended SeptemberJune 30, 1999 1998 1997 ---------- --------- ------ (Decrease) increase in cash: Cash flows from operating activities Net income (loss) income $ (77,857) $ 140,54639,290 (81,946) Adjustments to reconcile net (loss) income to cash used in operating activities: Deferred income taxes (51,796) 93,46426,140 (54,516) Depreciation 20,339 12,53513,274 10,909 Changes in operating assets orand liabilities: Increase in accounts receivable and unbilled revenues (220,670) (251,434)(233,144) (98,663) Increase in inventories (79,968) (93,993)(216,154) (95,822) Increase in prepaid expenses and other current assets (14,316) (14,132)(3,957) (11,327) Increase in other assets (24,656) (15,000) (Decrease) increase(364) (19,668) Increase (decrease) in accrued payroll, deferred wages and and vacation pay (808) 14,279 Decrease45,692 (16,189) Increase in accounts payable, advance payments and accrued expenses (3,022) (26,725)77,427 37,265 --------- --------- Net cash used in operations (452,754) (140,460)(251,796) (329,957) --------- --------- Cash flows from investing activities: Cash purchases of property, plant and equipment (53,689) (41,790)(12,911) (13,276) --------- --------- Net cash used in investing activities (53,689) (41,790)(12,911) (13,276) --------- --------- Cash flows from financing activities: Proceeds from exercisenotes payable - bank 250,000 -- Repayment of stock options 843 1,588 Proceeds from issuance of common stock --capitalized lease obligations (2,079) -- --------- --------- Net cash provided by financing activities 843 1,588 --------- ---------247,921 -- Net decrease in cash (505,600) (180,662)(16,786) (343,233) Cash at beginning of period 70,617 585,281 528,636 --------- --------- Cash at end of period $ 79,68153,831 $ 347,974 ========= ========= Interest paid $ 19,786 $ 25,864242,048 ========= =========
See accompanying notes to condensed financial statementsstatements. 3 TEL-INSTRUMENT ELECTRONICS CORP. NOTES TO CONDENSED FINANCIAL STATEMENTS Note 1 Basis of Presentation In the opinion of management, the accompanying unaudited condensed financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position of Tel-Instrument Electronics Corp. as of SeptemberJune 30, 1998,1999, the results of operations for the three and six months ended SeptemberJune 30, 19981999 and SeptemberJune 30, 1997,1998, and statements of cash flows for the sixthree months ended SeptemberJune 30, 19981999 and SeptemberJune 30, 1997.1998. These results are not necessarily indicative of the results to be expected for the full year. The financial statements have been prepared in accordance with the requirements of Form 10-Q and consequently do not include disclosures normally made in an Annual Report on Form 10-K. The March 31, 19981999 results included herein have been derived from the audited financial statements included in the Company's annual report on Form 10-K. Accordingly, the financial statements included herein should be reviewed in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1998.1999. Note 2 Accounts Receivable The following table sets forth the components of accounts receivable: June 30, March 31, 1999 1999 -------- --------- Commercial $ 246,517 $ 179,742 Government 473,603 359,716 Unbilled Revenuerevenues 167,343 114,848 Allowance for bad debts (15,598) (15,585) --------- --------- Total $ 871,865 $ 638,721 Sales are recognized primarily upon shipment of products, except in the case of long-term contracts wherein sales are recognized on the percentage-of-completion method. Sales underassociated with the documentation and test portion of the U.S. Navy contract have been recorded on the percentage-of-completion method. Under this approach, sales and gross margin are recognized based onupon the ratio of costs incurred to date to total estimated contract costs. Unbilled revenues of $195,272 represent recoverable costs and accrued profit not billed resulting from the application of percentage-of-completion accounting. Actual billing of these amounts will be based upon contractualactual billing terms. In August 1999, the Company received the first production order for 230 test sets with a value of approximately $3,000,000. 4 TEL-INSTRUMENT ELECTRONICS CORP. NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued) Note 3 Inventories Inventories consist of: SeptemberJune 30, March 31, 1998 1998 --------------------------------1999 1999 ---------------------------- Purchased parts $ 282,409529,930 $ 253,616402,804 Work-in-process 216,209 165,034429,544 340,516 Less: Reserve for obsolescence (35,620) (35,620) --------------------------------(29,620) (29,620) ---------------------------- $ 462,998929,854 $ 383,030 ================================713,700 ============================ Note 4 Income Taxes The Company, in accordance with SFASFASB 109, has recognized a deferred income tax benefit based upon the expected utilization of net operating loss carryforwards as the Company believes that it is more likely than not that it will realize a portion of its operating losses before they expire. For the sixthree months ended SeptemberJune 30, 1998,1999, the Company recorded a deferred income tax benefitprovision of $51,796,$26,140, which represents the effective federal and state tax rate on the Company's net lossincome before taxes of $129,653. This$65,430. The Company has no tax benefit reduced the loss for the period.liability. The $51,796 increased$26,140 decreased the Company's deferred income tax assetbenefit by the same amount in the accompanying balance sheet. The Company expects to utilize this deferred income tax benefit in the future for tax reporting purposes. 4 TEL-INSTRUMENT ELECTRONICS CORP. NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued) Note 5 Reclassifications Certain reclassifications have been made to the fiscal year 1998 financial statements to be consistent with the fiscal year 1999 presentation. Note 6 Earnings Per Share In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 128 "Earnings Per Share" (SFAS 128). SFAS 128 supersedes Accounting Principles Board Opinion No. 15, Earnings Per Share and specifies the computation, presentation and disclosure requirements for earnings per share for entities with publicly held common stock. SFAS 128 is effective for financial statements relating to both interim and annual periods ending after December 15, 1997. BasicThe Company's basic income (loss) per share is based on net income (loss) for the relevant period, divided by the weighted average number of common shares outstanding during the period. Diluted income (loss) per share for September 30, 1998 is based on net income (loss), divided by the weighted average number of common shares outstanding during the period, including common share equivalents, such as outstanding stock options and warrants during the period.options. Common share equivalents such as outstanding stock options, are not included in the calculation for the sixthree months ended SeptemberJune 30, 1998 since the effect would be antidilutive. 5 TEL-INSTRUMENT ELECTRONICS CORP. NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued) Note 7 Credit Facility On July 22, 1998,6 Government and Commercial Sales In 1999, the Company entered into a credit agreement with Summit Bank for $350,000, which extends for one yearadopted SFAS 131. The prior years information has been restated to present the Company's government and is thereafter renewable on an annual basis.commercial activities. The Company has not borrowed against this line.is organized primarily on the basis of its avionics products. The government segment consists primarily of the sale of test equipment to U.S. and foreign governments and militaries either direct or through distributors. The commercial segment consists of sales of test equipment to domestic and foreign airlines and to commercial distributors. The Company pays no commitment feeprimarily develops and designs test equipment for the rateavionics industry and, as such, the Company's products and designs may be sold in the government and commercial markets. The table below presents information about sales and gross margin. Cost of interest borrowings is the Lender's Prevailing Base Rate plus 1%. 5sales includes certain allocation factors for indirect costs. Three Months Ended Three Months Ended June 30, 1999 June 30, 1998 Government Commercial Government Commercial ---------- ---------- ---------- ---------- Sales $553,428 558,401 $382,740 282,453 Cost of sales 233,966 231,458 196,001 143,305 -------- ------- -------- ------- Gross margin $319,462 326,943 $187,739 139,148 6 Item 2 MANAGEMENT2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND ANALYSIS OF FINANCIAL POSITIONCONDITION Results of Operations A number of the statements made by the Company in this report may be regarded as "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, among others, statements concerning the Company's outlook, pricing trends and forces within the industry, the completion dates of capital projects, expected sales growth, cost reduction strategies and their results, long-term goals of the Company and other statements of expectations, beliefs, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. All predictions as to future results contain a measure of uncertainty and accordingly, actual results could differ materially. Among the factors that could cause a difference are: changes in the general economy; changes in the demand for the Company's products or in the cost and availability ofif its raw materials; the actions of its competitors; the success of our customers; technological change; changes in employee relations; government regulations; litigation, including its inherent uncertainty; difficulties in plant operations and materials; transportation, environmental matters; and other unforeseen circumstances. A number of these factors are discussed in the Company's filings with the Securities and Exchange Commission. Overview TheIn August 1999 the Company invested heavily in product development and expenditures increased $205,618 (57%) forreceived the first six months of the current fiscal year as compared to the same period in the prior fiscal year. The total expenditure of $569,544 represents 34% of total sales. The principal effort resultedproduction order from the U.S. Navy exercising its option to incorporatefor 230 test sets for a collision avoidance (TCAS) test capability into the T-47M test set design. Eight T-47M prototypes have been fabricated and these units have begun several monthstotal value of environmental and functional testing. Several tests have been successfully completed. Field evaluation by the U.S. Navyover $3,000,000. This order is anticipated to begin early in the fourth quarter of the current fiscal year. Assuming field evaluations are satisfactory and the U.S. Navy exercises production options later in the fourth quarter, deliveries could begin in the first quarter ofunder the next fiscal year. This contract can be a source of significant revenues, withwhich includes options for up to 1,300 units, which the U.S. Navy can exercise, on behalf of all U.S. military services, through calendar year 2001. However, there can be no assurance that field evaluations will be favorable and that the U.S. Navy will exercise all of its purchase options under this contract. In addition,The Company expects to begin shipping these units at the end of the fourth quarter of the current fiscal year. Sales for the first quarter were $1,111,829 and the Company continues the developmentgenerated income before taxes of the T-36M, under a U.S. Army contract, and new products for other markets. In June 1998, the Company signed an exclusive agreement with Muirhead Avionics, based in the United Kingdom, to represent the Company in parts of Europe. The Company also signed an exclusive agreement with Milspec Services Pty. Ltd. in August 1998 to represent the Company in Australia and New Zealand, and an agreement with M.P.G. Instruments s.r.l. in September 1998 to represent the Company in Europe to obtain a contract for a new military product which would be based on the Company's technology.$65,430. The Company continues to believe that the foreign commercial market is larger than the domestic market, because many foreign airlines are upgrading to meet U.S. requirements,invest heavily in engineering, research, and that foreign government sales will grow, particularlydevelopment as the result of our growing reputation in IFF testing. 6 Item 2 MANAGEMENT DISCUSSION OF RESULTS OF OPERATIONS AND ANALYSIS OF FINANCIAL POSITION (Continued) Overview (Continued) As previously reported, during fiscal year 1998 the Company fulfilled its obligation and delivered the final units of the T-30CM ILS test set to the U.S. Air Force. As a result of completing this contract, it was anticipated that the Company would have lower sales during the first half of fiscal year 1999. The Company continues to believe that this decline is temporary and new contracts can be obtained to increase sales and earnings. In this regard, management is encouraged bydevelop other products for targeted markets. The Company's backlog, including the dollar value of its backlog, by the second quarter revenues which included a large and unexpected increase in commercial sales, by the progress onorder from the U.S. Navy contract, and by the efforts of its new offshore distributors.exceeds $6,000,000. Sales For the three months ended SeptemberJune 30, 19981999, net sales increased $181,635 (21.5%$446,636 (67.1%) to $1,025,676, as compared to the same period ending Septemberthree months ended June 30, 1997.1998. Commercial sales increased $330,354 (119.3%$275,948 (97.7%) and government sales increased $170,688 (44.6%). The increase in commercial sales reflects the favorable economic conditions within the airline industry. However, there is no assurance that this trend will continue. The increase in government sales is attributed to $607,204the T-47 family of IFF test sets, including the T-47CC which incorporates a directional antenna. The increase is sales in both the commercial and government segments is also attributed to the efforts of our international distributors. 7 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued) Results of Operations (continued) Gross Margin Gross Margin increased $320,518 (98.4%) for the three months ended SeptemberJune 30, 1998 as compared to the same period ending September 30, 1997. Thisthree months in the prior fiscal year. The increase in commercial sales is attributed to decisions by several large fleet owners to upgrade their test equipment and may not be continued. The Company had a commercial backlog of $297,090 at September 30, 1998. Government sales decreased $148,719 (26.2%), as compared to the same period ending September 30, 1997. This decrease is primarily attributed to the completion of the U.S. Air Force T-30CM contract for which there were no sales in the current fiscal year. This decrease was partially offset by revenues of $195,242 for fabrication of the initial prototypes and certain documentation and testing related to the U.S. Navy T-47M IFF test set contract. The Company had a government backlog of $2,043,307 at September 30, 1998. For the six months ended September 30, 1998 sales declined $23,995 (1.4%), as compared to the same period ending September 30, 1997. The decline in government sales related to the completion of the contract with the U.S. Air Force was mostly offset by the increase in commercial sales during the second quarter and the sales related to the contract with the U.S. Navy. There can be no assurance that the increase in commercial sales will continue. Gross Margin For the three months ended September 30, 1998 gross margin, increased $107,805 (21.9%), as compared tofor the same period ending September 30, 1997. This increasemost part, is primarily attributed to the higher sales in the second quarter.volume. The gross margin percentage was 58.5% for the three months ended SeptemberJune 30, 19981999 was 58.1% as compared to 58.3%49.0% for the three months ended SeptemberJune 30, 1997. For the six months ended September 30, 1998 gross margin decreased $100,911 (9.8%), as compared to the same period ended September 30, 1997. This decrease is primarily attributed to the lower gross margin associated with the U.S. Navy T-47M contract. The gross margin percentage was 54.8% for the six months ended September 30, 1998 as compared to 59.9% for the six months ended September 30, 1997. 7 Item 2 MANAGEMENT DISCUSSION OF RESULTS OF OPERATIONS AND ANALYSIS OF FINANCIAL POSITION (Continued)1998. Operating Expenses Selling, general and administrative expenses increased $74,459 (40.4%$76,035 (35.4%) for the three months ended SeptemberJune 30, 19981999 as compared to the same period last year.three months ended June 30, 1998. This increase is associated withattributed to higher sales and marketing expenses, the addition to staff of a Director of Finance, and an increase in selling expenses, mostly attributed to higher commissions based upon the increase in commercial sales and to higher administrative salaries. In fiscal year 1998 the Company's President devoted a percentage of his time to research and development to ensure that such activities were properly conducted. In fiscal year 1999, the Company hired a Director of Engineering, thus minimizing the President's time in overseeing the research and development function and allowing him to concentrate on Company growth. Selling, general and administrative expenses increased $70,053 (17.4%) for the six months ended September 30, 1998 as compared to the same period last year. This increase is primarily attributed to the increase for the three months ended September 30, 1998, as discussed above. Engineering, research and development expenses increased $121,551 (59.0%$36,431 (15.1%) and $205,618 (56.5%) forprimarily associated with the three and six months ended September 30, 1998, respectively, as compared to the same periods last year. This increase reflects the Company's ongoing commitment to developing new products and finalizingfinalization of the design of the T-47M IFF test sets for the U.S. Navy T-47M test sets,and the development of additional products, such as described in the Overview. As this work is completed, the rate of engineering expenditures should be reduced.T-47CC and T-47N. Income Taxes In accordance with SFAS 109, a provision for income taxes was recognized in the amount of $93,464$26,140 for the sixthree months ended SeptemberJune 30, 1997.1999. For the sixthree months ended SeptemberJune 30, 1998, the Company recorded ana deferred income tax benefit of $51,796,$54,516, which represents the effective federal and state tax rate on the Company's net loss before taxes of $129,653.$136,642. The Company currently does not have any tax liability. (See Note 4 to Notes to Condensed Comparative Financial Statements). Liquidity and Capital Resources At SeptemberJune 30, 19981999 the Company had positive working capital of $677,245$570,658 as compared to $864,061$507,582 at March 31, 1998.1999. For the sixthree months ended SeptemberJune 30, 1998,1999, cash used in operations was $452,754$251,796 as compared to $140,460$329,957 for the sixthree months ended SeptemberJune 30, 1997.1998. This increasereduction in cash used in operations is primarily associated withattributed to the improvement in the Company's loss from operations andoperating income. The increases in accounts receivable unbilled revenues, and inventories. The total decrease in cash of $505,600 was also impactedinventories were partially offset by purchases of equipmentthe Company's operating income, borrowings from the bank in the amount of $53,689.$250,000 ,and increases in accounts payable and other accrued liabilities. The Company continueshas a line of credit from Summit Bank for $350,000, which was originally scheduled to invest heavilyexpire in research and development.July 1999, however, the Company received a 60-day extension to the agreement. The Company expects these investments will finalize the designs for the T-47M, T-47N, T-36M, and T-48IC, and begin to ship these units for which there are current ordersis currently in the backlog. Whileprocess of negotiating the extension of this would increase sales, cash flow, and profits, there is no assurance that these increases will occur.credit line with the bank. As of June 30, 1999, the Company had borrowed $250,000 against this line for working capital needs. Based upon the current backlog and available working capital, the Company believes that it has sufficient working capital to fund its plans for the next twelve months. At present, the Company does not expect to incur significant long-term needs for capital outside of its normal operating activities. 8 Item 2 MANAGEMENT2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND ANALYSIS OF FINANCIAL POSITIONCONDITION (Continued) Liquidity and Capital Resources (Continued) On July 22, 1998, the Company received from Summit Bank a credit line of $350,000. The Company has not borrowed against this line as of September 30, 1998.(continued) There was no significant impact on the Company's operations as a result of inflation for the sixthree months ended SeptemberJune 30, 1998.1999. These financial statements should be read in conjunction with the Company's Annual Report on Form 10-K to the Securities and Exchange Commission for the fiscal year ended March 31, 1998.1999. Year 2000 Issue Many existing computer programs use only two digitstwo-digits to identify a year in the date field. These programs were designed and developed without considering the impact of the upcoming change in the yearYear 2000. Some older computer systems stored dates with only a two-digit year with an assumed prefix of "19". Consequently, this limits those systems to dates between 1900 and 1999. If not corrected, many computer systems andand/or applications could fail or create erroneous results by or at the year 2000. The Company has reviewed the potential impact of the Year 2000 issue. This assessment included a review of the impact of the issue in four areas: products, manufacturing systems, business systems, and other areas. The Company does not anticipate that the Year 2000 issue will impact operations or operating results.results or require future material expenditures. The Company's products are not date sensitive. In addition, the Company is in the process of contacting its suppliers to determine as to whether they are Year 2000 compliant. The Company relies on its customers, suppliers, utility service providers, financial institutions, and other partners in order to continue normal business relations. The Company is continuing to evaluate alternatives and develop contingency plans for key business partners. Year 2000 disruptions in the operations of key business partners could also impact the Company's ability to fulfill some of its contractual obligations. At this time, it is impossible to assess the impact of the Year 2000 issue on each of these organizations. There can be no guarantee that the systems of other unrelated entities on which the Company relies will be correctedcorrecetd on a timely basis and will not have a material adverse effect on the Company. New Accounting Pronouncements StatementThe discussion of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities was issued in June 1998 and is effective for all fiscal quarters beginning after June 15, 1999. This statement establishes accounting and reporting standards for derivative instruments and hedging activities. The Company does not expect its implementation will have a material effect on the Company's financialefforts, and management's expectations, relating to Year 2000 compliance are forward-looking statements. StatementThe Company's ability to achieve Year 2000 compliance and the level of Financial Accounting Standards No. 134, Accounting for Certain Mortgage Banking Activities was issuedincremental costs associated therewith, could be adversely impacted by, among other things, the availability and cost of programming and testing resources, vendors' ability to modify proprietary software, and unanticipated problems identified in October 1998 and is effective for all fiscal quarters beginning after December 15, 1998. This statement establishes reporting standards for certain banking activities of mortgage banking enterprises and other enterprises that conduct operations that are substantially similar to the primary operations of a mortgage banking enterprise. The Company does not expect its implementation will have a material effect on the Company's financial statements as currently presented.ongoing compliance review. 9 Part II. Other Information Item 6. Exhibits and Reports on Form 10-Q. The exhibits filed or incorporated by reference as part of the Quarterly Report on Form 10-Q are listed in the attached Index to Exhibits. SIGNATURES - ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TEL-INSTRUMENT ELECTRONICS CORP. Date: 11/10/98August 13, 1999 By: /s/ Harold K. Fletcher -------------------------------- /s/---------------------- Harold K. Fletcher Chairman and President 10 INDEX TO EXHIBITS 1 Loan agreement with Summit Bank dated July 22, 1998 27 Financial data schedule which is submitted electronically to the Securities and Exchange Commission for information only and is not filed. 11Date: August 13, 1999 By: /s/ Joseph P. Macaluso ---------------------- Joseph P. Macaluso Principal Accounting Officer