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 December 31, 2000
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 33-18978
TEL-INSTRUMENT ELECTRONICS CORP
(Exact name of the Registrant as specified in Charter)
New Jersey 22-1441806
(State of Incorporation) (I.R.S. Employer ID Number)
728 Garden Street, Carlstadt, New Jersey 07072
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone No. including Area Code: 201-933-1600
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
Indicate the number of shares outstanding of the issuer's common stock, as of
the latest practical date:
2,113,690 shares of Common stock, $.10 par value as of February 1, 2001.
TEL-INSTRUMENT ELECTRONICS CORPORATION
TABLE OF CONTENTS
PAGE
Item 1. Financial Statements (Unaudited):
Condensed Comparative Balance Sheets
December 31, 2000 and March 31, 2000 1
Condensed Comparative Statements of Operations -
Three and Nine Months Ended December 31, 2000 and 1999 2
Condensed Comparative Statements of Cash Flows -
Nine Months Ended December 31, 2000 and 1999 3
Notes to Condensed Financial Statements 4-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-10
Part II Other Information 10
SIGNATURES 11
Item 1 - Financial Statements
TEL-INSTRUMENT ELECTRONICS CORPORATION
CONDENSED COMPARATIVE BALANCE SHEETS
(Unaudited) (Audited)
ASSETS
December 31, 2000 March 31, 2000
----------------- --------------
Current assets:
Cash $ 314,439 $ 172,836
Accounts receivable, net of
allowance for doubtful 1,425,173 1,099,425
Accounts of $11,598 at
December 31, 2000 and
March 31, 2000
Inventories 1,728,395 1,486,885
Prepaid expenses and other
current assets 58,513 56,020
Deferred income tax
benefit - current 275,000 215,000
----------- -----------
Total current assets 3,801,520 3,030,166
Property, plant, and equipment, net 388,505 350,872
Other assets 35,356 28,628
Deferred income tax benefit 364,454 523,099
----------- -----------
Total assets 4,589,835 3,932,765
=========== ===========
LIABILITIES & STOCKHOLDERS EQUITY
Current liabilities:
Note payable - related party
- current portion 150,000 150,000
Note payable - bank 250,000 250,000
Convertible subordinated notes
- related party 15,000 15,000
Capitalized lease obligations
- current portion 77,644 56,376
Advance payments and
deferred revenues 174,288 176,193
Accrued payroll, vacation
pay, deferred wages,
payroll taxes and interest
on deferred wages 505,663 350,286
Accounts payable and accrued
expenses 1,029,416 1,111,181
----------- -----------
Total current liabilities 2,202,011 2,109,036
Notes payable - related party
- non-current portion 200,000 200,000
Capitalized lease obligations
- excluding current portion 90,025 101,682
----------- -----------
Total liabilities 2,492,036 2,410,718
Stockholders' equity:
Common stock 211,372 211,332
Additional paid-in capital 3,928,545 3,927,921
Accumulated deficit (2,042,118) (2,617,206)
----------- -----------
Total stockholders' equity 2,097,799 1,522,047
----------- -----------
Total liabilities and stockholders'
equity $ 4,589,835 $ 3,932,765
=========== ===========
See accompanying notes to condensed financial statement
1
TEL-INSTRUMENT ELECTRONICS CORPORATION
CONDENSED COMPARATIVE STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
Dec. 31, 2000 Dec. 31, 1999 Dec. 31, 2000 Dec. 31, 1999
------------- ------------- ------------- -------------
Sales
Government, net $ 1,454,141 $ 1,110,275 $ 3,304,339 $ 2,474,990
Commercial, net 822,015 299,715 2,214,074 1,383,623
----------- ----------- ----------- -----------
Total Sales $ 2,276,156 $ 1,409,990 $ 5,518,413 $ 3,858,613
Cost of sales 1,158,023 677,030 2,841,286 1,777,450
----------- ----------- ----------- -----------
Gross Margin 1,118,133 732,960 2,677,127 2,081,163
Operating expenses:
Selling, general & administrative 437,081 269,915 1,153,370 838,154
Engineering, research, & development 294,274 381,777 734,566 963,079
----------- ----------- ----------- -----------
Total operating expenses 731,355 651,692 1,887,936 1,801,233
Income from operations 386,778 81,268 789,191 279,930
Other income (expense):
Interest income 7,440 2,735 16,715 6,433
Interest expense (35,946) (20,946) (97,776) (49,233)
----------- ----------- ----------- -----------
Income before taxes 358,272 63,057 708,130 237,130
(Benefit)/provision for income taxes, net (7,908) (359,810) 133,042 (290,267)
----------- ----------- ----------- -----------
Net income $ 366,180 $ 422,867 $ 575,088 $ 527,397
=========== =========== =========== ===========
Basic and diluted income
per common share $ 0.17 $ 0.20 $ 0.27 $ 0.25
Dividends per share None None None None
Weighted average shares outstanding
Basic 2,113,690 2,110,790 2,113,570 2,110,290
Diluted 2,141,061 2,127,883 2,140,941 2,127,383
See accompanying notes to condensed financial statements
2
TEL-INSTRUMENT ELECTRONICS CORPORATION
CONDENSED COMPARATIVE STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended December 31,
2000 1999
--------- ---------
Increase in cash:
Cash flows from operating activities
Net income $ 575,088 $ 527,397
Adjustments to reconcile net
income to cash used
In operating activities:
Deferred income taxes 98,645 (290,267)
Depreciation 93,564 53,263
Changes in assets or liabilities:
Increase in accounts receivable
and unbilled revenue (325,748) (266,902)
Increase in inventories (241,510) (301,091)
(Increase) decrease in prepaid
expenses and other current assets (2,493) 2,182
Increase in other assets (6,728) (25,746)
Decrease in advanced payments and
deferred revenues (1,905) 270
Increase in accrued payroll,
deferred wages and vacation pay 155,377 78,810
(Decrease) increase in accounts
payable and accrued expenses (81,765) 195,577
--------- ---------
Net cash provided by (used in)
operations 262,525 (26,507)
--------- ---------
Cash flows from investing activities:
Cash purchases of property, plant
and equipment (73,583) (41,090)
--------- ---------
Net cash used in investing
activities (73,583) (41,090)
--------- ---------
Cash flows from financing activities:
Proceeds from exercise of stock
options 664 2,401
Proceeds from notes payable -
bank, net -- 200,000
Repayment of capitalized lease
obligations (48,003) (20,137)
--------- ---------
Net cash provided by financing
activities (47,339) 182,264
--------- ---------
Net increase in cash 141,603 114,667
Cash at beginning of period 172,836 70,617
--------- ---------
Cash at end of period $ 314,439 $ 185,284
========= =========
Interest paid $ 71,006 $ 56,783
========= =========
Capitalized lease obligations $ 57,614 $ 164,256
========= =========
See accompanying notes to condensed financial statements
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 December 31, 2000, the results of operations for the
three and nine months ended December 31, 2000 and December 31, 1999, and
statements of cash flows for the nine months ended December 31, 2000 and
December 31, 1999. These results are not necessarily indicative of the results
to be expected for the full year.
The financial statements have been prepared in accordance with the requirements
of Form 10-Q and consequently do not include disclosures normally made in an
Annual Report on Form 10-K. The March 31, 2000 results included herein have been
derived from the audited financial statements included in the Company's annual
report on Form 10-K. Accordingly, the financial statements included herein
should be reviewed in conjunction with the financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 2000.
Note 2 Accounts Receivable
The following table sets forth the components of accounts receivable:
December 31, 2000 March 31, 2000
----------------- --------------
Commercial $ 526,000 $ 345,209
Government 910,771 765,814
Allowance for bad debts (11,598) (11,598)
---------- ----------
Total $1,425,173 $1,099,425
========== ==========
4
TEL-INSTRUMENT ELECTRONICS CORP
NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)
Note 3 Inventories
Inventories consist of:
Dec. 31, 2000 March 31, 2000
------------- --------------
Purchased Parts $1,220,360 $ 921,185
Work-in-process 545,273 609,824
Less: Reserve for Obsolescence (37,238) (44,124)
---------- ----------
Total $1,728,395 $1,486,885
========== ==========
Note 4 Income Taxes
The Company, in accordance with SFAS 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 nine months ended
December 31, 2000, the Company recorded a net tax provision of $133,032, net of
the additional deferred tax asset of $150,000 recorded for the three months
ended December 31, 2000. This additional deferred tax asset partially offsets
the tax provision based upon the effective federal and state tax rate on the
Company's income before taxes of $708,130. The Company has no significant
liability for federal taxes. The recognized deferred tax assets are based on the
Company's expected future taxable income as a result of a significant increase
in government and commercial orders, including orders from the U.S. Navy
contract which are expected to result in the partial utilization of its
operating loss carryforwards. The Company believes that it is more likely than
not that it will realize this portion of its net operating losses before they
expire. These amounts are based upon management's estimates and the actual
results could differ from these estimates.
Note 5 Earnings Per Share
The Company's basic income per share is based on net income for the relevant
period, divided by the weighted average number of common shares outstanding
during the period. Diluted income per share is based on net income, divided by
the weighted average number of common shares outstanding, including common share
equivalents such as outstanding stock options and warrants during the period.
The inclusion of stock options to calculate diluted income per share, under the
treasury stock method, did not materially affect earnings per share.
5
TEL-INSTRUMENT ELECTRONICS CORP
NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)
Note 6 Government and Commercial Sales
The Company is organized 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 mostly of sales of test equipment to domestic and
foreign airlines and to commercial distributors. The Company primarily develops
and designs test equipment for the avionics industry and, where appropriate, the
Company's products are designed to be sold in both the government and commercial
markets.
The table below presents information about sales and gross margin. Costs of
sales includes certain allocation factors for indirect costs.
Three Months Ended Three Months Ended
December 31, 2000 December 31, 1999
Government Commercial Government Commercial
---------- ---------- ---------- ----------
Sales $1,454,141 822,015 1,110,275 299,715
Cost of Sales 770,399 387,624 529,929 147,101
---------- ---------- ---------- ----------
Gross Margin 683,742 434,391 580,346 152,614
========== ========== ========== ==========
Nine Months Ended Nine Months Ended
December 31, 2000 December 31, 1999
Government Commercial Government Commercial
---------- ---------- ---------- ----------
Sales $3,304,339 2,214,074 2,474,990 1,383,623
Cost of Sales 1,769,559 1,071,727 1,175,818 601,632
---------- ---------- ---------- ----------
Gross Margin 1,534,780 1,142,347 1,299,172 781,991
========== ========== ========== ==========
6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
A number of the statements made by the Company in this report may be regarded as
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements include, among others,
statements concerning the Company's outlook, pricing trends and forces within
the industry, the completion dates of capital projects, expected sales growth,
cost reduction strategies and their results, long-term goals of the Company and
other statements of expectations, beliefs, future plans and strategies,
anticipated events or trends and similar expressions concerning matters that are
not historical facts.
All predictions as to future results contain a measure of uncertainty and
accordingly, actual results could differ materially. Among the factors that
could cause a difference are: changes in the general economy; changes in demand
for the Company's products or in the cost and availability of its raw materials;
the actions of its competitors; the success of our customers; technological
change; changes in employee relations; government regulations; litigation,
including its inherent uncertainty; difficulties in plant operations and
materials; transportation, environmental matters; and other unforeseen
circumstances. A number of these factors are discussed in the Company's filings
with the Securities and Exchange Commission.
Overview
For the first nine months of the current fiscal year sales totaled more than
$5,500,000 already exceeding the total for all of the prior fiscal year.
Shipments of the AN/APM-480 IFF (Identification, Friend or Foe) Transponder Set
Test Sets (TSTS) continue without any significant problems and the unit has been
favorably received by the customer. The Company has now received orders from the
U.S. Navy for a total of 960 units, with a value totaling over $12,500,000 to be
delivered over the next three to four years. The AN/APM 480 is a militarized
avionics ramp tester used to simulate IFF Transponder/Interrogator and TCAS
(Traffic Alert and Collision Avoidance System) functions to provide accurate go,
no-go testing of avionics test equipment installed in military aircraft on the
flightline and aircraft carrier deck.
During the second quarter of the current fiscal year, the Company began shipment
to a major freight carrier (through a domestic distributor) of T-30D ILS
(Instrument Landing System) and T-49C (TCAS) commercial test sets. The total
order exceeds $900,000, and the Company expects to ship the majority of this
order in the current fiscal year. In addition, during the current fiscal year
the Company shipped all of the T-76 DME/P (Precision Distance Measuring
Equipment) ramp test sets under the contract, totaling approximately $400,000,
with Marconi Communications through our Italian intermediary, M.P.G. Instruments
s.r.l. DME/P is directed solely to the European market. The Company continues
its efforts to complete the DME/P bench test sets under a contract with Marconi
Communications in the amount of $680,000.
The Company continues to actively pursue opportunities in both the commercial
and government markets, both domestically and internationally, and new product
development efforts based upon its evaluation of these markets. The Company is
also exploring opportunities in other government and commercial markets in order
to broaden the Company's product base. The Company's backlog at December 31,
2000 exceeds $14,500,000. This backlog is deliverable over the next three to
four years.
7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
Results of Operations (continued)
Overview (continued)
In summary, sales for the nine months ended December 31, 2000 sales increased
$1,659,800 (43.0%) to $5,518,413 as compared to the same period in the prior
fiscal year. For the nine months ended December 31, 2000, the Company generated
net income before taxes of $708,130, an increase of 198.6% as compared to the
same nine months in the prior fiscal year, primarily as a result of increased
government and commercial sales.
In accordance with SFAS 109, for the nine months ended December 31, 2000, the
Company recorded a net tax provision of $133,032, net of the additional deferred
tax asset of $150,000 recorded for the three months ended December 31, 2000.
This additional deferred tax asset partially offsets the tax provision based
upon the effective federal and state tax rate on the Company's income before
taxes of $708,130. The Company has no significant liability for federal taxes.
Sales
Total sales increased $866,166 (61.4%) for the three months ended December 31,
2000 as compared to the same period in the prior fiscal year. Commercial sales
increased $522,300 (174.3%) and government sales increased $343,866 (31.0%). The
increase in commercial sales is primarily attributed to the shipment of
commercial test sets to a major freight carrier and an increase in ILS and TCAS
test set shipments. There is no assurance that commercial sales will continue to
grow at the current rate. Government sales increased as a result of the shipment
of the AN/APM-480 to the U.S. Navy, and higher sales of the T-47C IFF test sets.
These increases were partially offset by lower sales of T-49CF military TCAS
unit, T-47N IFF/TCAS/TACAN test sets, and sales associated with the test and
documentation portion of the Navy contract, which is substantially complete.
For the nine months ended December 31, 2000 total sales increased $1,659,800
(43.0%) as compared to the same period in the prior fiscal year. Commercial
sales increased $830,451 (60.0%) and government sales increased $829,349
(33.5%). The increase in commercial sales is primarily attributed to the
shipment of ILS test sets from the order from the major freight carrier and an
increase in TCAS test sets. Government sales increased as a result of the
shipment of the AN/APM-480 IFF to the U.S. Navy, and the T-76 DME ramp test
sets. These increases were partially offset by lower sales of the T-47 family of
IFF test sets and of T-49CF military TCAS units.
Gross Margin
Gross margin increased $385,173 (52.6%) and $595,964 (28.6%) for the three and
nine months ended December 31, 2000, respectively, as compared to the same
periods in the prior fiscal year. The increase in gross margin, for the most
part, is attributed to the higher volume. However, gross margin, as a percentage
of sales, was reduced by the introduction of new products, such as the AN/APM
480 and the T-76, and the associated learning curve in building these new and
more sophisticated products, and lower gross profit on the AN/APM 480 contract.
The gross margin percentage for the three months ended December 31, 2000 was
49.1% as compared to 52.0% for the three months ended December 31, 1999. The
gross margin
8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
Results of Operations (continued)
Gross Margin (continued)
percentage for the nine months ended December 31, 2000 was 48.5% as compared to
53.9% for the nine months ended December 31, 1999. The gross margin percentage
was also lower in the current fiscal year as a result of the increase in sales
to distributors (sales to distributors are sold at a discount from standard list
prices).
Operating Expenses
Selling, general and administrative expenses increased $167,166 (61.9%) and
$315,216 (37.6%) for the three and nine months ended December 31, 2000,
respectively, as compared to the three and nine months ended December 31, 1999.
This increase is attributed to higher sales and marketing expenses, and an
increase in accrued compensation expense.
Engineering, research and development expenses decreased $87,503 (22.9%) and
$228,513 (23.7%) for the three and nine months ended December 31, 2000 as
compared to the same period last year. This decrease is associated with certain
development activities that were funded through contracts and, therefore, not
included in engineering, research and development expenses. The Company expects
company funded expenses to increase when the work for these contracts has been
completed.
Income Taxes
For the nine months ended December 31, 2000, the Company, in accordance with
FASB 109, recorded a net tax provision of $133,042, which represents the
recognition of a federal and state tax provision on the Company's net income
before taxes of $708,130 in the amount of $283,042 offset by reduction of its
deferred tax valuation allowance in the amount of $150,000. For the nine months
ended December 31, 1999, the Company recorded a net deferred tax benefit of
$290,267, which represents the recognition of federal and state tax provision on
the Company's net income before taxes of $237,130 in the amount of $94,733 and
offset by a reduction of its deferred tax valuation allowance in the amount of
$385,000. The Company currently does not have any significant federal tax
liability.
Liquidity and Capital Resources
At December 31, 2000 the Company had positive working capital of $1,599,509 as
compared to $921,130 at March 31, 2000. For the nine months ended December 31,
2000, the Company generated cash from operations in the amount of $262,525 as
compared to using $26,507 for the nine months ended December 31, 1999. This
increase in cash from operations is primarily attributed to the improvement in
the Company's operating income as a result of the higher sales volume and an
increase in accrued compensation expense. These increases were partially offset
by increases in accounts receivable and inventory.
The Company has a credit line in the amount of $600,000 from Summit Bank. The
line of credit bears an interest rate of 1% above the lender's prevailing base
rate, which is payable monthly, based upon the outstanding balance. At December
31, 2000, the Company had an outstanding balance of $250,000. The line
9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
Liquidity and Capital Resources (continued)
of credit is collateralized by substantially all of the assets of the Company
and expires in June 2001. The credit facility requires the Company to maintain
certain financial covenants. As of December 31, 2000, the Company was in
compliance with all financial covenants.
Based upon the current backlog, available credit line, and cash balance, the
Company believes that it has sufficient working capital to fund its plans for
the next twelve months. At present, the Company does not anticipate significant
long-term needs for capital outside its normal operating activities. There was
no significant impact on the Company's operations as a result of inflation for
the nine months ended December 31, 2000.
Part II Other Information
Item 4 Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Shareholders was held on December 13, 2000 (the
"Annual Meeting").
(b) Not applicable because (i) proxies for the Annual Meeting were not
solicited pursuant to Regulation 14A under the Securities Exchange Act of
1934; (ii) there was no solicitation in opposition to management's
nominees as listed in the Company's proxy statement; and (iii) all of such
nominees were elected.
(c) At the Annual Meeting, the Company's shareholders voted in favor of
re-electing management's nominees for election as directors of the Company
as follows:
For Against
--- -------
Harold K. Fletcher 1,582,680 0
George F. Leon 1,582,680 0
Robert J. Melnick 1,582,680 0
Jeff C. O'Hara 1,582,680 0
Robert J. Walker 1,582,680 0
The shareholders also voted all 1,582,680 shares in favor of
PricewaterhouseCoopers L.L.P. as the Company's certified public accountants for
the fiscal year ending March 31, 2001.
(d) Not applicable
10
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: February 14, 2001 By: /s/ Harold K. Fletcher
-------------------------------------
/s/ Harold K. Fletcher
Chairman and President
Date: February 14, 2001 By: /s/ Joseph P. Macaluso
-------------------------------------
/s/ Joseph P. Macaluso
Principal Accounting Officer
11
INDEX TO EXHIBITS
27 Financial data schedule which is submitted electronically to the
Securities and Exchange Commission for information only and is not filed.