UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
___ 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:
2,127,951 shares of Common stock, $.10 par value as of August 9, 2001.
TEL-INSTRUMENT ELECTRONICS CORPORATION
TABLE OF CONTENTS
PAGE
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Item 1. Financial Statements (Unaudited):
Condensed Comparative Balance Sheets
June 30, 2001 and March 31, 2001 1
Condensed Comparative Statements of Operations -
Three Months Ended June 30, 2001 and 2000 2
Condensed Comparative Statements of Cash Flows -
Three Months Ended June 30, 2001 and 2000 3
Notes to Condensed Financial Statements 4-5
Item 2. Management's Discussion and Analysis of the Results of
Operations and Financial Conditions 6-8
SIGNATURES 8
Item 1 - Financial Statements
TEL-INSTRUMENT ELECTRONICS CORPORATION
CONDENSED COMPARATIVE BALANCE SHEETS
June 30, 2001 and March 31, 2001
(Unaudited) (Audited)
ASSETS June 30, 2001 March 31, 2001
------------- --------------
Current assets:
Cash $ 441,531 $ 433,438
Accounts receivable, net of allowance for doubtful
accounts of $11,598 at June 30, 2001 and
March 31, 2001 1,296,945 1,264,383
Inventories 2,474,021 2,351,648
Prepaid expenses and other current assets 76,942 43,568
Deferred income tax benefit - current 527,276 527,276
----------- -----------
Total current assets 4,816,715 4,620,313
Property, plant and equipment, net 787,640 674,656
Other assets 41,804 35,354
Deferred income tax benefit 482,110 604,323
----------- -----------
Total assets 6,128,269 5,934,646
=========== ===========
LIABILITIES & STOCKHOLDERS EQUITY
Current liabilities:
Note payable - related party - current portion 200,000 200,000
Note payable - bank 250,000 250,000
Convertible subordinated notes - related party 15,000 15,000
Capitalized lease obligations - current portion 100,392 77,826
Deferred revenues 257,952 267,630
Accrued payroll, vacation pay, deferred wages
payroll taxes and interest on deferred wages 554,016 535,850
Accounts payable and accrued expenses 1,405,985 1,507,647
----------- -----------
Total current liabilities 2,783,345 2,853,953
Notes payable - related party - non-current portion 150,000 150,000
Capitalized lease obligations - excluding current port 81,284 68,345
----------- -----------
Total liabilities 3,014,629 3,072,298
Stockholders' equity:
Common stock 212,798 212,438
Additional paid-in capital 3,934,343 3,932,111
Accumulated deficit (1,033,501) (1,282,201)
----------- -----------
Total stockholders' equity 3,113,640 2,862,348
----------- -----------
Total liabilities and stockholders' equity $ 6,128,269 $ 5,934,346
=========== ===========
See accompanying notes to condensed financial statements
1
TEL-INSTRUMENT ELECTRONICS CORPORATION
CONDENSED COMPARATIVE STATEMENTS OF OPERATIONS
(Unaudited)
Three Months ended
------------------
June 30, 2001 June 30, 2000
------------- -------------
Sales - government, net $ 1,808,671 $ 917,113
Sales - commercial, net 753,018 572,890
----------- -----------
Total sales 2,561,689 1,490,003
Cost of sales 1,314,306 786,709
----------- -----------
Gross margin 1,247,383 703,294
Operating expenses:
Selling, general and administrative 398,612 353,443
Engineering, research and development 415,171 181,998
----------- -----------
Total operating expenses 813,783 535,441
----------- -----------
Income from operations 433,600 167,853
Other income (expenses):
Interest income 4,592 3,454
Interest expense (18,612) (30,613)
----------- -----------
Income before taxes 419,580 140,694
Provision for income taxes 170,880 56,207
----------- -----------
Net income 248,700 84,487
=========== ===========
Basic and diluted income per common share $ 0.12 $ 0.04
=========== ===========
Dividends per share None None
Weighted average shares outstanding
Basic 2,125,251 2,113,390
Diluted 2,162,197 2,146,183
See accompanying notes to condensed financial statements
2
TEL-INSTRUMENT ELECTRONICS CORPORATION
CONDENSED COMPARATIVE STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months ended
------------------
June 30, 2001 June 30, 2000
------------- -------------
Increase (decrease) in cash:
Cash flows from operating activities
Net income $ 248,700 $ 84,487
Adjustments to reconcile net income to
cash used in operating activities:
Deferred income taxes 122,213 56,207
Depreciation 45,507 23,045
Changes in assets and liabilities:
Increase in accounts receivable (32,562) (255,506)
Increase in inventories (122,373) (4,060)
(Increase) decrease in prepaid exp. & other current assets (33,374) 8,170
Increase in other assets (6,450) (6,150)
Increase in accrued payroll, deferred wages
and vacation pay 18,166 113,372
Decrease in accounts payable, deferred
revenues and accrued expenses (111,340) (56,788)
--------- ---------
Net cash provided by (used in) operations provided by 128,487 (37,223)
--------- ---------
Cash flows from investing activities:
Cash purchases of property, plant and equipment (96,634) (886)
--------- ---------
Net cash used in investing activities (96,634) (886)
--------- ---------
Cash flows from financing activities:
Proceeds from the exercise of stock options 2,592 664
Repayment of capitalized lease obligations (26,352) (14,771)
--------- ---------
Net cash used in financing activities (23,760) (14,107)
--------- ---------
Net increase (decrease) in cash 8,093 (52,216)
Cash at beginning of period 433,438 172,836
--------- ---------
Cash at end of period $ 441,531 $ 120,620
========= =========
Taxes paid $ 89,305 --
Interest paid $ 30,811 $ 16,751
Assets acquired through capital leases $ 61,857 --
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 June 30, 2001 the results of operations for the three
months ended June 30, 2001 and June 30, 2000, and statements of cash flows for
the three months ended June 30, 2001 and June 30, 2000. 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, 2001 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, 2001.
Note 2 Accounts Receivable
The following table sets forth the components of accounts receivable:
June 30, 2001 March 31, 2001
------------- --------------
Commercial $ 534,340 $ 392,214
Government 774,203 883,767
Allowance for bad debts (11,598) (11,598)
----------- -----------
Total $ 1,296,945 $ 1,264,383
=========== ===========
Note 3 Inventories
Inventories consist of:
June 30, 2001 March 31, 2001
------------- --------------
Purchased parts $ 1,281,445 $ 1,072,191
Work-in-process 1,265,371 1,352,252
Less: Reserve for obsolescence (72,795) (72,795)
----------- -----------
$ 2,474,021 $ 2,351,648
=========== ===========
4
TEL-INSTRUMENT ELECTRONICS CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)
Note 4 Income Taxes
The Company, in accordance with FASB 109, has recognized a deferred income tax
benefit based upon the expected utilization of net operating loss carryforwards
before they expire and benefit from the reversal of tax asset temporary
difference. For the three months ended June 30, 2001, the Company recorded a tax
provision of $170,880, which represents the effective federal and state tax rate
on the Company's net income before taxes of $419,580. The Company does not pay
significant federal taxes as a result of its net operating loss carryforwards.
Note 5 Earnings Per Share
The Company's basic income per share is based on net income for the relevant
period, divided by the weighted average number of common shares outstanding
during the period. Diluted income per share is based on net income, divided by
the weighted average number of common shares outstanding during the period,
including common share equivalents, such as outstanding stock options
Note 6 Government and Commercial Sales
In 1999, the Company adopted SFAS 131. Presented below is information about the
Company's government and commercial activities.
The Company is organized primarily on the basis of its avionics products. The
government market consists primarily of the sale of test equipment to U.S. and
foreign governments and militaries either direct or through distributors. The
commercial market consists of sales of test equipment to domestic and foreign
airlines and to commercial distributors. The Company primarily develops and
designs test equipment for the avionics industry and, as such, the Company's
products and designs may be sold in the government and commercial markets.
The table below presents information about sales and gross margin. Cost of sales
includes certain allocation factors for indirect costs.
Three Months Ended Three Months Ended
June 30, 2001 June 30, 2000
Government Commercial Government Commercial
---------- ---------- ---------- ----------
Sales $1,808,671 753,018 $ 917,113 572,890
Cost of sales 965,303 349,003 496,744 289,965
---------- ---------- ---------- ----------
Gross margin $ 843,368 404,015 $ 420,369 282,925
========== ========== ========== ==========
5
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 quarter ended in June 2001, sales increased 71.9% to $2,561,689 and net
income before taxes increased 198.2% to $419,580. Deliveries of the AN/APM 480
IFF ((Identification, Friend or Foe) Transponder Set Test Set (TSTS) to the U.S.
Navy continue and accounted for 41.8% of sales for the quarter.
The Company's backlog at June 30, 2001, including the production order from the
U.S. Navy, exceeds $12,000,000. The company expects to ship the backlog over the
next few fiscal years
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 evaluation of these markets. The Company has been
active in responding to customer requests for quotation, in addition to adapting
its product designs to respond to these requests. Exploration of opportunities
in other government and commercial markets also continues in an attempt to
broaden the Company's product line.
6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued)
Results of Operations (continued)
Sales
For the three months ended June 30, 2001, net sales increased $1,071,686 (71.9%)
as compared to the three months ended June 30, 2000.
Government sales increased $891,558 (97.2%) to $1,808,671 as compared to
$917,113 for the first three months of the prior fiscal year. The increase in
government sales is mainly attributed to the shipment of the AN/APM 480 to the
U.S. Navy (41.8% of total sales).
Commercial sales increased $180,128 (31.4%) to $753,018 as compared to $572,890
for the three months ended June 30, 2000. The increase in sales is primarily
attributed to the shipment of commercial test sets to a major freight carrier.
Recently, the Company has seen a softening within the commercial airline
industry which could affect sales from this market in the future.
Gross Margin
Gross margin dollars increased $544,089 (77.4%) for the three months ended June
30, 2001 as compared to the same three months in the prior fiscal year. The
increase in gross margin, for the most part, is attributed to an increase in
sales volume. The gross margin percentage for the three months ended June 30,
2001 was 48.7% as compared to 47.2% for the three months ended June 30, 2000.
Operating Expenses
Selling, general and administrative expenses increased $45,169 (12.8%) for the
three months ended June 30, 2001, as compared to the three months ended June 30,
2000. This increase is attributed to an increase in sales and marketing
activities, accrued compensation expense, and an increase in facility costs
associated with the Company adding the lower level of the building to its lease.
This increase was partially offset by a decrease in commission expenses.
Engineering, research and development expenses increased $233,173 (128.1%). The
higher level of expenditures is associated with an increase in research and
development activities, including the finalization of a design of a
multi-function test set, a commercial bench test, and new products for other
targeted markets. The Company has also begun work on the next generation of IFF
(Identification, Friend or Foe) test sets.
Income Taxes
In accordance with SFAS 109, a provision for income taxes was recognized in the
amount of $170,880 for the three months ended June 30, 2001, which represents
the effective federal and state tax rate on the company's income before taxes of
$419,580. (See Note 4 to Notes to Condensed comparative Financial Statements.)
The Company does not pay significant federal taxes as a result of its net
operating loss carryforwards.
7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued)
Liquidity and Capital Resources
At June 30, 2001 the Company had positive working capital of $2,033,370 as
compared to $1,766,360 at March 31, 2001. For the three months ended June 30,
2001, cash provided by operations was $128,487 as compared to cash used in
operations of $37,223 for the three months ended June 30, 2001. This increase in
cash from operations is primarily attributed to the improvement in the Company's
operating income, partially offset by an increase in inventories and a reduction
in accounts payable and accrued expenses.
The Company has a line of credit in the amount of $600,000 from Fleet 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 June 30,
2001, the company had borrowed $250,000 against its line of credit. The line of
credit is collateralized by substantially all of the assets of the company and
expires on August 30, 2001. The Company is currently renegotiating this line
with the bank. The credit facility requires the Company to maintain certain
financial covenants. As of June 30, 2001, the Company was in compliance with all
financial covenants.
Based upon the current backlog, its existing credit line, and cash balance, the
Company believes that it has sufficient working capital to fund its operating
plans for the next twelve months. At present, the Company does not anticipate
significant long-term needs for capital outside its normal operating activities
There was no significant impact on the Company's operations as a result of
inflation for the three months ended June 30, 2001.
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 June 30, 2001.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TEL-INSTRUMENT ELECTRONICS CORP.
Date: August 9 2001 By: /s/ Harold K. Fletcher
--------------------------
Harold K. Fletcher
Chairman and President
Date: August 9, 2001 By: /s/ Joseph P. Macaluso
--------------------------
Joseph P. Macaluso
8