UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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:
2,128,351 shares of Common stock, $.10 par value as of November 2, 2001.
TEL-INSTRUMENT ELECTRONICS CORPORATION
TABLE OF CONTENTS
PAGE
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Item 1. Financial Statements (Unaudited):
Condensed Comparative Balance Sheets
September 30, 2001 and March 31, 2001 1
Condensed Comparative Statements of Operations -
Three and Six Months Ended September 30, 2001 and 2000 2
Condensed Comparative Statements of Cash Flows -
Three Months Ended September 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 9
Item 1 - Financial Statements
TEL-INSTRUMENT ELECTRONICS CORPORATION
CONDENSED COMPARATIVE BALANCE SHEETS
September 30, 2001 and March 31, 2001
(Unaudited) (Audited)
ASSETS Sept. 30, 2001 March 31, 2001
-------------- --------------
Current assets:
Cash $ 536,091 $ 433,438
Accounts receivable, net of allowance for doubtful
accounts of $11,598 at September 30, 2001 and
March 31, 2001 1,347,945 1,264,383
Inventories, net 2,630,341 2,351,648
Prepaid expenses and other current assets 30,186 43,568
Deferred income tax benefit - current 527,276 527,276
----------- -----------
Total current assets 5,071,839 4,620,313
Property, plant and equipment, net 792,353 674,656
Other assets 51,506 35,354
Deferred income tax benefit 416,435 604,323
----------- -----------
Total assets 6,332,133 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 94,156 77,826
Deferred revenues 522,013 267,630
Accrued payroll, vacation pay, deferred wages
payroll taxes and interest on deferred wages 528,905 535,850
Accounts payable and accrued expenses 1,258,041 1,507,647
----------- -----------
Total current liabilities 2,868,115 2,853,953
Notes payable - related party - non-current portion 150,000 150,000
Capitalized lease obligations - excluding current port 62,711 68,345
----------- -----------
Total liabilities 3,080,826 3,072,298
Stockholders' equity:
Common stock 215,070 212,438
Additional paid-in capital 3,932,735 3,932,111
Accumulated deficit (896,498) (1,282,201)
----------- -----------
Total stockholders' equity 3,251,307 2,862,348
----------- -----------
Total liabilities and stockholders' equity $ 6,332,133 $ 5,934,646
=========== ===========
See accompanying notes to condensed financial statements
-1-
TEL-INSTRUMENT ELECTRONICS CORPORATION
CONDENSED COMPARATIVE STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
Sept. 30, 2001 Sept. 30, 2000 Sept. 30, 2001 Sept. 30, 2000
-------------- -------------- -------------- --------------
Sales
Government, net $ 1,652,050 $ 933,085 $ 3,460,721 $ 1,850,198
Commercial, net 534,432 819,169 1,287,450 1,392,059
----------- ----------- ----------- -----------
Total Sales 2,186,482 1,752,254 4,748,171 3,242,257
Cost of sales 1,112,871 896,554 2,427,177 1,683,263
----------- ----------- ----------- -----------
Gross Margin 1,073,611 855,700 2,320,994 1,558,994
Operating expenses
Selling, general & administrative 450,783 362,846 849,395 716,289
Engineering, research, & development 379,879 258,294 795,050 440,292
----------- ----------- ----------- -----------
Total operating expenses 830,662 621,140 1,644,445 1,156,581
Income from operations 242,949 234,560 676,549 402,413
Other income (expense):
Interest income 4,736 5,821 9,328 9,275
Interest expense (24,963) (31,217) (43,575) (61,830)
----------- ----------- ----------- -----------
Income before taxes 222,722 209,164 642,302 349,858
Provision for income taxes 85,719 84,743 256,599 140,950
----------- ----------- ----------- -----------
Net income $ 137,003 $ 124,421 $ 385,703 $ 208,908
=========== =========== =========== ===========
Basic and diluted income
per common share $ 0.06 $ 0.06 $ 0.18 $ 0.10
=========== =========== =========== ===========
Dividends per share None None None None
Weighted average shares outstanding
Basic 2,128,351 2,113,690 2,126,580 2,113,519
Diluted 2,128,918 2,150,185 2,127,147 2,150,014
See accompanying notes to condensed financial statements
-2-
TEL-INSTRUMENT ELECTRONICS CORPORATION
CONDENSED COMPARATIVE STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
Sept. 30, 2001 Sept. 30, 2000
-------------- --------------
0Increase in cash:
Cash flows from operating activities
Net income $ 385,703 $ 208,908
Adjustments to reconcile net income to cash used
in operating activities:
Deferred income taxes 187,888 135,710
Depreciation 100,503 57,602
Changes in operating assets or liabilities:
Increase in accounts receivable and unbilled revenues (83,562) (100,079)
Increase in inventories (278,693) (159,132)
Decrease in prepaid expenses and other current assets 13,382 14,916
Increase in other assets (16,151) (6,148)
(Decrease) increase in accrued payroll, deferred wages and
vacation pay (6,945) 155,318
Increase (decrease) in accounts payable, advance payments
and accrued expenses 4,777 (177,029)
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Net cash provided by operations 306,902 130,066
--------- ---------
Cash flows from investing activities:
Cash purchases of property, plant and equipment (156,343) (41,655)
--------- ---------
Net cash used in investing activities (156,343) (41,655)
--------- ---------
Cash flows from financing activities:
Proceeds from exercise of stock options 3,256 664
Repayment of capitalized lease obligations (51,162) (30,456)
--------- ---------
Net cash used in financing activities (47,906) (29,792)
--------- ---------
Net increase in cash 102,653 58,619
Cash at beginning of period 433,438 172,836
--------- ---------
Cash at end of period $ 536,091 $ 231,455
========= =========
Supplemental information
Interest paid $ 42,045 $ 28,983
========= =========
Assets acquired through capital leases $ 61,857 $ 44,744
========= =========
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 September 30, 2001 the results of operations for the
three and six months ended September 30, 2001 and September 30, 2000, and
statements of cash flows for the six months ended September 30, 2001 and
September 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:
Sept. 30, 2001 March 31, 2001
-------------- --------------
Commercial $ 367,300 $ 392,214
Government 992,243 883,767
Allowance for bad debts (11,598) (11,598)
----------- -----------
Total $ 1,347,945 $ 1,264,383
=========== ===========
Note 3 Inventories
Inventories consist of: Sept. 30, 2001 March 31, 2001
-------------- --------------
Purchased parts $ 1,226,545 $ 1,072,191
Work-in-process 1,476,591 1,352,252
Less: Reserve for obsolescence (72,795) (72,795)
----------- -----------
$ 2,630,341 $ 2,351,648
=========== ===========
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 six months ended September 30, 2001, the Company recorded a
tax provision of $ 256,599, which represents the effective federal and state tax
rate on the Company's net income before taxes of $642,302. The Company does not
pay significant federal taxes as a result of its net operating loss
carryforwards.
-4-
TEL-INSTRUMENT ELECTRONICS CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)
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
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 designs and
builds test equipment for the avionics industry and, as such, the Company's
products and designs may be sold in the government and commercial markets.
The table below presents information about sales and gross margin. Costs of
sales includes certain allocation factors for indirect costs.
Three Months Ended Three Months Ended
September 30, 2001 September 30, 2000
Government Commercial Government Commercial
---------- ---------- ---------- ----------
Sales $1,652,050 $ 534,432 $ 933,085 $ 819,169
Cost of Sales 864,462 248,409 502,416 394,138
---------- ---------- ---------- ----------
Gross Margin $ 787,588 $ 286,023 $ 430,669 $ 425,031
========== ========== ========== ==========
Three Months Ended Three Months Ended
September 30, 2001 September 30, 2000
Government Commercial Government Commercial
---------- ---------- ---------- ----------
Sales $3,460,721 $1,287,450 $1,850,198 $1,392,059
Cost of Sales 1,829,765 597,412 999,160 684,103
---------- ---------- ---------- ----------
Gross Margin $ 1,630,956 $ 690,038 $ 851,038 $ 707,956
=========== ========== ========== ==========
-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 six months ended September 30, 2001, sales increased 46.4% to $4,748,171
and net income before taxes increased 83.6% to $642,302. Deliveries of the
AN/APM 480 IFF (Identification, Friend or Foe) Transponder Set Test Set to the
U.S. Navy continue and accounted for 44.5% of total sales for the six months
ended September 30, 2001.
The Company's backlog at September 30, 2001, including the production order from
the U.S. Navy, exceeds $11,000,000. 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.
Sales
- -----
For the three months ended September 30, 2001, net sales increased $434,228
(24.8%) to $2,186,482 as compared to the three months ended September 30, 2000.
Government sales increased $718,965 (77.1%) to $1,652,050 as compared to
$933,085 for the three months ended September 30, 2000. The increase in
government sales is mainly attributed to the shipment of the AN/APM 480 to the
U.S. Navy, which accounted for 47.8% of the total sales for the current quarter
as compared to 30.8% for the second quarter last year. Sales in the second
quarter also increased as a result of shipments of ILS (Instrument Landing
System) test sets to the U.S. Government. Commercial sales decreased $284,737
(34.8%) for the second quarter.
-6-
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (Continued)
Results of Operations (continued)
- ---------------------------------
Sales (continued)
- -----------------
ended September 30, 2001 as compared to the second quarter of the previous
fiscal year. This decrease is primarily the result of the completion of a
contract to a major freight carrier, and the inability to replace this contract
with a new contract due to the financial difficulties encountered within the
commercial airline industry, and the consequences of the September 11th tragedy.
For the six months ended September 30, 2001, net sales increased $1,505,914
(46.4%) to $4,748,171 as compared to the six months ended September 30, 2000.
Government sales increased $1,610,523 (87%) to $3,460,721, as compared to
$1,850,198 for the first six 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. Sales of the AN/APM 480 to the U.S. Navy accounted for 44.5% of the
sales for the first six months of the current fiscal year as compared to 20.7%
for the same period last year. Commercial sales decreased $104,609 (7.5%) to
$1,287,450 as compared to $1,392,059 for the six months ended September 30,
2000. This decrease is primarily the result of the completion of a contract to a
major freight carrier, and the inability to replace this contract with a new
contract due to the financial difficulties encountered within the commercial
airline industry, and the consequences of the September 11th tragedy.
Gross Margin
- ------------
Gross margin dollars increased $217,911 (25.5%) and $762,000 (48.9%) for the
three and six months ended September 30, 2001, respectively, as compared to the
same periods 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 September 30, 2001 was 49.1% as compared
to 48.8% for the three months ended September 30, 2000. The gross margin
percentage for the six months ended September 30, 2001 was 48.9% as compared to
48.1% for the six months ended September 30, 2000.
Operating Expenses
- ------------------
Selling, general and administrative expenses increased $87,937 (24.2%) and
$133,106 (18.6%) for the three and months ended September 30, 2001,
respectively, as compared to the three and six months ended September 30, 2000.
This increase is attributed to an increase in sales and marketing activities,
higher commission expenses, accrued compensation expense, and an increase in
facility costs associated with the Company adding the lower level of the
building to its lease.
Engineering, research and development expenses increased $121,585 (47.1%) and
$354,758 (80.6%) for the same periods. The higher level of expenditures is
associated with an increase in research and development activities, including
the completion of a design of a multi-function test set, development a of
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.
-7-
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (Continued)
Results of Operations (continued)
- ---------------------------------
Income Taxes
- ------------
In accordance with SFAS 109, a provision for income taxes was recognized in the
amount of $256.599 for the six months ended September 30, 2001, which represents
the effective federal and state tax rate on the company's income before taxes of
$642,302. (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
Liquidity and Capital Resources
- -------------------------------
At September 30, 2001 the Company had positive working capital of $2,203,724 as
compared to $1,766,360 at March 31, 2001. For the six months ended September 30,
2001, cash provided by operations was $306,902 as compared to $130,066 for the
six months ended September 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 September
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.
The credit facility requires the Company to maintain certain financial
covenants. As of September 30, 2001, the Company was in compliance with all
financial covenants. The line of credit expired at August 30, 2001 and the
Company is currently renegotiating this line with the bank.
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.
There was no significant impact on the Company's operations as a result of
inflation for the six months ended September 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 March 31, 2001.
-8-
SIGNATURES
- ----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TEL-INSTRUMENT ELECTRONICS CORP.
Date: November 13, 2001 By: /s/ Harold K. Fletcher
----------------------------
Harold K. Fletcher
Chairman and President
Date: November 13, 2001 By: /s/ Joseph P. Macaluso
----------------------------
Joseph P. Macaluso
Principal Accounting Officer
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