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, 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 February 7, 2002.
TEL-INSTRUMENT ELECTRONICS CORPORATION
TABLE OF CONTENTS
PAGE
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Item 1. Financial Statements (Unaudited):
Condensed Comparative Balance Sheets
December 31, 2001 and March 31, 2001 1
Condensed Comparative Statements of Operations -
Three and Nine Months Ended December 31, 2001 and 2000 2
Condensed Comparative Statements of Cash Flows -
Nine Months Ended December 31, 2001 and 2000 3
Notes to Condensed Financial Statements 4-5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6-9
Part II Other Information 9
SIGNATURES 10
TEL-INSTRUMENT ELECTRONICS CORPORATION
CONDENSED COMPARATIVE BALANCE SHEETS
December 31, 2001 and March 31, 2001
(unaudited)
ASSETS
December 31, 2001 March 31, 2001
----------------- --------------
Current assets:
Cash $ 858,106 $ 433,438
Accounts receivable, net of allowance for doubtful 1,390,933 1,264,383
accounts of $11,598 at December 31, 2001 and
March 31, 2001
Inventories 2,555,802 2,351,648
Prepaid expenses and other current assets 24,329 43,568
Deferred income tax benefit -- current 527,276 527,276
----------- -----------
Total current assets 5,356,446 4,620,313
Property, plant, and equipment, net 791,838 674,656
Other assets 52,801 35,354
Deferred income tax benefit 332,144 604,323
----------- -----------
Total assets 6,533,229 5,934,646
=========== ===========
LIABILITIES & STOCKHOLDERS EQUITY
Current liabilities:
Note payable -- related party -- current portion 200,000 200,000
Note payable -- bank 100,000 250,000
Convertible subordinated notes -- related party 15,000 15,000
Capitalized lease obligations -- current portion 77,927 77,826
Deferred revenues and payments in advance 1,088,811 267,630
Accrued payroll, vacation pay, deferred wages,
payroll taxes and interest on deferred wages 475,624 535,850
Accounts payable and accrued expenses 934,571 1,507,647
----------- -----------
Total current liabilities 2,891,933 2,853,953
Notes payable -- related party -- non-current
portion 150,000 150,000
Capitalized lease obligations - excluding current
portion 64,418 68,345
----------- -----------
Total liabilities 3,106, 351 3,072,298
Stockholders' equity:
Common stock 215,070 212,438
Additional paid-in capital 3,932,735 3,932,111
Accumulated deficit (720,927) (1,282,201)
----------- -----------
Total stockholders' equity 3,426,878 2,862,348
----------- -----------
Total liabilities and stockholders' equity $ 6,533,229 $ 5,934,646
=========== ===========
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, 2001 Dec. 31, 2000 Dec. 31, 2001 Dec. 31, 2000
------------- ------------- ------------- -------------
Sales
Government, net $ 1,601,158 $ 1,454,141 $ 5,061,879 $ 3,304,339
Commercial, net 438,195 822,015 1,725,645 2,214,074
----------- ----------- ----------- -----------
Total Sales $ 2,039,353 $ 2,276,156 $ 6,787,524 $ 5,518,413
Cost of Sales 1,009,736 1,158,023 3,436,913 2,841,286
----------- ----------- ----------- -----------
Gross margin 1,029,617 1,118,133 3,350,611 2,677,127
Operating expenses:
Selling, general & administrative 399,761 437,081 1,249,656 1,153,370
Engineering, research, & development 318,867 294,274 1,113,417 734,566
----------- ----------- ----------- -----------
Total operating expenses 718,628 731,355 2,363,073 1,887,936
Income from operations 310,989 386,778 987,538 789,191
Other income (expense):
Interest income 968 7,440 10,296 16,715
Interest expense (19,580) (35,946) (63,155) (97,776)
----------- ----------- ----------- -----------
Income before taxes 292,377 358,272 934,679 708,130
Provision (benefit) for income taxes, net 116,806 (7,908) 373,405 133,042
----------- ----------- ----------- -----------
Net income $ 175,571 $ 366,180 $ 561,274 $ 575,088
=========== =========== =========== ===========
Basic and diluted income
per common share $ 0.08 $ 0.17 $ 0.26 $ 0.27
Dividends per share None None None None
Weighted average shares outstanding
Basic 2,128,351 2,113,690 2,127,111 2,113,570
Diluted 2,158,264 2,141,061 2,157,024 2,140,941
See accompanying notes to condensed financial statements
2
TEL-INSTRUMENT ELECTRONICS CORPORATION
CONDENSED COMPARATIVE STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended Nine Months Ended
December 31, 2001 December 31,2000
----------------- ----------------
Increase in cash:
Cash flows from operating activities
Net income $ 561,274 $ 575,088
Adjustments to reconcile net income to cash used
In operating activities:
Deferred income taxes 272,179 98,645
Depreciation 155,335 93,564
Changes in assets or liabilities:
Increase in accounts receivable and unbilled
revenue (126,550) (325,748)
Increase in inventories (204,154) (241,510)
Decrease (increase) in prepaid expenses and
other current assets 19,239 (2,493)
Increase in other assets (17,447) (6,728)
Increase (decrease) in advanced payments and
deferred revenues 821,181 (1,905)
(Decrease) increase in accrued payroll, deferred
wages and and vacation pay (60,226) 155,377
Decrease in accounts payable and accrued expenses (573,076) (81,765)
--------- ---------
Net cash provided by operations 847,755 262,525
--------- ---------
Cash flows from investing activities:
Cash purchases of property, plant and equipment (210,660) (73,583)
--------- ---------
Net cash used in investing activities (210,660) (73,583)
--------- ---------
Cash flows from financing activities:
Proceeds from exercise of stock options 3,256 664
Repayment of notes payable to bank (150,000) --
Repayment of capitalized lease obligations (65,683) (48,003)
--------- ---------
Net cash used in financing activities (212,427) (47,339)
--------- ---------
Net increase in cash 424,668 141,603
Cash at beginning of period 433,438 172,836
--------- ---------
Cash at end of period $ 858,106 $ 314,439
========= =========
Interest paid $ 43,772 $ 71,006
========= =========
Capitalized lease obligations $ 61,857 $ 57,614
========= =========
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, 2001, the results of operations for the
three and nine months ended December 31, 2001 and December 31, 2000, and
statements of cash flows for the nine months ended December 31, 2001 and
December 31, 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:
Dec. 31, 2001 March 31, 2001
------------- --------------
Commercial $ 354,910 $ 392,214
Government 1,047,621 883,767
Allowance for bad debts (11,598) (11,598)
---------- ----------
Total $1,390,933 $1,264,383
========== ==========
Note 3 Inventories
Inventories consist of:
Dec. 31, 2001 March 31, 2001
------------- --------------
Purchased Parts $1,277,083 $1,072,191
Work-in-process 1,351,514 1,352,252
Less: Reserve for Obsolescence (72,795) (72,795)
---------- ----------
Total $2,555,802 $2,351,648
========== ==========
4
TEL-INSTRUMENT ELECTRONICS CORP
NOTES TO CONDENSED FINANCIAL STATEMENTS
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 nine months ended December 31, 2001, the company recorded a
tax provision of $373,405, which represents the effective federal and state tax
rate on the Company's net income before taxes of $934,679. 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
The Company is organized 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 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. Cost of sales
includes certain allocation factors for indirect costs.
Three Months Ended Three Months Ended
December 31, 2001 December 31, 2000
Government Commercial Government Commercial
---------- ---------- ---------- ----------
Sales $1,601,158 $438,195 $1,454,141 $822,015
Cost of Sales 819,142 190,594 770,399 387,624
---------- -------- ---------- --------
Gross Margin $ 782,016 $247,601 $ 683,742 $434,391
========== ======== ========== ========
Nine Months Ended Nine Months Ended
December 31, 2001 December 31, 2000
Government Commercial Government Commercial
---------- ---------- ---------- ----------
Sales $ 5,061,879 $ 1,725,645 $ 3,304,339 $ 2,214,074
Cost of Sales 2,648,907 788,006 1,769,559 1,071,727
----------- ----------- ----------- -----------
Gross Margin $ 2,412,972 $ 937,639 $ 1,534,780 $ 1,142,347
=========== =========== =========== ===========
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 nine months ended December 31, 2001, sales increased 23% to $6,787,524
and net income before taxes increased 32% to $934,679. Deferred revenues of
approximately $578,000, for units requiring a software upgrade prior to
shipment, were recorded in third quarter of the current fiscal year and are
included in deferred revenues in the accompanying balance sheet in accordance
with of Staff Accounting Bulletin No.101, "Revenue Recognition in Financial
Statements" ("SAB101"). The Company has begun shipment of these units in the
fourth quarter and expects to recognize all of these sales in the fourth quarter
of the current fiscal year. The Company had no significant deferred revenues for
the same period in the prior fiscal year. Deliveries of the AN/APM 480 IFF
(Identification, Friend or Foe) Transponder Test Set to the U.S. Navy continue
and accounted for 46.4% of total sales for the nine months ended December 31,
2001. The U.S. Navy's option to purchase additional units of the Company's
AN/APM 480 has been extended from December 31, 2001 to August 11, 2002. The
Company has received orders for 1,059 units and there are 241 units remaining
subject to the U.S. Navy's option under the contract. Any options not exercised
by August 11, 2002 will then expire.
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. As previously announced, the Company has
engaged Crary Partners LLC to render investment-banking services to the Company
by helping pursue growth through acquisitions and alliances and advising on
financing and strategic investment options.
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 December 31, 2001, net sales decreased $236,803
(10.4%) as compared to the three months ended December 31, 2000. In addition,
during the quarter ended December 31, 2001, the Company deferred revenues of
approximately $578,000 in accordance with SAB 101. The Company expects to
recognize this amount as sales in the fourth of the current fiscal year.
Government sales increased $147,017 (10.1%) to $1,601,158 as compared to
$1,454,141 for the three months ended December 31, 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 50.7% of the total sales for the current quarter
as compared to 36.6% for the same quarter last year. Government sales in the
third quarter also increased as a result of shipments of the new T-47SH.
Commercial sales decreased $383,820 (46.7%) for the third quarter ended December
31, 2001 as compared to the third 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 nine months ended December 31, 2001, net sales increased $1,269,111
(23%) to $6,787,524 as compared to $5,518,413 for the nine months ended December
31, 2000. Government sales increased $1,757,540 (53.2%) to $5,061,869, as
compared to $3,304,339 for the first nine 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
46.4% of the sales for the first nine months of the current fiscal year as
compared to 27.3% for the same period last year. The increase in government
sales is also attributed to the introduction of the T-47SH and sales of the
Company's ILS (Instrument Landing System) test sets. Commercial sales decreased
$488,429 (22.1%) to $1,725,645 as compared to $2,214,074 for the nine months
ended December 31, 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 decreased $88,516 (7.9%) for the three months ended
December 31, 2001 as compared to the same period last year as a result of the
lower recorded sales. Gross margin dollars increased $673,484 for the nine
months ended December 31, 2001 as compared to the nine months ended December 31,
2000. 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
December 31, 2001 was 50.5% as compared to 49.1% for the three months ended
December 31, 2000. The gross margin percentage for the nine months ended
December 31, 2001 was 49.4% as compared to 48.5% for the nine months ended
December 31, 2000.
7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued)
Results of Operations (continued)
Operating Expenses
Selling, general and administrative expenses decreased $37,320 (8.5%) for the
quarter ended December 31, 2001 as compared to the previous fiscal year. This
decrease is associated with lower accrued compensation expenses, offset
partially by an increase in sales and marketing expenses. Selling, general and
administrative expenses increased $96,286 (8.3%) for the nine months ended
December 31, 2001 as compared to the nine months ended December 31, 2000. This
increase is attributed to an increase in sales and marketing activities, higher
professional fees, and an increase in facility costs associated with the Company
adding the lower level of the building to its lease. These increases were offset
partially by lower accrued compensation expense.
Engineering, research and development expenses increased $24,593 (8.4%) and
$378,851 (51.6%) for the same periods. The higher level of expenditures is
associated with an increase in research and development activities, including
the completion of the design of the T-47SH test set, development of a commercial
bench test, and new products for other targeted markets. The Company has also
begun work on the next generation of IFF test sets.
Income Taxes
In accordance with SFAS 109, a provision for income taxes was recognized in the
amount of $373,405 for the nine months ended December 31, 2001, which represents
the effective federal and state tax rate on the company's income before taxes of
$934,679. The Company does not pay significant federal taxes as a result of its
net operating loss carryforwards. For the nine months ended December 31, 2000,
the Company 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.
Liquidity and Capital Resources
At December 31, 2001 the Company had positive working capital of $2,464,513 as
compared to $1,766,360 at March 31, 2001. For the nine months ended September
30, 2001, cash provided by operations was $847,755 as compared to $262,525 for
the nine months ended December 31, 2001. This increase in cash from operations
is primarily attributed to the improvement in the Company's operating income.
This increase was partially offset by a reduction in accounts payable and
accrued expenses and an increase in inventories and accounts receivable.
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 December
31, 2001, the company had borrowed $100,000 against its line of credit. This
amount was repaid in January 2002. 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 December 31, 2001, the
Company was in compliance with all financial covenants. While the credit line
8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued)
Results of Operations (continued)
Liquidity and Capital Resources (continued)
formally expired at August 30, 2001, the loan was not called. The Company has
since repaid the loan as a result of its improved financial position. The line
of credit is still available, if needed, while the Company negotiates an
increase in the line of credit. 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 nine months ended December 31, 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.
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, 2001 (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 1,611,790 0
George J. Leon 1,611,790 0
Robert J. Melnick 1,611,790 0
Jeff C. O'Hara 1,611,790 0
Robert J. Walker 1,611,790 0
The shareholders also voted all 1,611,790 shares in favor of ratifying
PricewaterhouseCoopers L.L.P. as the Company's independent accountants for the
fiscal year ending March 31, 2002.
(d) Not applicable
9
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 13, 2002 By: /s/ Harold K. Fletcher
----------------------
/s/ Harold K. Fletcher
Chairman and President
Date: February 13, 2002 By: /s/ Joseph P. Macaluso
-----------------------
/s/ Joseph P. Macaluso
Principal Accounting Officer
10