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 September 30, 2002
__ 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:
2,135,801 shares of Common stock, $.10 par value as of November 4, 2002.
TEL-INSTRUMENT ELECTRONICS CORPORATION
TABLE OF CONTENTS
PAGE
----
Item 1. Financial Statements (Unaudited):
Condensed Comparative Balance Sheets
September 30, 2002 and March 31, 2002 1
Condensed Comparative Statements of Operations -
Three and Six Months Ended September 30, 2002 and 2001 2
Condensed Comparative Statements of Cash Flows -
Six Months Ended September 30, 2002 and 2001 3
Notes to Condensed Financial Statements 4-5
Item 2. Management's Discussion and Analysis of the Results of
Operations and Financial Conditions 6-10
Item 4. Controls and Procedures 10
Part II - Other Information
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
Certifications 13-14
Item 1 - Financial Statements
TEL-INSTRUMENT ELECTRONICS CORPORATION
CONDENSED COMPARATIVE BALANCE SHEETS
(Unaudited)
ASSETS September 30, 2002 March 31, 2002
------------------ --------------
Current assets:
Cash and cash equivalents $2,609,315 $ 1,198,191
Accounts receivable, net of allowance for doubtful
accounts of $36,598 at September 30, 2002 and
March 31, 2002 1,389,509 937,849
Inventories, net 1,751,103 2,481,680
Prepaid expenses and other current assets 40,804 47,956
Deferred income taxes 493,130 669,000
---------- -----------
Total current assets 6,283,861 5,334,676
Property, plant and equipment, net 767,957 822,010
Other assets 71,649 76,886
---------- -----------
Total assets 7,123,467 6,233,572
========== ===========
LIABILITIES & STOCKHOLDERS EQUITY
Current liabilities:
Note payable - related party - current portion 250,000 250,000
Convertible subordinated notes - related party 7,500 7,500
Capitalized lease obligations - current portion 36,745 108,845
Deferred revenues 571,437 518,103
Accrued payroll, vacation pay, deferred wages
payroll taxes and interest on deferred wages 519,259 399,437
Accounts payable and accrued expenses 1,191,195 896,710
---------- -----------
Total current liabilities 2,576,136 2,180,595
Notes payable - related party - long-term 100,000 100,000
Capitalized lease obligations - long-term 56,703 52,183
---------- -----------
Total liabilities 2,732,839 2,332,778
Commitments and contingencies -- --
Stockholders' equity:
Common stock 213,583 213,338
Additional paid-in capital 3,944,812 3,941,967
Retained earnings (accumulated deficit) 232,233 (254,511)
---------- -----------
Total stockholders' equity 4,390,628 3,900,794
Total liabilities and stockholders' equity $7,123,467 $ 6,233,572
========== ===========
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, 2002 Sept. 30, 2001 Sept. 30, 2002 Sept. 30, 2001
-------------- -------------- -------------- --------------
Sales
Government, net $ 2,608,868 $ 1,652,050 $ 5,013,576 $ 3,460,721
Commercial, net 374,034 534,432 819,059 1,287,450
----------- ----------- ----------- -----------
Total Sales 2,982,902 2,186,482 5,832,635 4,748,171
Cost of sales 1,386,582 1,112,871 2,771,865 2,427,177
----------- ----------- ----------- -----------
Gross Margin 1,596,320 1,073,611 3,060,770 2,320,994
Operating expenses
Selling, general & administrative 790,593 450,783 1,363,661 849,395
Engineering, research, & development 417,319 379,879 869,046 795,050
----------- ----------- ----------- -----------
Total operating expenses 1,207,912 830,662 2,232,707 1,644,445
----------- ----------- ----------- -----------
Income from operations 388,408 242,949 828,063 676,549
Other income (expense):
Interest income 9,313 4,736 15,789 9,328
Interest expense (15,880) (24,963) (33,288) (43,575)
----------- ----------- ----------- -----------
Income before taxes 381,841 222,722 810,564 642,302
Provision for income taxes 152,544 85,719 323,820 256,599
----------- ----------- ----------- -----------
Net income $ 229,297 $ 137,003 $ 486,744 $ 385,703
=========== =========== =========== ===========
Basic and diluted income
per common share $ 0.11 $ 0.06 $ 0.23 $ 0.18
=========== =========== =========== ===========
Dividends per share None None None None
Weighted average shares outstanding
Basic 2,135,776 2,128,351 2,135,422 2,126,580
Diluted 2,162,386 2,128,918 2,162,032 2,127,147
See accompanying notes to condensed financial statements
-2-
TEL-INSTRUMENT ELECTRONICS CORPORATION
CONDENSED COMPARATIVE STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
Sept. 30, 2002 Sept. 30, 2001
-------------- --------------
Cash flows from operating activities:
Net income $ 486,744 $ 385,703
Adjustments to reconcile net income to net cash provided
by operating activities:
Deferred income taxes 175,870 187,888
Depreciation and amortization 107,009 100,503
Changes in operating assets or liabilities:
Increase in accounts receivable, net (451,660) (83,562)
Decrease (increase) in inventories, net 730,577 (278,693)
Decrease in prepaid expenses and other current assets 7,152 13,382
Decrease (increase) in other assets 5,237 (16,151)
Increase in deferred revenues 53,334 254,383
Increase (decrease) in accrued payroll, vacation pay,
deferred wages, payroll taxes & interest on deferred wages 119,822 (6,945)
Increase (decrease) in accounts payable and
accrued expenses 294,485 (249,606)
----------- ---------
Net cash provided by operating activities 1,528,570 306,902
----------- ---------
Cash flows from investing activities:
Cash purchases of property, plant and equipment (52,956) (156,343)
----------- ---------
Net cash used in investing activities (52,956) (156,343)
----------- ---------
Cash flows from financing activities:
Proceeds from exercise of stock options 3,090 3,256
Repayment of capitalized lease obligations (67,580) (51,162)
----------- ---------
Net cash used in financing activities (64,490) (47,906)
----------- ---------
Net increase in cash and cash equivalents 1,411,124 102,653
Cash and cash equivalents at beginning of period 1,198,191 433,438
----------- ---------
Cash and cash equivalents at end of period $ 2,609,315 $ 536,091
=========== =========
Supplemental information
Interest paid $ 16,515 $ 42,045
=========== =========
Taxes paid $ 138,737 $ 85,400
=========== =========
Assets acquired through capital leases $ 0 $ 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 September 30, 2002, the results of operations for the
three and six months ended September 30, 2002 and September 30, 2001, and
statements of cash flows for the six months ended September 30, 2002 and
September 30, 2001. 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, 2002 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, 2002.
Note 2 Accounts Receivable, net
Accounts receivable, net consist of:
September 30, 2002 March 31, 2002
------------------ --------------
Commercial $ 184,096 $ 238,690
Government 1,242,011 735,757
Allowance for bad debts (36,598) (36,598)
----------- ---------
Total $ 1,389,509 $ 937,849
=========== =========
Note 3 Inventories, net
Inventories, net consist of:
September 30, 2002 March 31, 2002
------------------ --------------
Purchased parts $ 571,652 $ 913,917
Work-in-process 1,274,160 1,584,701
Finished goods 25,604 68,375
Less: Reserve for obsolescence (120,313) (85,313)
----------- -----------
Total $ 1,751,103 $ 2,481,680
=========== ===========
-4-
TEL-INSTRUMENT ELECTRONICS CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)
Note 4 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 5 Government and Commercial Sales
Information has been presented for the Company's two reportable activities,
government and commercial.
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 commercial market also includes
sales related to repairs and calibration which have a lower gross margin. 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. Costs of
sales include certain allocation factors for indirect costs.
Three Months Ended Three Months Ended
September 30, 2002 September 30, 2001
Government Commercial Government Commercial
---------- ---------- ---------- ----------
Sales $2,608,868 $374,034 $1,652,050 $534,432
Cost of Sales 1,176,531 210,051 864,462 248,409
---------- -------- ---------- --------
Gross Margin $1,432,337 $163,983 $ 787,588 $286,023
========== ======== ========== ========
Six Months Ended Six Months Ended
September 30, 2002 September 30, 2001
Government Commercial Government Commercial
---------- ---------- ---------- ----------
Sales $5,013,576 $819,059 $3,460,721 $1,287,450
Cost of Sales 2,310,416 461,449 1,829,765 597,412
---------- -------- ---------- ----------
Gross Margin $2,703,160 $357,610 $1,630,956 $ 690,038
========== ======== ========== ==========
-5-
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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 previous
filings with the Securities and Exchange Commission.
Critical Accounting Policies
In preparing our financial statements and accounting for the underlying
transactions and balances, we apply our accounting policies as disclosed in Note
2 of our Notes to Financial Statements included in our Form 10-K. The Company's
accounting policies that require a higher degree of judgment and complexity used
in the preparation of financial statements include:
Revenue recognition - revenues are recognized at the time of shipment to, or
acceptance by customer provided title and risk of loss is transferred to the
customer. Provisions, when appropriate, are made where the right to return
exists. Revenues under service contracts are recognized when the services are
performed.
Property and equipment - property and equipment are stated at cost, less
accumulated depreciation. Depreciation is provided using the straight-line
method over the estimated useful lives of the respective assets over periods
ranging from three to eight years. Useful lives are estimated at the time the
asset is acquired and are based upon historical experience with similar assets
as well as taking into account anticipated technological or other changes.
Leasehold improvements are amortized over the term of the lease or the useful
life of the asset, whichever is shorter.
Inventory reserves - inventory reserves are estimated for excess, slow-moving
and obsolete inventory as well as inventory whose carrying value is in excess of
net realizable value. These estimates are based on current assessments about
future demands, market conditions and related management initiatives. If market
conditions and actual demands are less favorable than those projected by
management, additional inventory write-downs may be required.
Warranty reserves - warranty reserves are estimated based upon historical rates
and specific items that are identifiable and can be estimated at time of sale.
While warranty costs have historically been within our expectations and the
provisions established, future warranty costs could be in excess of our warranty
reserves. A significant increase in these costs could adversely affect our
operating results for the period and the periods these additional costs
materialize. Warranty cost accruals are adjusted from time to time when actual
warranty claim experience differs from estimates.
-6-
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued)
Critical Accounting Policies (continued)
Accounts receivable - the Company performs ongoing credit evaluations of its
customers and adjusts credit limits based on customer payment and current credit
worthiness, as determined by review of their current credit information. The
Company continuously monitors credits and payments from its customers and
maintains provision for estimated credit losses based on its historical
experience and any specific customer issues that have been identified. While
such credit losses have historically been within our expectation and the
provision established, the Company cannot guarantee that it will continue to
receive positive results.
Income taxes - deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using enacted tax rates and laws that will be in effect when
such differences are expected to reverse. The measurement of deferred tax assets
is reduced, if necessary, by a valuation allowance for any tax benefit which is
not more likely than not to be realized. The effect on deferred tax assets and
liabilities of a change in tax rate is recognized in the period that such tax
rate changes are enacted.
Results of Operations
Overview
For the six months ended September 30, 2002, sales increased 22.8% to $5,832,635
and net income before taxes increased 26.2% to $810,564. Deliveries of the
AN/APM-480 IFF (Identification, Friend or Foe) Transponder Set Test Set to the
U.S. Navy continue and accounted for 59.3% of total sales for the six months
ended September 30, 2002. Government sales remain strong as a result of the
deliveries of the AN/APM 480 to the U.S. Navy. However, the commercial market
remains weak.
In August 2002 the Company received an order from the U.S. Navy for an
additional 105 AN/APM-480's. The Company has now received orders for 1,182 units
from the U.S. Navy and there are 118 units remaining subject to the option under
the contract. Any options not exercised by the U.S. Navy by February 11, 2003
will expire. However, government contracts are always susceptible to termination
by the government for convenience. The Company has shipped 744 units through
September 30, 2002 and expects shipments under this contract to continue through
August of next year, unless the balance of the 118 units are exercised, in which
case deliveries will continue until later in the year. This program firmly
established the Company as one of the leading suppliers in the avionics test
equipment industry, and improved its market position.
The Company continues to invest heavily in new product development to meet the
expected demands of its customers and remain as one of the leaders in the
industry. The Company continues its work on the next generation of IFF test sets
in anticipation of U.S. and NATO requirements for more sophisticated IFF
testing. The Company anticipates that most of the AN/APM-480's will need to be
upgraded, in the future, to accommodate the more sophisticated IFF testing. The
Company recently introduced the T-36C, Nav/Comm ramp test set, into the
commercial market, and the T-47S Multi-Function ramp tester into the military
market. New products soon to be introduced include the T-47G, TR-220, a
commercial Multi-Function ramp test set,
-7-
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued)
Results of Operations (continued)
Overview (continued)
and the T-462, the Company's new bench test set. The T-462 capitalizes on the
Company's core technology and is part of the Company's plan to expand into new
markets.
As previously announced, the Company strengthened its management team with the
addition of a Chief Operating Officer and a Director of Business Development
during the quarter.
The Company has been active in responding to customer requests for quotation, in
addition to adapting its product designs to respond to these requests. The
Company continues actively to pursue opportunities in both the commercial and
government markets, both domestically and internationally.
Exploration of opportunities in other government and commercial markets also
continues in an attempt to broaden the Company's product line. The Company
continues its efforts with Semaphore Capital Advisors LLC to pursue growth
through acquisitions and alliances of compatible businesses or technologies.
Sales
For the three and six months ended September 30, 2002, net sales increased
$796,420 (36.4%) and $1,084,464 (22.8%), respectively, as compared to the same
periods in the prior fiscal year. Government sales increased $955,817 (57.9%)
and $1,552,854 (44.9%), respectively, for the three and six months ended
September 30, 2002 as compared to the three months and six months ended
September 30, 2001. The increase in government sales is mainly attributed to the
shipment of the AN/APM-480 to the U.S. Navy, which accounted for 54.0% and
59.3%, respectively, of the total sales for the three and six month periods
ended September 30, 2002 as compared to 47.8% and 44.5% for the same periods
last year. Sales in these periods also increased as a result of shipments of the
AN/APM-480 to customers other than the U.S. Navy. However, these increases were
partially offset by decreases in the Company's other government products.
International government sales have also declined during this period. Commercial
sales decreased $159,397 (29.8%) and $468,390 (36.4%), respectively, for the
three and six months ended September 30, 2002 as compared to the same periods
last year. These decreases are primarily the result of the completion of a
contract to a major freight carrier, and the inability as yet to replace this
contract with a new contract due to the financial difficulties encountered
within the commercial airline industry.
Gross Margin
Gross margin dollars increased $522,709 (48.7%) and 739,776 (31.9%) for the
three and six months ended September 30, 2002, 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, higher prices for
limited units of the AN/APM-480 and, to a lesser extent, to production
efficiencies obtained as a result of the higher volume. These amounts were
partially offset by higher warranty costs. The gross margin percentage for the
-8-
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued)
Results of Operations (continued)
Gross Margin (continued)
three months ended September 30, 2002 was 53.5% as compared to 49.1% for the
three months ended September 30, 2001. The gross margin percentage for the six
months ended September 30, 2002 was 52.5% as compared to 48.9% for the six
months ended September 30, 2001.
Operating Expenses
Selling, general and administrative expenses increased $339,810 (75.4%) and
$514,266 (60.5%), respectively, for the three and six months ended September 30,
2002 as compared to the three and six months ended September 30, 2001. These
increases are attributed to added sales and marketing activities, higher
commission expenses, the addition of a Customer Support Manager, a new sales
representative, and a Director of Business Development, including relocation
expenses for the Director of Business Development. The Company also strengthened
its staff with the addition of a Chief Operating Officer (COO). Fiscal year 2003
expenses include recruitment and relocation costs for the COO. The addition of
these personnel will add to the Company's expenses, but management believes
these additions are necessary for the Company to continue its growth and provide
for an orderly succession of key personnel. Selling, general and administrative
expenses also increased as a result of higher professional fees, including
investment-banking services.
Engineering, research and development expenses increased $37,440 (9.9%) and
$73,966 (9.3%) for the same periods. The higher level of expenditures is
associated with an increase in research and development activities, including
the TR-220, a multi-function ramp test set, and the T-462, the Company's new
bench test set, as well as continued effort on the next generation of IFF test
sets.
Income Taxes
Income taxes increased $66,825 and $67,221, respectively, for the three and six
months ended September 30, 2002 as compared to the same periods last year. These
increases are a result of an improvement in the Company's income. The provision
for income taxes represents the effective federal and state tax rate on the
Company's income before taxes. The Company has used its net operating loss
carryforwards and the Company will pay federal taxes this fiscal year.
-9-
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued)
Liquidity and Capital Resources
At September 30, 2002 the Company had positive working capital of $3,707,725 as
compared to $3,154,081 at March 31, 2002. For the six months ended September 30,
2002, cash provided by operations was $1,528,570 as compared to $306,902 for the
six months ended September 30, 2001. This increase in cash from operations is
primarily attributable to a reduction in inventories resulting from an increase
in sales, and an increase in accounts payable and accrued expenses, as well as
an increase in net income, partially offset by an increase in accounts
receivable.
The Company increased its line of credit to $1,750,000 from Fleet Bank in
November 2002. The line of credit bears an interest rate of 0.5% above the
lender's prevailing base rate, which is payable monthly, based upon the
outstanding balance. At September 30, 2002, the Company had no outstanding
balance. 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, 2002, the Company was in compliance
with all financial covenants. The line of credit expires at September 30, 2003.
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 at least the next twelve months. However, as the Company pursues
additional opportunities, the need for additional capital may arise. The Company
will evaluate its alternatives when these opportunities arise. The Company has
also retained Semaphore Capital Advisors as its investment bankers to help
pursue acquisitions and alliances and, if needed, to help raise capital. The
Company maintains its cash balance primarily in a money market account.
There was no significant impact on the Company's operations as a result of
inflation for the six months ended September 30, 2002.
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, 2002.
Item 4. Controls and Procedures
The Company adopted disclosure controls and procedures, as called for by the
recently adopted legislation and rules of the Securities and Exchange
Commission. Under rules promulgated by the S.E.C., disclosure controls and
procedures are defined as "those controls or other procedures of the issuer that
are designed to ensure that information required to be disclosed by the issuer
in the reports filed or submitted by it under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the
Commission's rules and forms." The Chief Executive Officer and the Principal
Accounting Officer of the Company evaluated the Company's disclosure controls
and procedures at October 31, 2002, and concluded that they are effective.
Furthermore, there were no significant changes in the Company's internal
controls, or in other factors that could significantly affect these controls
after October 31, 2002, the date of the evaluation by the Chief Executive
Officer and the Principal Accounting Officer.
-10-
Part II. Other Information
Item 5. Other Information
The Board of Directors, on the recommendation of the Compensation Committee,
directed the Company to pay and redeem $100,000 of the previously matured and
extended Fletcher (Chairman/President) notes and $50,000 of accrued interest,
referred to in Note 10 to the Financial Statements in Form 10-K for the year
ended March 31, 2002 (see below), during calendar year 2002 and $50,000 of
accrued interest in calendar year 2003, leaving an unpaid balance of $250,000.
On March 31, 1997, the Company's Chairman/President renegotiated the terms of
the non-current note payable-related party. This note, along with $250,000 of
other accrued expenses due to the Company's Chairman/President, were converted
into seven $50,000 convertible subordinated notes (the "Notes") totaling
$350,000. The Notes are due in consecutive years beginning March 31, 1999 with
the last note due March 31, 2005. In April 2002, Notes, which were scheduled to
mature through March 31, 2002, were extended to September 30, 2002. The Notes
bear interest at a rate of 10% per annum, payable semi-annually on the last day
of September and March of each year. The Company is required to prepay the
outstanding balance of the Notes and any accrued interest thereon, if the
Company sells all or substantially all of its assets. The Notes can be converted
into newly issued common shares of the Company at the conversion price of $2.50
per share. The conversion prices shall be adjusted for any stock dividends,
stock issuances or capital reorganizations. The Notes may be redeemed by the
Company prior to maturity upon giving written notice of not less than 30 days or
more than 60 days at a redemption price equal to 120% of the principal if
redeemed two years or more prior to the maturity date or 110% of the principal
if redeemed more than one year, but less than two years prior to the maturity
date
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Agreement with Semaphore capital Advisors amended as of June
1, 2002.
Agreement with Charles Palanzo, Chief Operating Officer, dated
August 19, 2002.
b. Reports on Form 8-K.
Report on Form 8-K regarding changes in certifying auditors
was submitted on November 13, 2002 under Item 4.
-11-
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, 2002 By: /s/ Harold K. Fletcher
----------------------
Harold K. Fletcher
Chairman and President
Date: November 13, 2002 By: /s/ Joseph P. Macaluso
----------------------------
Joseph P. Macaluso
Principal Accounting Officer
-12-
Tel-Instrument Electronics Corp
CEO Certification
I, Harold K. Fletcher, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Tel-Instrument
Electronics Corp;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant is made known to us
by others within registrant, particularly during the period in which
this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date.
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: November 13, 2002 /s/ Harold K. Fletcher
----------------------
Harold K. Fletcher
Chairman and President
-13-
Tel-Instrument Electronics Corp
CFO Certification
I, Joseph P. Macaluso, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Tel-Instrument
Electronics Corp;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant is made known to us
by others within registrant, particularly during the period in which
this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date.
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 13, 2002 /s/ Joseph P. Macaluso
----------------------------
Joseph P. Macaluso
Principal Accounting Officer
-14-