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 28, 1996
_____ TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 33-18978
TEL-INSTRUMENT ELECTRONICS CORPORATION
(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 each of the issuer's classes of
common stock, as of the latest practical date:
1,961,246 shares of Common stock, $.10 par value as of November 5, 1996.
TEL-INSTRUMENT ELECTRONICS CORPORATION
TABLE OF CONTENTS
PAGE
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Financial Statements (Unaudited)
Condensed Comparative Balance Sheets
September 28, 1996 and March 31, 1996 1
Condensed Comparative Statements of Operations -
Three and Six Months Ended September 28, 1996 and September 30,1995 2
Condensed Comparative Statements of Cash Flows -
Three and Six Months Ended September 28, 1996 and September 30, 1995 3-4
Notes to Condensed Financial Statements 5
Management's Discussion and Analysis of Financial Condition
and Results of Operations 6-7
Signature 8
TEL-INSTRUMENT ELECTRONICS CORPORATION
CONDENSED COMPARATIVE BALANCE SHEETS
(Unaudited)
September 28, March 31,
1996 1996
----------- -----------
ASSETS
Current assets:
Cash $ 206,489 22,625
Accounts receivable, net 126,540 359,494
Inventories 445,070 346,874
Other current assets 3,262 7,135
----------- -----------
Total current assets 781,361 736,128
Office and manufacturing equipment, net 46,267 41,825
Other assets, net 45,526 46,653
----------- -----------
Total assets 873,154 824,606
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Convertible subordinated note - related party 30,000 30,000
Convertible subordinated note 35,000 35,000
Accrued payroll, deferred wages and vacation pay 422,130 590,353
Accounts payable and accrued expenses 597,581 580,974
----------- -----------
Total current liabilities 1,084,711 1,236,327
Note payable - related pary 100,000 100,000
Redeemable preferred stock 0 606,643
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Total liabilities 1,184,711 1,942,970
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Stockholders' deficiency:
Common stock 196,127 160,383
Additional paid-in capital 3,856,371 3,151,432
Accumulated deficit (4,364,055) (4,430,179)
----------- -----------
Total stockholders' deficiency (311,557) (1,118,364)
----------- -----------
Total liabilities and stockholders' deficiency 873,154 824,606
=========== ===========
See accompanying notes to condensed financial statements
1
TEL-INSTRUMENT ELECTRONICS CORPORATION
CONDENSED COMPARATIVE STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
September 28, September 30, September 28, September 30,
1996 1995 1996 1995
---------- ---------- ---------- ----------
Sales:
Government, net 353,355 259,403 784,374 601,741
Commercial, net 248,266 333,745 450,834 618,775
---------- ---------- ---------- ----------
Total sales 601,601 593,148 1,235,208 1,220,516
Cost of sales 224,558 238,570 504,152 499,908
---------- ---------- ---------- ----------
Gross margin 377,043 354,578 731,056 720,608
Operating expenses
Selling, general and administrative 196,740 173,487 412,105 375,798
Engineering, research and development 109,078 89,246 220,329 179,293
---------- ---------- ---------- ----------
Total operating expenses 305,818 262,733 632,434 555,091
---------- ---------- ---------- ----------
Profit (loss) from operations 71,225 91,845 98,622 165,517
Other income (expenses):
Interest income 384 185 609 185
Interest expense (16,221) (17,966) (33,107) (35,476)
---------- ---------- ---------- ----------
Net profit (loss) 55,388 74,064 66,124 130,226
========== ========== ========== ==========
Earnings per share 0.03 0.05 0.04 0.08
Dividends per share None None None None
Weighted average shares outstanding 1,782,526 1,603,806 1,705,932 1,603,806
See accompanying notes to condensed financial statements
2
TEL-INSTRUMENT ELECTRONICS CORPORATION
CONDENSED COMPARATIVE STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
September 28, September 30,
1996 1995
---------- ----------
Increase (decrease) in cash:
Cash flows from operating activities:
Cash received from customers 1,479,138 1,194,547
Cash paid to vendors and employees (1,307,035) (1,168,197)
Interest received 609 183
Interest paid (60,152) (1,494)
---------- ----------
Net cash provided by operating activities 112,560 25,039
Cash flows from investing activities:
Cash purchases of property, plant and equipment (16,196) (3,455)
Net cash used in investing activities (16,196) (3,455)
Cash flows from financing activities:
Repayment of debt 0 (16,667)
Proceeds from issuance of common stock 87,500 0
---------- ----------
Net cash provided by (used in) financing activities 87,500 (16,667)
---------- ----------
Net Increase in cash 183,864 4,917
Cash at beginning of period 22,625 38,768
---------- ----------
Cash at end of period 206,489 43,685
========== ==========
Non Cash items:
Preferred stock redeemed & exchanged for common
stock 606,643 0
(See Liquidity and Common Resources Section)
Stocks issued to related party for liabilities due 46,540 0
See accompanying notes to condensed financial statements.
3
TEL-INSTRUMENT ELECTRONICS CORP.
CONDENSED COMPARATIVE STATEMENTS OF CASH FLOWS, Continued
(Unaudited)
Six Months Ended
September 28, September 30,
1996 1995
-------- --------
Net profit (loss) 66,124 130,226
Adjustments
Depreciation 11,754 8,309
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 232,954 (33,698)
(Increase) decrease in inventories (98,196) 37,066
Decrease in other current assets 3,873 2,292
Decrease (increase) in other assets 1,127 (1,129)
Increase (decrease) in accounts payable and accrued expenses 16,607 (144,481)
(Decrease) increase in accrued payroll, deferred wages and vacation pay (121,683) 26,454
-------- --------
Net cash provided by operating activities 112,560 25,039
======== ========
4
See accompanying notes to condensed financial statements.
TEL-INSTRUMENT ELECTRONICS CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note 1
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 28, 1996, the results of operations for the
three and six months ended September 28, 1996 and September 30, 1995 and
statements of cash flows for the six months ended September 28, 1996 and
September 30, 1995. These results are not necessarily indicative of the results
to be expected for the full year.
These statements should be read in conjunction with the Company's Annual Report
to the Securities and Exchange Commission on Form 10-K for the year ended March
31, 1996.
Note 2
Certain reclassifications have been made to the 1996 financial statements to be
consistent with the fiscal year 1997 presentation.
Note 3
In July, 1996 a group of employees and creditors agreed to purchase the
preferred stock and to exchange such stock for common stock of the Company. (See
Liquidity and Capital Resources Section).
Note 4
The President of the Company obtained 62,053 shares as part of the offer made to
all stockholders (See Liquidity and Capital Resources Section) in exchange for a
reduction in liabilities due in the amount of $46,540.
5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION
RESULTS OF OPERATION
Sales
Net sales increased $8,453 (1.4%) and $14,692 (1.2%) for the three and six
months ended September 28, 1996, respectively, as compared to the same periods
in the prior fiscal year. The increase in sales is attributed to the government
segment for shipments associated with a contract with the United States Air
Force. The uncertainty of the commercial segment continues and led to a decline
in commercial sales which offset most of the increase in government sales. While
sales increased, the stagnant conditions experienced in both the commercial
airline and government segments continue. In fiscal year 1995 the Company was
awarded an open quantity contract by the U.S. Air Force to which firm orders
have been received in the amount of $1,890,488. Shipments against this contract
began in the first quarter of fiscal year 1996 and will continue beyond the
current fiscal year. Both commercial and government sales were held down in the
quarter because of missed shipments of key parts by one vendor whose problems
have since been remedied. These missed shipments will be shipped in the next
quarter causing better than expected sales for that quarter. The future growth
and profitability continue to be dependent on a turnaround of the commercial
airline market, the introduction and acceptance of new products, and the award
of additional government contracts.
Gross Margin
Gross margin increased $22,465 (6.3%) and $10,448 (1.4%) for the three and six
months ended September 28, 1996, respectively, as compared to the corresponding
periods in the prior fiscal year. This increase is attributed to the higher
volume, sale of higher margin products, and the additional absorption of
overhead expenses. The gross margin percentage was 59.1% for the six months
ended September 28, 1996 as compared to 59.0% for the same period last year. The
higher percentage gross margin is not expected to continue as the lower margin
products for the Air Force contract become a higher percentage of shipments.
Operating Expenses
Total selling, general and administrative expenses increased $23,253 (13.4%) and
$36,307 (9.7%) for the three and six months ended September 28, 1996,
respectively, as compared to the same periods in the prior fiscal year. The
increase is attributed to an increase in selling expenses and commissions
associated with government sales. Engineering, research and development
expenditures increased $19,832 (22.2%) and $41,036 (22.9%) for the same period
due to increased new product development efforts.
The net income for the three months ended September 28, 1996 was $55,388 or
$0.03 per share as compared to a net income of $74,064 or $0.05 per share for
the three months ended September 30, 1995.
The net income for the six months ended September 28, 1996 was $66,124 or $0.04
per share as compared to a net income of $130,226 or $0.08 per share for the six
months ended September 30, 1995.
6
LIQUIDITY AND CAPITAL RESOURCES
The working capital deficiency decreased $196,845 for the first six months of
fiscal year 1996 to $303,354. Based upon the current backlog and cash on hand
the Company believes it has sufficient funds for the remainder of the current
year. The Company's ability to continue is dependent upon its ability to
generate sufficient cash flow from operations or to obtain additional financing.
Since securing financing from traditional sources is difficult, short term
liquidity must be provided by cash generated from operations. Management's plans
to improve profitability and cash flow are based on cost reduction measures,
continued sales efforts, and incremental revenues derived from new product
developments.
The Company's liquidity and capital position was improved by the redemption of
the outstanding redeemable preferred stock (the "Preferred Stock"). In July,
1996 a group of the Company's employees and creditor's agreed to purchase the
Preferred Stock and dividends from the preferred stockholder for $111,700 and
exchanged the Preferred Stock for common stock.
The Company's Board of Directors approved the exchange of the Preferred Stock
and dividends for 178,720 shares of newly issued common stock and stock purchase
warrants for an additional 35,744 shares of common stock. The purchase warrants
are exercisable at price per share of $0.75 until March 31, 1997, $1.50 until
March 31, 1998, and $2.25, until March 31, 1999.
The Board of Directors also authorized the Company to offer all shareholders the
right to purchase an additional 178,720 shares of common stock at $0.75 per
share and to issued, to such participating shareholders 35,744 in stock purchase
warrants with the same terms as those described above. This stock has been fully
subscribed and the stock certificates and warrants have been issued. The Company
received $87,500 in cash and reduced its liabilities by $46,540 as a result of
this transaction.
There was no significant impact on the Company's operations as a result of
inflation for the six months ended September 28, 1996.
These statements should be read in conjunction with the Company's annual report
to the Securities and Exchange Commission on Form 10-K for fiscal year ending
March 31, 1996
7
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 11 NOVEMBER 96 s/s Harold K. Fletcher
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/s/ Harold K. Fletcher
Chairman and President
8