-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MI9tU8d/wMzzrtYh13EDRW1lak8RgNiqad5rLYua8ObQp9FzExJy81WRiPby83ZZ ylDwLtWO3Kj0EnzNne5cQg== 0000891092-03-003357.txt : 20031114 0000891092-03-003357.hdr.sgml : 20031114 20031114153616 ACCESSION NUMBER: 0000891092-03-003357 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TEL INSTRUMENT ELECTRONICS CORP CENTRAL INDEX KEY: 0000096885 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS & ACCESSORIES [3670] IRS NUMBER: 221441806 STATE OF INCORPORATION: NJ FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-18978 FILM NUMBER: 031004210 BUSINESS ADDRESS: STREET 1: 728 GARDEN ST CITY: CARLSTADT STATE: NJ ZIP: 07072 BUSINESS PHONE: 2019331600 MAIL ADDRESS: STREET 1: 728 GARDEN ST CITY: CARLSTADT STATE: NJ ZIP: 07072 10-Q 1 e16246_10q.txt FORM 10-Q 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, 2003 __ 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: 2,144,151 shares of Common stock, $.10 par value as of November 7, 2003. TEL-INSTRUMENT ELECTRONICS CORPORATION TABLE OF CONTENTS PAGE ---- Item 1. Financial Statements (Unaudited): Condensed Comparative Balance Sheets September 30, 2003 and March 31, 2003 1 Condensed Comparative Statements of Operations - Three and Six Months Ended September 30, 2003 and 2003 2 Condensed Comparative Statements of Cash Flows - Six Months Ended September 30, 2003 and 2002 3 Notes to Condensed Financial Statements 4-6 Item 2. Management's Discussion and Analysis of the Results of Operations and Financial Conditions 7-11 Item 4. Controls and Procedures 12 Part II - Other Information Item 6. Exhibits and Reports on Form 8-K 12 Signatures 12 Certifications 13-14 Item 1 - Financial Statements TEL-INSTRUMENT ELECTRONICS CORPORATION CONDENSED COMPARATIVE BALANCE SHEETS
(Unaudited) ASSETS September 30, 2003 March 31, 2003 ------------------ -------------- Current assets: Cash and cash equivalents $1,644,478 $1,680,124 Accounts receivable, net of allowance for doubtful accounts of $36,598 at September 30, 2003 and March 31, 2003 1,881,996 1,966,815 Inventories, net 2,352,201 2,262,147 Prepaid expenses and other current assets 77,061 42,587 Deferred income taxes 679,614 535,448 ---------- ---------- Total current assets 6,635,350 6,487,121 Property, plant and equipment, net 708,719 726,594 Other assets 289,918 97,462 ---------- ---------- Total assets 7,633,987 7,311,177 ========== ========== LIABILITIES & STOCKHOLDERS EQUITY Current liabilities: Note payable - related party - current portion 200,000 200,000 Convertible subordinated notes - related party 7,500 7,500 Capitalized lease obligations - current portion 28,231 28,637 Accounts payable 521,608 503,216 Deferred revenues 48,763 51,203 Accrued payroll, vacation pay, deferred wages payroll taxes and interest on deferred wages 485,961 436,630 Income taxes payable -- 103,924 Accrued expenses 954,438 1,001,124 ---------- ---------- Total current liabilities 2,246,501 2,332,234 Notes payable - related party - long-term 50,000 50,000 Capitalized lease obligations - long-term 6,989 21,069 ---------- ---------- Total liabilities 2,303,490 2,403,303 Commitments and contingencies -- -- Stockholders' equity: Common stock 214,418 213,583 Additional paid-in capital 3,960,890 3,944,812 Retained earnings 1,155,189 749,479 ---------- ---------- Total stockholders' equity 5,330,497 4,907,874 ---------- ---------- Total liabilities and stockholders' equity $7,633,987 $7,311,177 ========== ==========
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, 2003 Sept. 30, 2002 Sept. 30, 2003 Sept. 30, 2002 -------------- -------------- -------------- -------------- Sales Government, net $ 1,762,767 $ 2,608,868 $ 3,632,256 $ 5,013,576 Commercial, net 853,949 374,034 2,042,366 819,059 ----------- ----------- ----------- ----------- Total Sales 2,616,716 2,982,902 5,674,622 5,832,635 Cost of sales 1,192,809 1,386,582 2,479,331 2,771,865 ----------- ----------- ----------- ----------- Gross Margin 1,423,907 1,596,320 3,195,291 3,060,770 Operating expenses Selling, general & administrative 714,591 790,593 1,449,590 1,363,661 Engineering, research, & development 500,138 417,319 1,068,048 869,046 ----------- ----------- ----------- ----------- Total operating expenses 1,214,729 1,207,912 2,517,638 2,232,707 ----------- ----------- ----------- ----------- Income from operations 209,178 388,408 677,653 828,063 Other income (expense): Interest income 5,188 9,313 15,910 15,789 Interest expense (8,957) (15,880) (17,942) (33,288) ----------- ----------- ----------- ----------- Income before taxes 205,409 381,841 675,621 810,564 Provision for income taxes 81,642 152,544 269,911 323,820 ----------- ----------- ----------- ----------- Net income $ 123,767 $ 229,297 $ 405,710 $ 486,744 =========== =========== =========== =========== Basic income per common share $ 0.06 $ 0.11 $ 0.19 $ 0.23 =========== =========== =========== =========== Diluted income per common share $ 0.06 $ 0.11 $ 0.18 $ 0.23 =========== =========== =========== =========== Dividends per share None None None None Weighted average shares outstanding Basic 2,143,776 2,135,776 2,140,930 2,135,422 Diluted 2,202,281 2,162,386 2,199,435 2,162,032
See accompanying notes to condensed financial statements -2- TEL-INSTRUMENT ELECTRONICS CORPORATION CONDENSED COMPARATIVE STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended Sept. 30, 2003 Sept. 30, 2002 -------------- -------------- Cash flows from operating activities: Net income $ 405,710 $ 486,744 Adjustments to reconcile net income to net cash provided by operating activities: Deferred income taxes (144,166) 175,870 Depreciation and amortization 129,270 107,009 Changes in operating assets or liabilities: Decrease (increase) in accounts receivable, net 84,819 (451,660) (Increase) decrease in inventories, net (90,054) 730,577 (Increase) decrease in prepaid exp. & other current assets (34,474) 7,152 (Increase) decrease in other assets (192,456) 5,237 Increase in accounts payable 18,392 104,684 (Decrease) increase in deferred revenues (2,440) 53,334 Increase in accrued payroll, vacation pay, deferred wages, and payroll taxes 49,331 119,822 Decrease in income taxes payable (103,924) -- (Decrease) increase in accrued expenses (46,686) 189,801 ----------- ----------- Net cash provided by operating activities 73,322 1,528,570 ----------- ----------- Cash flows from investing activities: Cash purchases of property, plant and equipment (111,395) (52,956) ----------- ----------- Net cash used in investing activities (111,395) (52,956) ----------- ----------- Cash flows from financing activities: Proceeds from exercise of stock options 16,913 3,090 Repayment of capitalized lease obligations (14,486) (67,580) ----------- ----------- Net cash used in financing activities 2,427 (64,490) ----------- ----------- Net (decrease) increase in cash and cash equivalents (35,646) 1,411,124 Cash and cash equivalents at beginning of period 1,680,124 1,198,191 ----------- ----------- Cash and cash equivalents at end of period $ 1,644,478 $ 2,609,315 =========== =========== Supplemental information Interest paid $ 23,269 $ 16,515 =========== =========== Income taxes paid $ 518,000 $ 138,737 =========== ===========
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, 2003, the results of operations for the three and six months ended September 30, 2003 and September 30, 2002, and statements of cash flows for the six months ended September 30, 2003 and September 30, 2002. 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, 2003 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, 2003. Note 2 Accounts Receivable, net Accounts receivable, net consist of: September 30, 2003 March 31, 2003 Commercial $ 829,987 $ 555,076 Government 1,088,607 1,448,337 Allowance for bad debts (36,598) (36,598) ----------- ----------- Total $ 1,881,966 $ 1,966,815 =========== =========== Note 3 Inventories, net Inventories, net consist of: September 30, 2003 March 31, 2003 Purchased parts $ 781,964 $ 1,074,442 Work-in-process 1,624,507 1,289,578 Finished goods 83,543 10,940 Less: Reserve for obsolescence (137,813) (112,813) ----------- ----------- Total $ 2,352,201 $ 2,262,147 =========== =========== -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 Stock Options The Company accounts for its stock option plan in accordance with the provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. The Company has adopted the disclosure only provisions of Statement of Financial Accounting Standards No. 123 and 148, "Accounting for Stock-Based Compensation" ("SFAS 123 and 148"). Under SFAS 123 and 148 the Company provides pro forma net income and pro forma earnings per share disclosures for employee stock option grants made since fiscal 1996 as if the fair-value-based method as defined in SFAS No. 123 has been applied. The Company currently does not plan to adopt the fair value based method prescribed by SFAS 123. The Company estimates the fair value of each option using the Black Scholes option-pricing model with the following weighted-average assumptions: expected dividend yield of 0.0%, risk-free interest rate of 3.5, volatility at 50% and an expected life of 5 years. Had the Company determined compensation cost based on the fair market value at the grant date for its stock options under SFAS No. 123, the pro forma amounts are indicated below:
Six Months Ended Six Months Ended September 30, 2003 September 30, 2002 ------------------ ------------------ Net income - as reported $ 405,710 $ 486,744 Less fair value of stock options (38,507) (37,929) ----------- ----------- Net income - pro forma 367,203 448,815 =========== =========== Basic earnings per share - as reported 0.19 0.23 Basic earnings per share - pro forma 0.17 0.21 Diluted earnings per share - as reported 0.18 0.23 Diluted earnings per share - pro forma 0.17 0.21
-5- TEL-INSTRUMENT ELECTRONICS CORP. NOTES TO CONDENSED FINANCIAL STATEMENTS (continued) Note 6 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 avionic 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, 2003 September 30, 2002 Government Commercial Government Commercial ---------- ---------- ---------- ---------- Sales $1,762,767 $853,949 $2,608,868 $374,034 Cost of Sales 748,719 444,090 1,176,531 210,051 ---------- -------- ---------- -------- Gross Margin $1,014,046 $409,859 $1,432,337 $163,983 ========== ======== ========== ======== Three Months Ended Three Months Ended September 30, 2003 September 30, 2002 Government Commercial Government Commercial ---------- ---------- ---------- ---------- Sales $3,632,256 $2,042,366 $5,013,576 $819,059 Cost of Sales 1,475,645 1,003,686 2,310,416 461,449 ---------- ---------- ---------- -------- Gross Margin $2,156,611 $1,039,000 $2,703,160 $357,610 ========== ========== ========== ========
-6- 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. -7- 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 Sales for the three and six months ended September 30, 2003 declined $366,186 (12.3%) and $158,013 (2.7%), as compared to the same periods in the last fiscal year. The decrease in sales is primarily attributed to the reduced shipments of the AN/APM-480 to the U.S. Navy. Deliveries of the AN/APM-480 continue, but accounted for only 32.7% and 30.0% of total sales, respectively, for the three and six months ended September 30, 2003, as compared to 64.9% and 59.3%, respectively, for the same periods in the prior fiscal year. The Company, in agreement with the U.S. Navy, has temporarily decreased the number of units it is currently shipping in anticipation of these units being returned for up-grades and enhancements. The total number of units under contract has not changed. The Company anticipates an improvement in sales during the second half of the current fiscal year. The introduction of the TR-220 Multi-Function test set, a sales promotion of the T-49C Transponder/TCAS test set, and additional sales of Precision DME test sets partially offset these lower shipments. Investment in new product development continues as these expenses increased 19.8% and 22.9%, respectively, for the three and six months ended September 30, 2003, as compared to the previous year. Research and development activities include the next generation of IFF test sets, developing a foundation technology for future products, and incorporating other product enhancements. The Company has also begun work on a bench test set, which will be a new market and a diversification opportunity for the Company. The Company has signed a non-binding letter of intent to acquire privately held Innerspace Technology, Inc. (ITI) of Waldwick, NJ. ITI has been in business for over 30 years designing, manufacturing and distributing a variety of shipboard and underwater instruments to support hydrographers, oceanographers, researchers, engineers, geophysicists, and surveyors worldwide. ITI has total annual sales of approximately $1 million dollars, and the letter of intent provides for a purchase price of $547,000, options to purchase 25,000 TEL shares, and employment arrangements for the two principals, subject to the -8- Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued) Results of Operations (continued) Overview (continued) Company's satisfactory completion of its due diligence investigation, completion of a definitive acquisition agreement, and approval of the Company's Board of Directors. The Company hopes to significantly increase the sales of ITI's products by expanding distribution and enhancing marketing and product development. Mr. Harold K. Fletcher, CEO of Tel-Instrument, said, "This is an important first step in the Company's diversification program. We are excited about this opportunity to penetrate a market outside of our traditional market. Together, Tel and ITI will be a strong team." Semaphore Capital Advisors, LLC of Stamford, CT, advised the Company on this transaction. The Company continues to actively pursue other opportunities in both the commercial and government markets, both domestically and internationally. Sales For the six months ended September 30, 2003, net sales decreased $158,013 (2.7%), as compared to the six months ended September 30, 2002. Government sales decreased $1,381,320 (27.6%) for the six months ended September 30, 2003 as compared to the six months ended September 30, 2002. The decrease in sales is primarily attributed to the reduced shipments of the AN/APM-480 to the U.S. Navy. Deliveries of the AN/APM-480 continue, but accounted for only 30.0% of total sales for the six months ended September 30, 2003, as compared 59.3% for the same period in the prior fiscal year. The Company, in agreement with the U.S. Navy, has temporarily decreased the number of units it is currently shipping in anticipation of these units being returned for up-grades and enhancements. The total number of units under contract has not changed. This decrease was partially offset by an increase in the shipment of Precision DME test sets. Commercial sales increased $1,223,307 (149.4%) for the six months ended September 30, 2003 as compared to the same period last year. The introduction of the TR-220 Multi-Function test set and a sales promotion of the T-49C Transponder/TCAS test set accounted for this increase. However, the commercial market remains weak, primarily as a result of the weak financial position of most commercial airlines. For the three months ended September 30, 2003, net sales decreased $366,186 (12.3%), as compared to the three months ended September 30, 2002. Government sales decreased $846,101 (32.4%) for the three months ended September 30, 2003 as compared to the three months ended September 30, 2002. The decrease in sales is primarily attributed to the reduced shipments of the AN/APM-480 to the U.S. Navy as discussed above. Sales of other government products also declined, but were partially offset by an increase in the shipment of Precision DME test sets. Commercial sales increased $479,915 (128.3%) for the three months ended September 30, 2003 as compared to the same period last year. The introduction of the TR-220 Multi-Function test set accounted for most of this increase. -9- Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued) Results of Operations (continued) Gross Margin Gross margin dollars increased $134,521 (4.4%) for the six months ended September 30, 2003, as compared to the same period in the prior fiscal year. The increase in gross margin, for the most part, is attributed to improved production efficiencies, lower warranty costs and higher margins on certain products, partially offset by lower volume. The gross margin percentage for the six months ended September 30, 2003 was 56.3% as compared to 52.5% for the six months ended September 30, 2002. Gross margin dollars decreased $172,413 (10.8%) for the three months ended September 30, 2003, as compared to the same period in the prior fiscal year. This decrease in gross margin, for the most part, is attributed to the lower sales volume. The gross margin percentage for the three months ended September 30, 2003 was 54.4% as compared to 53.5% for the three months ended September 30, 2002 Operating Expenses Selling, general and administrative expenses increased $85,929 (6.3%) for the six months ended September 30, 2003 as compared to the six months ended September 30, 2002. An increase in legal fees associated with an appeal of an award of a significant contract by the U.S. Army to another contractor, an increase in administrative salaries and consulting fees, and an increase in sales and marketing activities was partially offset by lower selling commissions and relocation expenses. Selling, general and administrative expenses decreased $76,002 (9.6%) for the three months ended September 30, 2003 as compared to the three months ended September 30, 2002. Lower relocation expenses for new employees and selling commissions was partially offset by an increase in administrative salaries and consulting fees. Engineering, research and development expenses increased $82,819 (19.8%) and $199,002 (22.9%), respectively, for the three and six months ended September 30, 2003, as compared to same periods in the prior fiscal year. The higher level of expenditures is associated with an increase in research and development activities, including the next generation of IFF test sets, developing a foundation technology for future products, and incorporating other product enhancements. The Company has also begun work on a bench test set, which will be a new market and diversification opportunity for the Company. Income Taxes Income taxes decreased $70,902, and $53,909, respectively, for the three and six months ended September 30, 2003 as compared to the same periods last year as a result of the lower profit. 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. -10- Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued) Liquidity and Capital Resources At September 30, 2003 the Company had positive working capital of $4,388,849 as compared to $4,154,887 at March 31, 2003. For the six months ended September 30, 2003, cash provided by operations was $73,322 as compared to $1,528,570 for the six months ended September 30, 2002. This decrease in cash from operations is primarily attributable to an increase in inventories, an increase in other assets, a decrease in accrued expenses and payment of income taxes partially by a decrease in accounts receivable. Cash declined $35,646 for the six months ended September 30, 2003 due primarily to payment of income taxes, purchases of capital equipment and an increase in other assets. The Company has a line of credit of $1,750,000 from Fleet Bank.. 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, 2003, 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 expired at September 30, 2003 and the Company has received a commitment from the bank to renew this line for another year. 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 in the event the cash is needed for an acquisition. Some of this cash will be used to purchase Innerspace Technology, Inc. (see above). There was no significant impact on the Company's operations as a result of inflation for the six months ended September 30, 2003. 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, 2003. -11- 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, 2003, 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, 2003, the date of the evaluation by the Chief Executive Officer and the Principal Accounting Officer. Item 6. Exhibits and Reports on Form 8-K a. Exhibits Press Release Dated November 12, 2003. b. Reports on Form 8-K. None. 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, 2003 By: /s/ Harold K. Fletcher ---------------------- Harold K. Fletcher Chairman and President Date: November 14, 2003 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 14, 2003 /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 14, 2003 /s/ Joseph P. Macaluso ---------------------- Joseph P. Macaluso Principal Accounting Officer -14- EX-99 3 e16246ex_99.txt PRESS RELEASE Exhibit 99 Tel-Instrument Electronics Corp Announces Results For Second Quarter and Letter of Intent to Acquire Innerspace Technology, Inc. Carlstadt, NJ-November 12, 2003-Tel-Instrument Electronics Corp ("TEL" or the "Company") today announced its financial results for the three and six months ended September 30, 2003: Three Months Ended Six Months Ended September 30, September 30, 2003 2002 2003 2002 ---- ---- ---- ---- Sales $2,616,716 2,982,902 $5,674,622 5,832,635 Net Income Before Taxes 205,409 381,841 675,621 810,564 Provision For Taxes 81,642 152,544 269,911 323,820 Net Income $ 123,767 229,297 $ 405,710 486,744 Net Income Per Share, Diluted $0.06 $0.11 $0.18 $0.23 Weighted Average Shares Outstanding, Diluted 2,202,281 2,162,386 2,199,435 2,162,032 Sales for the three and six months ended September 30, 2003 declined $366,186 (12.3%) and $158,103 (2.7%), as compared to the same periods in the last fiscal year. The decrease in sales is primarily attributed to the reduced shipments of the AN/APM-480 to the U.S. Navy. Deliveries of the AN/APM-480 continue, but accounted for only 32.7% and 30% of total sales, respectively, for the three and six months ended September 30, 2003, as compared to 64.9% and 59.3%, respectively, for the same periods in the prior fiscal year. The Company, in agreement with the U.S. Navy, has temporarily decreased the number of units it is currently shipping in anticipation of these units being returned for upgrades and enhancements. The total number of units under contract has not changed. The Company anticipates an improvement in sales during the second half of the current fiscal year. The introduction of the TR-220 Multi-Function test set, a sales promotion of the T-49C Transponder/TCAS test set, and additional sales of Precision DME test sets partially offset these lower shipments. Investment in new product development continues, and these expenses increased 19.8% and 22.9%, respectively, for the three and six months ended September 30, 2003, as compared to the previous year. Research and development activities include the next generation of IFF test sets, developing a foundation technology for future products, and incorporating other product enhancements to existing models. The Company has also begun work on a bench test set, which will be a new market and a diversification opportunity for the Company. Innerspace Technology, Inc The Company today announced that is has signed a non-binding letter of intent to acquire privately held Innerspace Technology, Inc. (ITI) of Waldwick, NJ. ITI has been in business for over 30 years designing, manufacturing and distributing a variety of shipboard and underwater instruments to support hydrographers, oceanographers, researchers, engineers, geophysicists, and surveyors worldwide. ITI has total annual sales of approximately $1 million dollars, and the letter of intent provides for a purchase price of $547,000, options to purchase 25,000 TEL shares, and employment arrangements for the two principals, subject to the Company's satisfactory completion of its due diligence investigation, completion of a definitive acquisition agreement, and approval of the Company's Board of Directors. The Company hopes to significantly increase the sales of ITI's products by expanding distribution and enhancing marketing and product development. Mr. Harold K. Fletcher, CEO of Tel-Instrument, said, "This is an important first step in the Company's diversification program. We are excited about this opportunity to penetrate a market outside of our traditional market. Together, Tel and ITI will be a strong team." Semaphore Capital Advisors, LLC of Stamford, CT, advised the Company on this transaction. The Company continues to actively pursue other opportunities in both the commercial and government markets, both domestically and internationally. The Company will hold its Annual Meeting of Shareholders on November 12, 2003. The meeting will be at the Company's facilities at, 728 Garden Street, Carlstadt, NJ, at 4:00 p.m. This press release includes statements that are not historical in nature and may be characterized as "forward-looking statements," including those related to future financial and operating results, benefits, and synergies of the combined companies, 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 which 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. The Company disclaims any intention or obligation to update any forward-looking statements as a result of developments occurring after the date of this press release. Tel-Instrument is a leading designer and manufacturer of avionics test and measurement solutions for the global commercial air transport, general aviation, and government/military aerospace and defense markets. Tel-Instrument provides instruments to test, measure, calibrate and repair a wide range of airborne navigation and communication equipment. For further information please visit our website at www.telinstrument.com. The Company's stock is traded in the NASDAQ System under the symbol TINE. Contact: Mr. Joseph P. Macaluso, 201-933-1600 -----END PRIVACY-ENHANCED MESSAGE-----