-----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, QLn5Y85HlaMTRuhSLAhsWxInEy1Dzb2AcV4Uxzu9zUmpA8E+14sHs9Rxq9oST/qi 4K/gt769+R9fE1Flz7LeKw== 0000891092-04-004089.txt : 20040816 0000891092-04-004089.hdr.sgml : 20040816 20040816152327 ACCESSION NUMBER: 0000891092-04-004089 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20040630 FILED AS OF DATE: 20040816 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: 001-31990 FILM NUMBER: 04978350 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 e18860_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 June 30, 2004 |_| 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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X| 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 August 9, 2004. TEL-INSTRUMENT ELECTRONICS CORPORATION TABLE OF CONTENTS PAGE ---- Part I - Financial Information Item 1. Condensed Consolidated Financial Statements (Unaudited): Condensed Consolidated Comparative Balance Sheets June 30, 2004 and March 31, 2004 1 Condensed Consolidated Comparative Statements of Operations - Three Months Ended June 30, 2004 and 2003 2 Condensed Consolidated Comparative Statements of Cash Flows - Three Months Ended June 30, 2004 and 2003 3 Notes to Condensed Consolidated Financial Statements 4-7 Item 2. Management's Discussion and Analysis of the Results of Operations and Financial Conditions 8-11 Item 3. Quantitative and Qualitative Disclosures about Market Risk 12 Item 4. Controls and Procedures 12 Part II - Other Information Item 6. Exhibits and Reports on Form 8-K 12 Signatures 13 Certifications 14-17 Item 1 - Financial Statements TEL-INSTRUMENT ELECTRONICS CORPORATION CONDENSED CONSOLIDATED COMPARATIVE BALANCE SHEETS
June 30, 2004 March 31, 2004 ------------- -------------- (unaudited) ASSETS Current assets: Cash and cash equivalents $ 868,062 $1,509,828 Accounts receivable, net 2,374,033 1,266,905 Inventories, net 2,173,318 2,202,143 Prepaid expenses and other current assets 265,716 263,734 Deferred income tax benefit 546,384 581,348 ---------- ---------- Total current assets 6,227,513 5,823,958 Property, plant and equipment, net 920,694 867,886 Intangible assets, net 391,498 413,047 Other assets 287,610 287,610 ---------- ---------- Total assets $7,827,315 $7,392,501 ========== ========== LIABILITIES & STOCKHOLDERS EQUITY Current liabilities: Note payable - related party - current portion $ 50,000 $ 250,000 Convertible subordinated notes - related party 7,500 7,500 Notes payable - other 87,000 87,000 Capitalized lease obligations - current portion 17,104 24,768 Accounts payable 597,348 346,169 Deferred revenues 70,538 44,663 Accrued payroll, vacation pay payroll taxes 386,113 333,180 Accrued expenses 1,023,465 963,528 ---------- ---------- Total current liabilities 2,239,068 2,056,808 Notes payable - related party - non-current portion 200,000 -- Deferred taxes - long term 48,000 48,000 ---------- ---------- Total liabilities 2,487,068 2,104,808 Stockholders' equity: Common stock 214,418 214,418 Additional paid-in capital 3,960,886 3,960,886 Retained earnings 1,164,943 1,112,389 ---------- ---------- Total stockholders' equity 5,340,247 5,287,693 ---------- ---------- Total liabilities and stockholders' equity $7,827,315 $7,392,501 ========== ==========
See accompanying notes to condensed financial statements -1- TEL-INSTRUMENT ELECTRONICS CORPORATION CONDENSED CONSOLIDATED COMPARATIVE STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended ------------------ June 30, 2004 June 30, 2003 ------------- ------------- Net sales $ 2,812,800 $ 3,057,906 Cost of sales 1,335,240 1,286,522 ----------- ----------- Gross margin 1,477,560 1,771,384 Operating expenses: Selling, general and administrative 833,211 734,999 Amortization of acquired intangibles 21,549 -- Engineering, research and development 532,450 567,910 ----------- ----------- Total operating expenses 1,387,210 1,302,909 ----------- ----------- Income from operations 90,350 468,475 Other income (expense): Interest income 3,504 10,722 Interest expense (6,337) (8,985) ----------- ----------- Income before taxes 87,517 470,212 Provision for income taxes 34,963 188,269 ----------- ----------- Net income 52,554 281,943 =========== =========== Basic income per common share $ 0.02 $ 0.13 =========== =========== Diluted income per common share $ 0.02 $ 0.13 =========== =========== Dividends per share None None Weighted average shares outstanding Basic 2,144,151 2,138,551 Diluted 2,270,496 2,169,585 See accompanying notes to condensed financial statements -2- TEL-INSTRUMENT ELECTRONICS CORPORATION CONDENSED CONSOLIDATED COMPARATIVE STATEMENTS OF CASH FLOWS (Unaudited)
Three Months ended ------------------ June 30, 2004 June 30, 2003 ------------- ------------- Cash flows from operating activities: Net income $ 52,554 $ 281,943 Adjustments to reconcile net income to net Cash provided by operating activities: Deferred income taxes 34,964 (62,293) Depreciation 74,907 60,313 Amortization of acquired intangibles 21,549 -- Changes in assets and liabilities: Increase in accounts receivable (1,107,128) (47,064) Decrease (increase) in inventories 28,825 (110,092) Increase in prepaid expenses & other current assets (1,982) (37,506) Increase in other assets -- (7,501) Increase in accounts payable 251,179 86,133 Increase in income taxes payable -- 165,561 Increase in accrued payroll, vacation pay and payroll taxes 52,933 58,078 Increase (decrease) in deferred revenues and accrued expenses 85,812 (11,310) ----------- ----------- Net cash (used in) provided by operating activities (506,387) 376,262 ----------- ----------- Cash flows from investing activities: Purchases of property, plant and equipment (127,715) (49,720) ----------- ----------- Net cash used in investing activities (127,715) (49,720) ----------- ----------- Cash flows from financing activities: Proceeds from the exercise of stock options -- 14,625 Repayment of loan on life insurance policy -- (172,426) Payment of capitalized lease obligations (7,664) (5,957) ----------- ----------- Net cash used in financing activities (7,664) (163,758) ----------- ----------- Net (decrease) increase in cash and cash equivalents (641,766) 162,784 Cash and cash equivalents at beginning of period 1,509,828 1,680,124 ----------- ----------- Cash and cash equivalents at end of period $ 868,062 $ 1,842,908 =========== =========== Taxes paid -- $ 85,000 Interest paid $ 2,591 $ 23,362
See accompanying notes to condensed financial statements -3- TEL-INSTRUMENT ELECTRONICS CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 1 Basis of Presentation In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly the financial position of Tel-Instrument Electronics Corp. as of June 30, 2004, the results of operations for the three months ended June 30, 2004 and June 30, 2003, and statements of cash flows for the three months ended June 30, 2004 and June 30, 2003. 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, 2004 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, 2004. Note 2 Accounts Receivable, net Accounts receivable, net consist of: June 30, 2004 March 31, 2004 ------------- -------------- Commercial $ 694,706 $ 862,259 Government 1,720,925 446,244 Less: Allowance for doubtful debts (41,598) (41,598) ---------- ---------- $2,374,033 $1,266,905 ========== ========== Note 3 Inventories, net Inventories, net consist of: June 30, 2004 March 31, 2004 ------------- -------------- Purchased parts $ 931,983 $ 846,782 Work-in-process 1,362,230 1,401,722 Finished Goods 35,003 94,537 Less: Reserve for obsolescence (155,898) (140,898) ---------- ---------- $2,173,318 $2,202,143 ========== ========== -4- TEL-INSTRUMENT ELECTRONICS CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) Note 4 Earnings Per Share The Company's basic income per common 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 common 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 had 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% and 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 306,300 outstanding stock options under SFAS No. 123, the pro forma amounts are indicated below: Three Months Ended Three Months Ended ------------------ ------------------ June 30, 2004 June 30, 2003 ------------- ------------- Net income - as reported $ 52,554 $281,943 Less fair value of stock options (11,318) (17,333) -------- -------- Net income - pro forma 41,236 264,610 ======== ======== Basic earnings per share - as reported 0.02 0.13 Basic earnings per share - pro forma 0.02 0.12 Diluted earnings per share - as reported 0.02 0.13 Diluted earnings per share - pro forma 0.02 0.12 -5- TEL-INSTRUMENT ELECTRONICS CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) Note 6 Segment Information Information is presented for the Company's three reportable segments, avionics government, avionics commercial and marine systems. The marine systems division was acquired on January 16, 2004, and, as such, no amounts are shown for the quarter ended June 30, 2003. There are no inter-segment revenues. The Company is organized primarily on the basis of its avionics and marine instrument products. The avionics government market consists primarily of the design, manufacture, and sale of test equipment to U.S. and foreign governments and militaries, either direct or through distributors. The avionics commercial market consists primarily of the design, manufacture, and sales of test equipment to domestic and foreign airlines, to commercial distributors, and to general aviation repair and maintenance shops. The avionics commercial market also includes sales related to repairs and calibration which have lower gross margins. The Company primarily develops and designs test equipment for the avionics industry and, as such, the Company's products and designs cross segments. The marine instrumentation systems segment consists of sales to hydrographic, oceanographic, researchers, engineers, geophysicists, and surveyors. The table below presents information about sales and gross margin. Cost of sales includes certain allocation factors for indirect costs. Additionally, administrative expenses have been allocated between avionics and marine systems based upon a percentage of total sales.
Three Months Ended Avionics Avionics Avionics Marine Corporate June 30, 2004 Gov't Comm'l. Total Systems Items Total - ------------- ---------- ---------- ---------- --------- --------- ---------- Revenues $1,901,858 $ 681,213 $2,583,071 $ 229,729 $2,812,800 Cost of Sales 787,576 406,178 1,193,754 141,486 1,335,240 ---------- ---------- ---------- ----- ---------- Gross Margin 1,114,282 275,035 1,389,317 88,243 1,477,560 ---------- ---------- ---------- ----- ---------- Engineering, research, and 490,865 41,585 532,450 Development Selling, general, and admin. 685,357 147,854 833,211 Amortization of intangibles 21,549 21,549 Interest expense, net 2,576 257 -- 2,833 ---------- --------- -------- ---------- Total expenses 1,178,798 189,696 21,549 1,390,043 ---------- --------- -------- ---------- Income before income taxes $ 210,519 $(101,453) $(21,549) $ 87,517 ========== ========= ======== ==========
Three Months Ended Avionics Avionics Avionics Marine Corporate June 30, 2003 Gov't Comm'l. Total Systems Items Total - ------------- ---------- ---------- ---------- --------- --------- ---------- Revenues $1,869,489 $1,188,417 $3,057,906 -- $3,057,906 Cost of Sales 726,926 559,596 1,286,522 -- 1,286,522 ---------- ---------- ---------- ----- ---------- Gross Margin 1,142,563 628,821 1,771,384 -- 1,771,384 ---------- ---------- ---------- ----- ---------- Engineering, research,& dev. 567,910 567,910 Selling, general, and admin. 734,999 734,999 Interest expense, net (1,737) (1,737) ---------- ---------- Total expenses 1,301,172 1,301,172 Income before income taxes $ 470,212 -- $ 470,212 ========== ===== ==========
-6- TEL-INSTRUMENT ELECTRONICS CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) Note 7 Acquisition On January 16, 2004, the Company acquired Innerspace Technology, Inc. ("ITI") for $547,000, including a note and employment agreements with principals. The following table represents the unaudited consolidated results of operations as though the acquisition of ITI occurred on April 1, 2003. Quarter Ended Quarter Ended June 30, 2004 June 30, 2003 (as reported) (pro forma) Net sales $2,812,800 $3,267,906 Income before taxes 87,517 431,776 Net income 52,554 259,281 Basic income per common share 0.02 0.12 Diluted income per common share 0.02 0.12 -7- Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION Results of Operations A number of the statements made by the Company in this report may be regarded as "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, among others, statements concerning the Company's outlook, pricing trends and forces within the industry, the completion dates of capital projects, expected sales growth, cost reduction strategies and their results, long-term goals of the Company and other statements of expectations, beliefs, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. All predictions as to future results contain a measure of uncertainty and accordingly, actual results could differ materially. Among the factors that could cause a difference are: changes in the general economy; changes in demand for the Company's products or in the cost and availability of its raw materials; the actions of its competitors; the success of our customers; technological change; changes in employee relations; government regulations; litigation, including its inherent uncertainty; difficulties in plant operations and materials; transportation, environmental matters; and other unforeseen circumstances. A number of these factors are discussed in the Company's filings with the Securities and Exchange Commission. Critical Accounting Policies In preparing the 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 or write-downs 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 reserves or inventory write-downs may be required. -8- Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued) Results of Operations (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. Warranty reserves - warranty reserves are 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 reserves are adjusted from time to time when actual warranty claim experience differs from estimates. 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. Overview For the first quarter ended June 30, 2004, total sales decreased 8% to $2,812,800 and net income decreased to $52,554 in the first quarter of the current fiscal year as compared to $281,943 for the same period last year. In January 2004, the Company completed its acquisition of Innerspace Technology, Inc. ("ITI"), a company selling its products to the marine industry. ITI is a wholly-owned subsidiary of the Company, and ITI's balance sheet and results of operations are consolidated in the Company's financial statements for the quarter ended June 30, 2004 (see Note 6 to the Notes to the Financial Statements). For the quarter ended June 30, 2004, sales of avionics products were $2,583,071 (92% of total sales), as compared to sales of $3,057,906 (100% of total sales) for the quarter ended June 30, 2003. The decline in sales is primarily associated with the decrease in avionics commercial sales. Income before taxes for the avionics segment was $210,549 for the quarter ended June 30, 2004 as compared to $470,212 for the quarter ended June 30, 2003. The marine systems segment generated sales of $229,729 (8% of total sales), and incurred a loss before taxes of $101,453 for the quarter ended June 30, 2004. -9- Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued) Results of Operations (continued) Overview (continued) Deliveries of the AN/APM-480 IFF (Identification, Friend or Foe) Transponder Set Test Set (TSTS) to the U.S. Navy continued in the first quarter of fiscal year 2005. As of June 30, 2004, the Company has shipped 1,203 of the 1,300 units under contract, and expects to ship the remaining units in the current fiscal year. This program firmly established the Company as one of the leading suppliers in the avionics test equipment industry, and improved its market position. Investment in new product development continues in order to meet the expected needs 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 be returned and modified, in the future, to accommodate more sophisticated IFF testing. Although there is no assurance that the Company will receive any such modification contracts, the Company believes that it is well positioned to obtain such contracts. The Company has been active in responding to requests for quotation for new government programs, which will award new test equipment contracts, and is currently in the process of submitting proposals for several large government programs. The Company continues actively to pursue opportunities in both the commercial and government avionics and marine systems markets, both domestically and internationally. 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 months ended June 30, 2004, total avionics sales decreased $474,835 (15.5%) to $2,583,071 as compared to the three months ended June 30, 2003. Avionics commercial sales decreased $507,204 (42.7%) to $681,213 for the quarter ended June 30, 2004 as compared to $1,188,417 for the same period in the prior fiscal year. Commercial sales for the first quarter ended June 30, 2003 were higher as a result of a sales promotion of the T-49C Transponder/TCAS test set, resulting in higher commercial sales last year. Avionics government sales increased $32,369 (1.7%) to $1,901,858 as compared to $1,869,489 for the first three months of the prior fiscal year. Shipment of the T-30CM under a contract with the U.S. Navy and sales of the AN/APM-480 to customers other than the U.S. Navy were mostly offset by a decline in sales of other government products, and lower sales of the AN/APM-480 to the U.S. Navy. Marine systems sales were $229,729 for the quarter ended June 30, 2004. Gross Margin Gross margin decreased $293,824 (16.6%) for the three months ended June 30, 2004 as compared to the same three months in the prior fiscal year. The decrease in gross margin is primarily attributed to the lower sales volume, lower absorption of overhead expenses, and a change in product mix. The gross margin percentage for the three months ended June 30, 2004 was 52.5% as compared to 57.9% for the three months ended June 30, 2003, as a result of the lower sales volume, including the associated lower absorption rate of overhead expenses, change in product mix and ITI's lower gross margin. -10- Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued) Results of Operations (continued) Operating Expenses Selling, general and administrative expenses increased $98,212 (13.4%) for the three months ended June 30, 2004, as compared to the three months ended June 30, 2003. This increase is primarily attributed to the selling expenses for the marine systems division, which were not included in the quarter ended June 30, 2003. Engineering, research and development expenses decreased $35,460 (6.2%). Lower outside contract expenditures was partially offset by engineering expenditures associated with the marine systems division and with higher recruitment fees. Income Taxes A provision for income taxes was recorded in the amount of $34,963 for the three months ended June 30, 2004 as compared to a tax provision of $188,269 for the three months ended June 30, 2003. These amounts represent the effective federal and state tax rate of approximately 40% on the Company's net income before taxes. Liquidity and Capital Resources At June 30, 2004 the Company had working capital of $3,988,445 as compared to $3,767,150 at March 31, 2004. In May 2004, the Company and its Chairman/President renegotiated the terms of the notes payable-related party. As such, $200,000 of these notes was re-classified as long-term. The Notes now become due in consecutive years beginning March 31, 2005. For the three months ended June 30, 2004, the Company used $506,387 in operations as compared to the cash provided by operations of $376,262 for the three months ended June 30, 2003. This decline in cash from operations is primarily attributed to an increase in accounts receivable, which almost doubled from March 31, 2004 as a result of significant amount of the sales being shipped at the end of the quarter, and the decrease in net income. 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. The Company does not pay to maintain this open line. At June 30, 2004 the Company had no outstanding balance. The line of credit is collateralized by substantially all of the assets of the Company and expires in September 2004. The credit facility requires the Company to maintain certain financial covenants. As of June 30, 2004, the Company was in compliance with all financial covenants. 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 acquisition. There was no significant impact on the Company's operations as a result of inflation for the three months ended June 30, 2004. 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, 2004. -11- Item 3. Quantitative and Qualitative Disclosures about Market Risk The Company, at this time, is generally not exposed to financial market risks, including changes in interest rates, foreign currency exchange rates, and marketable equity security prices. 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 SEC, 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 Principal Accounting Officer evaluated the Company's Disclosure Controls and Procedures at June 30, 2004 and have concluded that they are effective, based on their evaluation of these controls and procedures required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15. There were no changes in internal control over financial reporting identified in connection with the evaluation as of June 30, 2004 by the Chief Executive Officer and Principal Accounting Officer, required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15, which occurred during our last fiscal quarter and which have materially affected, or are reasonably likely to materially affect, internal controls over financial reporting. Part II. Other Information Item 6. Exhibits and Reports on Form 8-K a. Exhibits 31.1 Certification by CEO pursuant to Rule 15d-14 under the Securities Exchange Act. 31.2 Certification by CFO pursuant to Rule 15d-14 under the Securities Exchange Act. 32.1 Certification by CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification by CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. b. Reports on Form 8-K. Report on Form 8-K regarding press release announcing results for the year ended March 31, 2004 was submitted on June 22,2004. Report on Form 8-K regarding press release announcing the certification of its T-47G Flight Line Test Set for use with DoD Mark XII "Identification, Friend or Foe (IFF) platforms was submitted on July 1, 2004. -12- 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: August 13, 2004 By: /s/ Harold K. Fletcher ---------------------------- /s/ Harold K. Fletcher Chairman and President Date: August 13, 2004 By: /s/ Joseph P. Macaluso ---------------------------- /s/ Joseph P. Macaluso Principal Accounting Officer -13- EX-31.1 2 e18860ex31-1.txt CEO CERTIFICATION Tel-Instrument Electronics Corp CEO Certification Exhibit 31.1 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 officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a) Designed such disclosure controls and procedures, or caused such disclosure and controls procedures to be designed under our supervision, 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 and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, 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 and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 13, 2004 /s/ Harold K. Fletcher ---------------------- /s/ Harold K. Fletcher Chairman and President EX-31.2 3 e18860ex31-2.txt CFO CERTIFICATION Tel-Instrument Electronics Corp CFO Certification Exhibit 31.2 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 officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a) Designed such disclosure controls and procedures, or caused such disclosure and controls procedures to be designed under our supervision, 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 and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, 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 and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 13, 2004 /s/ Joseph P. Macaluso -------------------------------- /s/ Joseph P. Macaluso Principal Accounting Officer EX-32.1 4 e18860ex32-1.txt CEO CERTIFICATION Tel-Instrument Electronics Corp CEO Certification Exhibit 32.1 CERTIFICATION PURSUANT TO 8 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Tel-Instrument Electronics Corp. (the "Company"), on Form 10-Q for the period ending June 30, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Harold K. Fletcher, President and Chief Executive Officer of the Company, certify, pursuant to and solely for the purpose of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge and based on my review of the Report: 1. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. By: /s/ Harold K. Fletcher ---------------------- /s/ Harold K. Fletcher Chairman and President August 13, 2004 A signed original of this written statement required by Section 906 has been provided to Tel-Instrument Electronics Corp and will be retained by Tel-Instrument Electronics Corp and furnished to the Securities and Exchange Commission or its staff upon request. EX-32.2 5 e18860ex32-2.txt CFO CERTIFICATION Tel-Instrument Electronics Corp CFO Certification Exhibit 32.2 CERTIFICATION PURSUANT TO 8 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Tel-Instrument Electronics Corp. (the "Company"), on Form 10-Q for the period ending June 30, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Joseph P. Macaluso, Principal Accounting Officer of the Company, certify, pursuant to and solely for the purpose of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge and based on my review of the Report: 3. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 4. the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. By: /s/ Joseph P. Macaluso ---------------------------- /s/ Joseph P. Macaluso Principal Accounting Officer August 13, 2004 A signed original of this written statement required by Section 906 has been provided to Tel-Instrument Electronics Corp and will be retained by Tel-Instrument Electronics Corp and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----