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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year Commission File No.
ended March 31, 2000 33-18978
TEL-INSTRUMENT ELECTRONICS CORP.
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(Exact name of Registrant as specified in its charter)
New Jersey 22-1441806
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(State of incorporation) (IRS Employer Identification Number)
728 Garden Street
Carlstadt, New Jersey 07072
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 933-1600
Securities registered pursuant to Section 12(b) of the Act:
None
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Securities registered pursuant to Section 12(g) of the Act:
None
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Indicate by checkmark 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 .
--- ---
The aggregate market value of the voting Common Stock (par value $.10 per share)
held by non-affiliates on June 12, 2000 was $2,518,697 using the price of the
last trade on June 12, 2000.
2,113,290 shares of Common Stock were outstanding as of June 12, 2000.
Total Pages - 42
Exhibit Index - pages 40-41
PART I
Item 1. Business
General
Tel-Instrument Electronics Corp. ("Tel" or the "Company") designs,
manufactures and sells test equipment to the general aviation and
commercial aviation market and to the government/military aviation market,
both domestically and internationally. The Company has been in business
since 1947.
Tel's instruments are used to test navigation and communications equipment
installed in aircraft and range in list price from $7,000 to $60,000 per
unit. Tel is constantly revising and improving its test instruments (see
"Research and Development") in anticipation of customers' needs. The
development of multifunction "smart" testers, for example, has made it
easier for customers to perform ramp tests with less training.
For the year ended March 31, 2000, sales increased to over $5,000,000 and
the Company generated income before taxes of approximately $359,000 (see
Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations).
Management continues to be encouraged about the future as a result of its
substantial backlog, the unexpected increase in commercial sales, efforts
of its international distributors, the progress on the project for
Precision DME ramp and bench testers for Marconi Communications, Italy,
the European prime contractor, and other products under development. The
current backlog exceeds $16,000,000, and includes approximately
$12,600,000 in orders from the U.S. Navy for the AN/APM 480 Test Sets.
This backlog will be shipped over the next few years.
The Company continues to focus its efforts in the government market and
has been very active in responding to requests from the U.S. Government
for quotations, in addition to adapting its product designs to respond to
these requests.
On August 12, 1997, the Company received notice that it was awarded a
major contract from the U.S. Navy ("Navy"). The initial order is for
$949,324 to provide five AN/APM 480 (Identification Friend or Foe) test
sets for Navy evaluation and for the associated testing and documentation.
The awarding of this contract represented a major milestone for the
Company and its engineering efforts since this contract could be a
significant source of future revenues. This contract includes options for
up to 1,300 units which the Navy can exercise through calendar year 2001.
The Company has completed the testing portion of this contract and has
received orders for 963 units. The Company began shipping the production
units in June 2000. There is no assurance that all of these options will
be exercised by the Navy or that the gross margin on this contract will be
at the historical level.
In June 2000, the Company received a substantial order from a major
freight carrier through its domestic distributor for commercial test sets
with a sales value exceeding $900,000.
2
Item 1. Business (Continued)
General (Continued)
The table below sets forth the composition of Tel's sales for the last
three fiscal years.
Year Ended Year Ended Year Ended
March 31, March 31, March 31,
2000 1999 1998
---- ---- ----
Commercial $1,957,859 $1,753,723 $1,489,563
Government 3,172,923 1,730,776 2,469,679
---------- ---------- ----------
Total 5,130,782 3,484,499 3,959,242
========== ========== ==========
In the fiscal year ended March 31, 1995, Tel won a competitive
solicitation from the U.S. Air Force (USAF) for the Model T-30CM. Sales
derived from this contract represented 34% of total government sales for
the year ended March 31, 1998. This contract was completed in the third
quarter of fiscal year 1998, and the Company derived no revenues from this
contract in fiscal years 1999 and 2000.
Foreign commercial sales are made direct, through American export agents
or the Company's international distributors at a discount reflecting the
15% selling commission under oral, year-to-year arrangements. For the
years ended March 31, 2000, 1999 and 1998, foreign commercial sales were
20%, 19% and 21%, respectively, of total commercial sales.
In June 1998, the Company signed an exclusive distribution agreement with
Muirhead Avionics based in the United Kingdom to represent the Company in
parts of Europe. Sales to Muirhead represented approximately 5% and 10% of
total sales for the fiscal years 2000 and 1999, respectively.
In December 1998, the Company received a $447,000 contract to supply
T-47CC ramp test sets to the Australian military through Milspec Services,
the Company's exclusive distributor in Australia and New Zealand. This
test set incorporates a recently developed directional antenna to the
T-47C, and the Company delivered these units in fiscal year 2000. Sales to
this distributor represented approximately 12% of total sales for fiscal
year 2000.
In May 1999, the Company received a $396,262 order for its Precision DME
ramp test units from Italy. These units were delivered in the first
quarter of fiscal year 2001. In addition, the Company received a contract
for $680,000 to develop a Precision DME bench test set from this same
customer.
Tel sells its products either directly or through distributors to its many
domestic commercial customers. One domestic commercial customer accounted
for 11% of commercial sales in fiscal year 2000. There is no written
agreement with these distributors who receive a 15% discount for stocking
and selling these products. Tel also gives a 5% to 10% discount to
non-stocking distributors, depending on their sales volume and promotional
effort. Independent sales representatives receive 5% to 10% commissions,
depending on their sales volume and promotional efforts. One domestic
distributor accounted for approximately 10%, 13% and 15% of commercial
sales for the years ended March 31, 2000, 1999 and 1998, respectively.
3
Item 1. Business (Continued)
General (Continued)
Set forth below is Tel's backlog at March 31, 2000, 1999, and 1998.
Commercial Government Total
---------- ---------- -----
March 31, 2000 $ 665,072 $14,355,429 $15,020,501
March 31, 1999 $ 379,404 $ 2,338,011 $ 2,717,415
March 31, 1998 $ 65,800 $ 1,655,678 $ 1,721,478
Tel believes that most of the backlog at March 31, 2000 will be delivered
during the next few fiscal years.
All of the backlog is pursuant to purchase orders and all of the
government contracts are fully funded. However, government contracts are
always susceptible to termination for convenience.
Tel obtains its purchased parts from a number of suppliers. These
materials are standard in the industry and Tel foresees no difficulty in
obtaining purchased parts, as needed, at acceptable prices.
Markets and Competition
The Company operates its commercial and military business as one market,
using best commercial practice in manufacturing products for the
government.
The general aviation market consists of some 1,000 repair and maintenance
service shops, at private and commercial airports in the United States,
which purchase test equipment to assist in the repair of aircraft
electronics. The commercial aviation market consists of approximately 80
domestic and foreign commercial airlines.
The civilian market for avionic testing equipment is dominated by three
manufacturers, of which Tel is believed to be the third largest. In the
general aviation and airline market, Tel competes principally with IFR, an
independent firm, and with JC Air, a division of BF Goodrich. This market
is relatively small and highly competitive. Tel has generally been
successful because of its high quality products, prices, and responsive
service. Tel also provides customers with calibration and repair services.
At this time, the Company believes that the foreign commercial market
represents a better opportunity than the U.S. commercial market for
growth. The foreign market is larger than the domestic market and many
foreign airlines are upgrading to meet U.S. requirements. The Company has
entered into distribution arrangements with Muirhead to distribute in
Europe and with an exclusive distributor in Australia and New Zealand.
Additionally, the Company entered into an agreement with M.P.G.
Instruments S.R.L., wherein this distributor will have the exclusive sales
rights for Precision DME ramp and bench test units. The Company continues
to explore additional opportunities in other parts of the world.
4
Item 1. Business (Continued)
Markets and Competition (Continued)
Future domestic growth will depend on whether the U.S. Federal Aviation
Administration (FAA) implements plans to upgrade the U.S. air traffic
control system and on continuing recent trends towards more sophisticated
avionics systems, both of which would require the design and manufacture
of new test equipment. The Company continues to analyze the needs of the
market, in order to develop new and improved instruments to meet emerging
FAA requirements, and to redesign models to add functions and reduce the
cost. The Company believes its test equipment is recognized by its
customers for its quality, durability, reliability, and affordability.
The military market is large, but is dominated by large corporations with
substantially greater resources than Tel. Tel bids for government
contracts on competitive bids, on the basis of "small business set asides"
(i.e., statutory provisions requiring the military to entertain bids only
from statutorily defined small businesses), and on bids for sub-contracts
from major government suppliers.
Because of the larger size of the military market, in contrast to the
civilian market, Tel has been increasing its efforts to obtain military
contracts and sub-contracts. Although it is anticipated that the total
defense budget will continue to decline, management believes that the
portion devoted to operation and maintenance of existing and improved
avionics will be less adversely affected. Tel has increased its
concentration on meeting end user needs by modifying commercial designs to
satisfy special government/military requirements. This approach has
enabled Tel to sell the T-30D, T-36M, T-48I, T-47 family and T-49 family
to government agencies and prime contractors.
Tel's ability to compete in both the civil and the military aviation
market has been restricted in the past because of limited financial
resources. Tel has no patents or licenses which are material to its
business.
Research and Development
In the fiscal years ended March 31, 2000, 1999 and 1998, Tel spent
$1,051,833, $1,204,077, and $902,250, respectively, on the research and
development of new and improved products. None of these amounts was
sponsored by customers. Tel's management believes that continued and
increased expenditures for research and development are necessary to
enable Tel to expand its sales and generate profits.
The decrease in expenditures in fiscal year 2000 is associated with
certain development activities that were funded through contracts and,
therefore, included in cost of sales. Engineering, research and
development expenditures in 2000 were directed primarily toward
finalization of the design of the AN/APM 480, the T-36M, and new products
for other targeted markets, such as the T-49CF, T-47CC, T-48IC, and T-47N.
The Company owns all of these designs.
5
Item 1. Business (Continued)
Personnel
At June 12, 2000, Tel has twenty-two employees in manufacturing, materials
management, and quality assurance, nine in administration and sales, and
six in research and development, none of whom belongs to a union. While
the job market is tight, especially for technical personnel, Tel has
generally been able to add personnel as required. The Company also uses
several part-time consultants on an as needed basis. During fiscal year
2000, the Company employed a number of engineering consultants to finalize
the development of the AN/APM 480 test sets for the U.S. Navy.
Item 2. Properties
The Company leases 11,164 square feet in Carlstadt, New Jersey as its
manufacturing plant and administrative offices, pursuant to a ten year
lease expiring in August, 2008. Tel is unaware of any environmental
problems in connection with its location and, because of the nature of its
manufacturing activities, does not anticipate such problems. The Company
is contemplating leasing additional space to accommodate future growth.
Item 3. Pending Legal Proceedings
There are no material pending legal proceedings.
6
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Market Information
There has been no established public trading market for Registrant's
Common Stock. Subsequent to the public offering of the Company's Common
Stock in December 1988, the Common Stock has traded sporadically in the
over-the-counter market. During the fiscal year ended March 31, 2000, the
Company's Common Stock had the high and low bids of $3.75 and $1.25,
respectively. These quotations reflect inter-dealer prices, without retail
markup or commission and may not necessarily represent actual
transactions. On June 12, 2000, the bid was $2.25 and the ask was $2.50.
Approximate Number of Equity Security Holders
Number of Record
Holders as of
Title of Class March 31, 2000
-----------------------------------------------------------
Common Stock, par value 838
$.10 per share
Dividends
Registrant has not paid dividends on its Common Stock and does not expect
to pay such dividends in the foreseeable future.
7
Item 6. Selected Financial Data
Years Ended March 31,
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2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Statement of Operations Data:
Net revenues $ 5,130,782 $ 3,484,499 $ 3,959,242 $ 3,165,674 $ 2,318,088
----------- ----------- ----------- ----------- -----------
Operating costs and expenses:
Cost of sales 2,489,769 1,559,992 1,559,542 1,325,659 1,022,942
Selling, general and administrative 1,165,844 920,547 909,505 854,093 739,912
Engineering, research and development 1,051,833 1,204,077 902,250 486,884 390,399
----------- ----------- ----------- ----------- -----------
4,707,446 3,684,616 3,371,297 2,666,636 2,153,253
----------- ----------- ----------- ----------- -----------
Income (loss) from operations 423,336 (200,117) 587,945 499,038 164,835
Other expenses, net (64,378) (44,149) (68,847) (57,954) (69,156)
----------- ----------- ----------- ----------- -----------
Diluted income/(loss) before income taxes 358,958 (244,266) 519,098 441,084 95,679
Benefit from income taxes (1) 241,595 97,585 58,719 340,200 --
----------- ----------- ----------- ----------- -----------
Net income (loss) $ 600,553 $ (146,681) $ 577,817 $ 781,284 $ 95,679
=========== =========== =========== =========== ===========
Diluted income/(loss) per common share $ 0.28 $ (0.07) $ 0.28 $ 0.41 $ 0.04
=========== =========== =========== =========== ===========
Years Ended March 31,
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2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Balance Sheet Data:
Working capital (deficiency) $ 921,130 $ 507,582 $ 864,061 $ 440,978 $ (500,199)
Total assets 3,932,765 2,218,508 1,941,141 1,648,066 824,606
Long-term debt 301,682 266,486 300,000 365,000 100,000
Redeemable preferred stock -- -- -- -- 606,643
Stockholders' equity (deficiency) 1,522,047 919,093 1,060,068 455,254 (1,118,364)
(1) Income taxes recorded in accordance with FASB 109.
8
Item 7. Management's Discussion and Analysis of Financial Condition and 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 costs and availability of
its raw materials; the actions of 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.
Results of Operations 2000 Compared to 1999
Overview
For the year ended March 31, 2000 sales increased 47% to $5,130,782 and
net income before taxes increased to $358,958.
The Company has completed the design and testing for the U.S. Navy IFF
(Identification, Friend or Foe) Transponder Set Test Sets ("AN/APM 480").
The Company has received orders from the U.S. Navy for a total of 963
units of the AN/APM 480 with a value totaling over $12,500,000. The
contract with the U.S. Navy includes options for up to 1,300 units against
which the 963 have been ordered, the remainder of which the U.S. Navy can
exercise, on behalf of all U.S. military services, through calendar year
2001. However, there can be no assurance that the U.S. Navy will exercise
any additional of its purchase options under this contract. The Company
began shipping these units in June 2000. The units under this contract
will be shipped over the next few fiscal years. These orders represent a
significant milestone for the Company and also represent the successful
culmination of a major Company funded research and development effort.
9
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Results of Operations 2000 Compared to 1999 (Continued)
In January 2000, the Company received from Marconi Communications, through
its Italian intermediary, M.P.G. Instruments s.r.l., a contract in the
amount of $680,000 for Precision DME (Distance Measuring Equipment) Bench
Test Sets. This contract is incremental to the contract received in May
1999 for Precision DME Ramp Test Sets in the amount of $396,262. At this
time, Precision DME is directly solely to the European market. The Company
will design and build the Bench Test Set and expects to begin delivering
these units in early calendar year 2001. The order for the Precison DME
Ramp Test Sets was delivered in the first quarter of fiscal year 2001.
The Company's backlog currently exceeds $16,000,000. This backlog is
deliverable over the next few years.
See Note 1 to Financial Statements.
Sales
Total sales increased $1,646,283 (47.2%) for the year ended March 31, 2000
as compared to the year ended March 31, 1999.
Government sales increased $1,442,147 (83.3%) for the year ended March 31,
2000 as compared to the prior fiscal year. The increase in government
sales is attributed to the sales of the T-47 family of IFF test sets to
both domestic and international customers, including the T-47CC which
incorporates a directional antenna and the T-47N which includes an
interrogator test function. Government sales also increased as a result of
sales of the T-49CF which incorporates collision avoidance test scenarios
required by the U.S. Air Force. Government sales were also positively
affected by revenues associated with the documentation and test portion of
the U.S. Navy AN/APM 480 contract and revenues associated with completion
of certain milestones for the Company's Precision DME Bench Test Set.
Commercial sales increased $204,136 (11.6%) for the year ended March 31,
2000 as compared to the prior fiscal year. There is no assurance that the
positive trend of fiscal year 2000 will continue. However, in June 2000,
the Company received a substantial order from a major freight carrier
through its domestic distributor for commercial test sets with a sales
value exceeding $900,000. The commercial backlog at June 12, 2000 is
approximately $1,600,000. The increase is sales in both the commercial and
government segments is also attributed to the efforts of our international
distributors.
10
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Results of Operations 2000 Compared to 1999 (Continued)
Gross Margin
Gross margin increased $716,506 (37.2%) for fiscal year 2000 as compared
to fiscal year 1999. The increase in gross margin dollars, for the most
part, is attributed to the higher volume. Gross margin, as a percentage of
sales, has been negatively affected as a result of the introduction of new
products and the associated learning curve in building these more
sophisticated products. The gross margin percentage for the fiscal year
ended March 31, 2000 was 51.5% as compared to 55.2% for the fiscal year
ended March 31, 1999. The gross margin percentage was lower in the current
fiscal year as a result of the increase in sales to distributors (sales to
distributors are sold at a discount from standard list prices). In
addition, the lower gross margin percentage is attributed to the lower
gross profit on revenues associated with the documentation and test
portion of the U.S. Navy contract.
Operating Expenses
Selling, general and administrative expenses increased $245,297 (26.6%)
for the year ended March 31, 2000 as compared to the prior fiscal year.
This increase is attributed to higher sales and marketing expenses, an
increase in salaries, and the addition to staff of a Director of Finance.
In March 2000, the Company hired a Director of Business Development to
oversee its marketing and sales activities.
Engineering, research and development expenses decreased $152,244 (12.6%)
for the year ended March 31, 2000 as compared to the same period last
year. The decrease is associated with certain activities that were funded
through contracts and, therefore included in cost of sales. However, the
Company continued its development efforts which were directed primarily
toward the finalization of the design of the AN/APM 480 IFF test sets for
the U.S. Navy, the T-36M, and the upgrading of additional products, such
as the T-49CF, T-47CC, and the T-47N.
Income Taxes
For the year ended March 31, 2000, the Company, in accordance with FASB
109, recorded a net tax benefit of $241,595, which represents (1) the
effective federal and state tax rate on the Company's net income before
taxes and (2) reduced its valuation allowance and other items in the
amount of $385,000 and credited this amount to benefit from income taxes.
For the year ended March 31, 1999, the Company recorded a deferred income
tax benefit of $97,585, which represents the effective federal and state
tax rate on the Company's net loss before taxes of $244,266. The Company
currently does not have any federal tax liability. (See Note 9 to Notes to
Financial Statements).
11
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Results of Operations 1999 Compared to 1998
Overview
The Company continues to believe that it's long-term outlook is positive,
however for the year ended March 31, 1999 sales decreased $474,743 (12.0%)
as compared to the twelve months ended March 31, 1998. Operating income
declined as a result of the lower sales and higher research and
development expenses, which increased $301,827 (33.5%) from the previous
year. The increase in research and development expenses reflects the work
on the U.S. Navy contract and development of new products for other
markets.
The decline in sales is attributed to reduced shipment rates resulting
primarily from the completion of the substantial U.S. Air Force T-30CM
contract in the third quarter of the prior fiscal year, and delayed
shipments on new contracts, due to increased engineering and testing
activities. The Company believes that most of its delayed 1999 sales will
be delivered in fiscal year 2000.
Management continues to be encouraged by the dollar value of the backlog,
the large and unexpected increase in commercial sales, the progress on the
U.S. Navy contract, and the efforts of its international distributors. At
March 31, 1999 the Company had a substantial backlog of $2,717,415.
Sales
For the fiscal year ended March 31, 1999 total sales decreased $474,743
(12.0%) as compared to the same period last year. Commercial sales
increased $264,160 (17.7%) while government sales decreased $738,903
(29.9%). Government sales related to the substantial contract with the
U.S. Air Force for the T-30CM amounted to $836,014 in the prior fiscal
year and the contract was completed prior to the current fiscal year.
Fiscal year 1998 also included sales to a Defense Department prime
contractor for the Company's T-47C in the amount of $743,660. These
decreases were partially offset by sales to Muirhead Avionics and by the
increase in commercial sales.
Gross Margin
Gross margin (total sales less cost of sales) decreased $475,193 (19.8%)
for the fiscal year ended March 31, 1999 as compared to the fiscal year
ended March 31, 1998. This decrease is primarily attributed to the lower
sales volume. Gross margin was also affected by the decision of the
Company to strengthen its management team in anticipation of additional
growth. As such, the Company hired a Quality Assurance Manager and a
Materials Manager. Gross margin as a percent of sales was 55.2% for the
year ended March 31, 1999 as compared to 60.6% for the year ended March
31, 1998. The decrease in gross margin percentage is associated with the
lower sales volume and the lower gross margin percentage related to the
documentation and test portion of the U.S. Navy T-47M contract.
12
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Results of Operations 1999 Compared to 1998 (continued)
Operating Expenses
Selling, general, and administrative expenses increased $11,042 (1.2%) for
the fiscal year ended March 31, 1999 as compared to the fiscal year ended
March 31, 1998. An increase in selling expenses and administrative
salaries was mostly offset with lower employee incentive compensation and
a reduction in expenses incurred related to the Company's efforts to
explore new markets for its technology. In fiscal year 1998 the Company's
President devoted a percentage of his time to research and development
activities to ensure that such activities were properly supervised. In
fiscal year 1999, the Company hired a Director of Engineering, thus
minimizing the President's time in overseeing the research and development
function and allowing him to concentrate on Company growth, but increasing
selling, general, and administrative expenses.
Engineering, research, and development expenditures increase $301,827, or
33.5%, for the twelve-month period ended March 31, 1999, as compared to
the same twelve-month period in the prior fiscal year. Engineering,
research, and development expenditures represented 34.6% and 22.8% of
sales for the years ended March 31, 1999 and March 31, 1998, respectively.
These expenditures reflect the Company's commitment and effort to develop
new products and maintain its competitiveness within the industry.
Research and development expenditures in 1999 were directed primarily on
finalization of the design of the T-47M for the U.S. Navy and new products
for other target markets, including the T-47CF, T-47CC, T-48IC, and the
T-47N. Fiscal year 1999 was also impacted by higher recruitment and
relocation expenses for new engineers.
Interest
Interest income decreased as a result of the lower cash balances while
interest expense decreased as a result of lower interest on deferred wages
which have, for the most part, been repaid.
Income Taxes
In accordance with SFAS No. 109, the Company recorded an income tax
benefit of $97,585 for the year ended March 31, 1999, which represents the
effective federal and state tax rate on the net loss before taxes (See
Note 9 to Notes to Financial Statements).
13
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Liquidity and Capital Resources
During fiscal year 2000 working capital increased $413,538 to $921,130 as
compared to $507,582 at March 31, 1999. For the year ended March 31, 2000,
cash used in operations was $96,775 as compared to $421,576 for the year
ended March 31, 1999. This reduction in cash used in operations is
primarily attributed to the improvement in the Company's operating income.
Increases in accounts receivable and inventories were partially offset by
the Company's operating income, borrowings from the bank in the amount of
$250,000, proceeds from a loan on an insurance policy, and increases in
accounts payable and other accrued liabilities.
The Company has a line of credit from Summit Bank for $250,000, which was
originally scheduled to expire in July 2000. However, the Company received
a 60 day extension to the agreement. As of March 31, 2000, the Company had
an outstanding loan balance of $250,000. The Company is currently
discussing with the bank increasing its credit line based upon its current
backlog, which exceeds $16,000,000, its increased accounts receivable, its
profitability in four out of the last five years, and its positive outlook
for the future.
In the first quarter of fiscal year 2001, the Company began shipping
AN/APM 480s to the U.S. Navy and also shipped all the T-76 Ramp Test Sets
under the contract with M.P.G. Instruments for Marconi Communications.
Management believes that these events will have a positive effect on the
Company's cash flow.
Based upon the current backlog and available working capital, the Company
believes that it has sufficient working capital to fund its plans for the
next twelve months. At present, the Company does not expect to incur
significant long-term needs for capital outside of its normal operating
activities. However, the Company continues to seek additional funding to
help finance the growth of the Company.
There was no significant impact on the Company's operations as a result of
inflation for the year ended March 31, 2000.
Year 2000 Issue
The Company is not aware of any problems associated with the Year 2000
issue and, as such, has experienced no disruption in its operations.
14
Item 8. Financial Statements and Supplementary Data
Pages
-----
(1) Financial Statements:
Report of Independent Accountants 16
Balance Sheets - March 31, 2000 and 1999 17
Statements of Operations - Years Ended
March 31, 2000, 1999 and 1998 18
Statements of Changes in Stockholders'
Equity - Years Ended March 31,
2000, 1999 and 1998 19
Statements of Cash Flows - Years Ended
March 31, 2000, 1999 and 1998 20
Notes to Financial Statements 21-35
(2) Financial Statement Schedule:
II - Valuation and Qualifying Accounts 36
Financial statement schedules not included in this annual report on Form
10-K have been omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
15
Report of Independent Accountants
To the Stockholders and Board of Directors of Tel-Instrument Electronics
Corp.
In our opinion, the financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of
Tel-Instrument Electronics Corp. (the "Company") at March 31, 2000 and
1999, and the results of its operations and its cash flows for each of the
three years in the period ended March 31, 2000, in conformity with
accounting principles generally accepted in the United States. In
addition, in our opinion, the financial statement schedule included in the
accompanying index presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
financial statements. These financial statements and the financial
statement schedule are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and
the financial statement schedule based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
June 9, 2000, except for the second paragraph of Note 1,
as to which date is June 22, 2000.
16
TEL-INSTRUMENT ELECTRONICS CORP.
Balance Sheets
March 31,
----------- -----------
ASSETS 2000 1999
----------- -----------
Current assets:
Cash $ 172,836 $ 70,617
Accounts receivable, net of allowance for doubtful
accounts of $11,598 and $15,585 at March 31,
2000 and 1999, respectively 1,099,425 638,721
Inventories, net 1,486,885 713,700
Prepaid expenses and other current assets 56,020 39,173
Deferred income tax benefit - current 215,000 78,300
----------- -----------
Total current assets 3,030,166 1,540,511
Office and manufacturing equipment, net 350,872 130,901
Other assets 28,628 128,892
Deferred income tax benefit 523,099 418,204
----------- -----------
Total assets $ 3,932,765 $ 2,218,508
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Convertible note payable - related party - current portion $ 150,000 $ 100,000
Convertible subordinated note - related party 15,000 15,000
Line of credit 250,000 --
Capitalized lease obligations - current portion 56,376 9,667
Accounts payable 746,863 302,435
Advance payments 176,193 134,767
Accrued payroll, vacation pay and deferred wages 350,286 218,289
Accrued expenses - related parties 132,912 84,779
Other accrued expenses 231,406 167,992
----------- -----------
Total current liabilities 2,109,036 1,032,929
Convertible note payable - related party 200,000 250,000
Capitalized lease obligations - excluding current portion 101,682 16,486
----------- -----------
Total liabilities 2,410,718 1,299,415
Stockholders' equity
Common stock, par value $.10 per share, 2,113,290 and 2,109,957
Issued and outstanding as of March 31, 2000 and 1999, respectively 211,332 210,998
Additional paid-in capital 3,927,921 3,925,854
Accumulated deficit (2,617,206) (3,217,759)
----------- -----------
Total stockholders' equity 1,522,047 919,093
----------- -----------
Total liabilities and stockholders' equity $ 3,932,765 $ 2,218,508
=========== ===========
The accompanying notes are an integral part of the financial statements
17
TEL-INSTRUMENT ELECTRONICS CORP.
Statements of Operations
For the years ended March 31,
----------------------------------------
2000 1999 1998
---------- ---------- ----------
Sales - commercial, net $1,957,859 $1,753,723 $1,489,563
Sales - government, net 3,172,923 1,730,776 2,469,679
---------- ---------- ----------
Total Sales 5,130,782 3,484,499 3,959,242
Cost of sales 2,489,769 1,559,992 1,559,542
---------- ---------- ----------
Gross margin 2,641,013 1,924,507 2,399,700
---------- ---------- ----------
Operating expenses:
Selling, general and administrative 1,165,844 920,547 909,505
Engineering, research and development 1,051,833 1,204,077 902,250
---------- ---------- ----------
Total operating expenses 2,217,677 2,124,624 1,811,755
---------- ---------- ----------
Income (loss) from operations 423,336 (200,117) 587,945
Other income/(expense):
Interest income 9,682 8,637 27,872
Interest expense (37,136) (16,736) (60,669)
Interest expense - related parties (36,924) (36,050) (36,050)
---------- ---------- ----------
Income (loss) before income taxes 358,958 (244,266) 519,098
Benefit from income taxes 241,595 97,585 58,719
---------- ---------- ----------
Net Income (loss) $ 600,553 $ (146,681) $ 577,817
========== ========== ==========
Income (loss) per common share:
Basic $ 0.28 $ (0.07) $ 0.28
========== ========== ==========
Diluted $ 0.28 $ (0.07) $ 0.28
========== ========== ==========
Weighted average number of shares outstanding
Basic 2,110,983 2,101,264 2,044,075
========== ========== ==========
Diluted 2,146,402 2,101,264 2,070,503
========== ========== ==========
The accompanying notes are an integral part of the financial statements.
18
TEL-INSTRUMENT ELECTRONICS CORP.
Statements Of Changes In Stockholders' Equity (Deficiency)
- ------------------------------------------------------------------------------------------------------------------------
Common Stock
------------------------------------- Additional
Number of Shares Paid-In Accumulated
Authorized Issued Amount Capital Deficit Total
------------------------------------- ---------- ----------- ----------
Balances March 31, 1997 4,000,000 2,030,948 $203,097 $3,901,052 $(3,648,895) $ 455,254
Net income 577,817 577,817
Issuance of common stock in connection
With the exercise of stock purchase
warrants 2,734 273 3,828 -- 4,101
Issuance of common stock in connection
With the exercise of stock options 61,053 6,106 16,790 -- 22,896
---------- --------- -------- ---------- ----------- ----------
Balances March 31, 1998 4,000,000 2,094,735 $209,476 $3,921,670 $(3,071,078) $1,060,068
Net loss (146,681) (146,681)
Issuance of common stock in connection
With the exercise of stock options 15,222 1,522 4,184 -- 5,706
---------- --------- -------- ---------- ----------- ----------
Balances March 31, 1999 4,000,000 2,109,957 $210,998 $3,925,854 $(3,217,759) $ 919,093
Net income 600,553 600,553
Issuance of common stock in connection
With the exercise of stock options 3,333 334 2,067 -- 2,401
---------- --------- -------- ---------- ----------- ----------
Balances at March 31, 2000 $4,000,000 2,113,290 $211,332 $3,927,921 $(2,617,206) $1,522,047
========== ========= ======== ========== =========== ==========
The accompanying notes are an integral part of the financial statements.
19
TEL-INSTRUMENT ELECTRONICS CORP.
Statements Of Cash Flows
Increase (Decrease) In Cash
For the years ended March 31,
------------------------------------
2000 1999 1998
------------------------------------
Cash flows from operating activities:
Net income (loss) $ 600,553 $(146,681) $ 577,817
Adjustments to reconcile net income to cash
provided by operating activities:
Deferred income taxes (241,595) (97,585) (58,719)
Depreciation and amortization 70,303 41,907 34,894
Provision for losses on accounts receivable (3,987) (479) (6,700)
Provision for inventory obsolescence 14,504 (6,000) --
Changes in assets and liabilities:
(Increase)/decrease in accounts receivable (456,717) (263,736) (65,069)
(Increase)/decrease in inventories (787,689) (324,670) (30,857)
(Increase)/decrease in prepaid expenses and other assets (21,545) (16,521) (17,073)
(Decrease)/increase in accounts payable 444,428 233,822 (20,731)
(Decrease)/increase in advance payments and accrued
expenses 284,970 158,367 (291,008)
--------- --------- ---------
Net cash provided by (used in) operating
Activities (96,775) (421,576) 122,554
--------- --------- ---------
Cash flows from investing activities:
Additions to office and manufacturing equipment (125,948) (67,044) (68,723)
Increase in cash surrender value of life insurance (24,494) (31,460) (24,183)
--------- --------- ---------
Net cash used in investing activities (150,442) (98,504) (92,906)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from loan on insurance policy 129,456 -- --
Proceeds from exercise of warrants and options 2,401 5,706 26,997
Proceeds from drawing on line of credit 250,000 50,000 --
Repayment of line of credit -- (50,000) --
Repayment of capitalized lease obligations (32,421) (290) --
--------- --------- ---------
Net cash provided by financing activities 349,436 5,416 26,997
--------- --------- ---------
Net increase (decrease) in cash 102,219 (514,664) 56,645
Cash - beginning of year 70,617 585,281 528,636
--------- --------- ---------
Cash - end of year $ 172,836 $ 70,617 $ 585,281
========= ========= =========
Supplemental information:
Interest paid $ 68,744 $ 21,700 $ 77,666
========= ========= =========
Assets acquired through capitalized leases $ 164,326 $ 26,443 $ --
========= ========= =========
The accompanying notes are an integral part of the financial statements.
20
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Financial Statements
1. Business, Organization, and Liquidity
Business and Organization:
Tel-Instrument Electronics Corp. ("Tel" or the "Company") has been in
business since 1947. The Company designs, manufactures, and markets
avionic test equipment for the general and commercial aviation markets and
for the government/military aviation markets. The Company's instruments
are used to test navigation and communication equipment installed in
aircraft. The Company sells its equipment to both the domestic and
international markets.
Liquidity:
The Company's operations are subject to a number of risks, including but
not limited to changes in the general economy, demand for the Company's
products, the success of customers, research and development results, and
reliance on individual contracts. The Company has a major contract with
the U.S. Navy to sell in excess of 960 units of the AN/APM 480 for
approximately $12,500,000. During the year ended March 31, 2000, certain
design changes from the U.S. Navy and the Company delayed shipments of the
units to the U.S. Navy. The Company began shipping units to the U.S. Navy
in June 2000 and expects to deliver the remaining units over the next
three to four fiscal years. However, government contracts are always
subject to termination.
As of March 31, 2000, the Company had a working capital balance of
$921,130, which exceeded the working capital balance at March 31, 1999
which was $508,000. The Company's $250,000 line of credit was originally
scheduled to expire in July, 2000. However, the Company has received a
60-day extension to the agreement and is discussing with the bank an
increase in the amount of the line, and an extension of the maturity date.
If the Company's line of credit is not ultimately renewed, the Company may
be required to seek alternative sources of financing. The Company's
operating plan includes among other things, (i) attempting to improve
operating cash flows through increased sales related to third party
distributors and the anticipated execution of a large government contract,
(ii) managing its research and development costs to its anticipated level
of revenues; and (iii) other cost reduction measures. If the Company is
unable to achieve its operating plan or is unable to obtain a renewal of
its line of credit, or alternative sources of financing, it could have a
material adverse effect on the Company's business, financial condition, or
operations. The accompanying financial statements do not include any
adjustments that could result there from.
21
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Financial Statements
2. Summary of Significant Accounting Policies
Revenue Recognition:
Revenues are recognized at the time of shipment and provisions, when
appropriate, are made where the right to return exists. Revenue under
service contracts is accounted for as the services are performed. The
percentage-of-completion method is used on long-term contracts.
Cash and Cash Equivalents:
For purposes of the statements of cash flows, the Company considers all
highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents. Cash equivalents are carried at
cost which approximates market value.
Financial Instruments:
The carrying amounts of cash and cash equivalents and other current assets
and liabilities approximate fair value due to the short-term maturity of
these investments. The Company does not determine an estimated fair value
for its related party debt, since such debt does not have a readily
determinable market.
Concentrations of Credit Risk:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of trade accounts
receivable. The Company's customer base is primarily comprised of
airlines, distributors, and the U.S. Government. As of March 31, 2000, the
Company believes it has no concentration of credit risk with its accounts
receivable. (See Note 12 to Financial Statements).
Inventories:
Inventories are stated at the lower of cost or market. Cost is determined
on a first-in, first-out basis. In accordance with industry practice,
service parts inventory is included in current assets, although service
parts are carried for established requirements during the serviceable
lives of the products and, therefore, not all parts are expected to be
sold within one year.
Office and Manufacturing Equipment:
Office and manufacturing equipment are stated at cost. Depreciation and
amortization is provided on a straight-line basis over periods ranging
from 3 to 10 years.
Maintenance, repairs, and renewals that do not materially add to the value
of the equipment nor appreciably prolong its life are charged to expense
as incurred.
Leasehold improvements are amortized over the term of the lease or the
useful life of the asset, whichever is shorter.
22
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Financial Statements (Continued)
2. Summary of Significant Accounting Policies (Continued0
Office and Manufacturing Equipment (continued):
When assets are retired or otherwise disposed, the cost and related
accumulated depreciation are removed from the accounts and the resulting
gain or loss is included in the Statements of Operations.
Research and Development Costs:
Research and development costs are expensed as incurred.
Income/(Loss) Per Common Share:
The Company's basic income (loss) per share is based on net income (loss)
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 for the relevant period, divided by the weighted average number
of common shares outstanding during the period, including common share
equivalents, such as outstanding stock options and warrants of 35,419 for
fiscal year 2000 and 26,428 for fiscal year 1998 using the treasury stock
method. Common share equivalents, such as outstanding stock options and
warrants, are not included in the calculation for the fiscal year 1999,
since the effect would be antidilutive.
Accounting for 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 expected 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.
Stock Option Plan:
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, "Accounting for Stock-Based
Compensation" ("SFAS 123"). Under SFAS 123 the Company provides pro forma
net income and pro forma earnings per share disclosures for employee stock
option grants made since fiscal year 1996 as if the fair-value-based
method as defined in SFAS No. 123 has been applied.
23
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Financial Statements (Continued)
2. Summary of Significant Accounting Policies (Continued)
Long-Lived Assets To Be Disposed Of:
In accordance with SFAS No. 121, the Company reviews long-lived assets for
impairment whenever events or changes in business circumstances occur that
indicate that the carrying amount of the assets may not be recoverable.
The Company assesses the recoverability of long-lived assets held and to
be used based on undiscounted cash flows, and measures the impairment, if
any, using discounted cash flows.
Comprehensive Income
On June 7, 1997 the FASB issued SFAS No.130 "Reporting Comprehensive
Income". SFAS No. 130 establishes standards of reporting and display of
comprehensive income and its components (revenues, expenses, gains, and
losses) in a full set of general purpose financial statements. SFAS No.
130 requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in
a financial statement that is displayed with the same prominence as other
financial statements. The Company adopted SFAS No. 130 in fiscal year 1999
and this adoption had no effect on the Company's financial statements.
Segments
In fiscal year 1999, the Company adopted Statement of Financial Accounting
Standard 131 ("SFAS 131") Disclosures about Segments of an Enterprise and
Related Information. SFAS 131, supersedes FAS 14, Financial Reporting for
Segments of a Business Enterprise, replacing the "industry segment"
approach with the "management" approach. The management approach
designates the internal organization that is used by management for making
operating decisions and assessing performance as the source of the
Company's reportable segments. SFAS 131 also requires disclosure about
products and services, geographical areas, and major customers. The
adoption of SFAS 131 did not affect the Company's result of operations or
financial position, but did affect the disclosure of segment information
(see Note 14 to Financial Statements).
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires that management make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
The most significant estimates include income taxes, and inventory and
accounts receivable valuations.
24
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Financial Statements (Continued)
Reclassification
Certain prior years amounts have been reclassified to conform to the
current year presentation.
3. Accounts Receivable
The following tabulation sets forth the components of accounts receivable:
March 31,
----------------------
2000 1999
---------- --------
Government $ 765,814 $474,564
Commercial 345,209 179,742
Less: Allowance for doubtful accounts (11,598) (15,585)
---------- --------
$1,099,425 $638,721
========== ========
4. Inventories
Inventories consist of:
March 31,
----------------------
2000 1999
---------- --------
Purchased parts $ 921,185 $402,804
Work-in-process 609,824 340,516
Less: Reserve for obsolescence (44,124) (29,620)
---------- --------
$1,486,885 $713,700
========== ========
Work-in-process inventory includes $397,507 and $199,620 for government
contracts at March 31, 2000 and March 31, 1999, respectively.
5. Office and Manufacturing Equipment
March 31,
----------------------
2000 1999
--------- ---------
Leasehold Improvements $ 54,640 $ 54,640
Machinery and equipment 644,899 578,762
Sales equipment 150,438 100,357
Assets under capitalized leases 190,769 26,443
Less: Accumulated depreciation and (689,874) (629,301)
--------- ---------
Amortization
$ 350,872 $ 130,901
========= =========
25
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Financial Statements (Continued)
6. Accrued Expenses
Accrued payroll, vacation pay and deferred wages consists of the
following:
March 31,
-------------------
2000 1999
-------- --------
Accrued profit sharing $149,790 $102,970
Accrued vacation pay 92,585 90,687
Accrued salary and payroll taxes 32,392 21,972
Deferred salary and wages and interest 75,519 2,660
-------- --------
$350,286 $218,289
======== ========
Other accrued expenses of $231,406 and $167,992 at March 31, 2000 and
1999, respectively, consist primarily of interest, professional service
costs for legal, accounting, and consulting services, and of product
related costs, such as warranty.
7. Line of Credit
The Company has a line of credit of $250,000, maturing in July 2000. The
Company has received a 60 day extension to the agreement. Interest is
payable monthly at an interest rate of 1% above the lender's prevailing
base rate (10% as of March 31, 2000). The line is collateralized by
substantially all of the assets of the Company. At March 31, 2000, the
Company had an outstanding balance of $250,000.
26
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Financial Statements (Continued)
8. Capitalized Lease Obligations
The Company has entered into lease commitments for equipment that meet the
requirements for capitalization. The equipment has been capitalized and
shown in office and manufacturing equipment in the balance sheets. The
related obligations are also recorded in the balance sheets and are based
upon the present value of the future minimum lease payments with interest
rates of 11% to 18%. The net book value of equipment acquired under
capitalized lease obligations was $166,690 and $24,974 respectively, at
March 31, 2000 and 1999.
Commitments under these leases for the five years subsequent to March 31,
2000 are as follows:
2001 $ 71,641
2002 68,920
2003 39,124
2004 34,033
2005 17,434
-------------
Total minimum lease payments 231,152
Less amounts representing interest 73,094
-------------
Present value of net minimum lease payments 158,058
Less current portion 56,376
-------------
Long-term capital lease obligation $ 101,682
=============
27
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Financial Statements (Continued)
9. Income Taxes
The benefit for income taxes is comprised of the following:
March 31, March 31, March 31,
2000 1999 1998
--------- --------- ---------
Current:
Federal $ -- $ -- $ --
State and Local -- -- --
--------- --------- ---------
Total Current Benefit $ -- $ -- $ --
========= ========= =========
Deferred:
Federal $(220,595) $ (99,585) $ (8,842)
State and Local (21,000) 2,000 (49,877)
--------- --------- ---------
Total Deferred Benefit $(241,595) $ (97,585) $ (58,719)
========= ========= =========
The components of the Company's deferred taxes at March 31, 2000 and 1999
are as follows:
March 31, March 31,
2000 1999
---------- -----------
Net operating loss carryforwards and credits $1,090,000 $1,275,000
Asset reserves 22,000 18,000
Deferred wages and accrued interest 190,000 142,000
Provision for estimated expenses 161,000 107,000
---------- ----------
Deferred tax asset 1,463,000 1,542,000
Less, valuation allowance 724,901 1,045,496
---------- ----------
Deferred tax asset $ 738,099 $ 496,504
========== ==========
As of March 31, 2000, the Company has Federal tax net operating loss
carryforwards of approximately $2,741,000, which begin to expire in 2002.
The recognized deferred tax asset is based upon the expected partial
utilization of its net operating loss carryforwards
28
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Financial Statements (Continued)
9. Income Taxes (Continued)
and of the deferred tax assets as the Company believes it is more likely
than not that it will realize a portion of its net operating losses before
they expire. The foregoing amounts are management's estimates and the
actual results could differ from those estimates. Future profitability in
this competitive industry depends on continually obtaining and fulfilling
new profitable purchase agreements and modifying products. The inability
to obtain new profitable contracts or the failure of the Company's
engineering development efforts could reduce estimates of future
profitability, which could effect the Company's ability to realize the
deferred tax asset on the balance sheet or its loss carryforwards.
A reconciliation of the income tax expense at the statutory Federal tax
rate of 34% to the income tax expense recognized in the financial
statements is as follows:
2000 1999 1998
---- ---- ----
Income tax expense - statutory rate $ 122,403 $ (83,050) $ 176,500
Income tax expenses - state and local, net of federal benefit (13,860) 1,320 (32,919)
1,320
Change in valuation allowance (320,595) (183,731)
116,415
Federal income tax credit (30,000) (128,000) --
(128,000)
Other 457 (4,270) (18,569)
--------- --------- ---------
Income tax benefit recognized in the financial statements $(241,595) $ (97,585) $ (58,719)
========= ========= =========
10. Related Party Transactions
On March 31, 1997, the Company's Chairman/President renegotiated the terms
of the non-current note payable-related party. This note, along with
$250,000 of other accrued expenses due to the Company's
Chairman/President, were converted into seven $50,000 convertible
subordinated notes (the "Notes") totaling $350,000. The Notes are due in
consecutive years beginning March 31, 1999 with the last note due March
31, 2005. In April 2000 the maturity date of the Notes due March 31, 1999
and March 31, 2000 were extended to September 30, 2000. The Notes bear
interest at a rate of 10% per annum, payable semi-annually on the last day
of September and March of each year. The Company is required to prepay the
outstanding balance of the Notes and any accrued interest thereon, if the
Company sells all or substantially all of its assets. The Notes can be
converted into newly issued common shares of the Company at the conversion
price of $2.50 per share. The conversion prices shall be adjusted for any
stock dividends, stock issuances or capital reorganizations. The Notes may
be redeemed by the Company prior to maturity upon giving written notice of
not less than 30 days or more than 60 days at a redemption price equal to
120% of the principal if redeemed two years or more prior to the maturity
date or 110% of the principal if redeemed more than one year, but less
than two years prior to the maturity date.
29
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Financial Statements (Continued)
10. Related Party Transactions (Continued)
Accrued payroll, vacation pay and deferred wages and related interest
includes, $77,074 and $27,862 at March 31, 2000 and 1999, respectively,
which is due to officers of the Company.
Accrued expenses-related parties includes interest and professional fees
of approximately $65,000 and $43,000 due to a non-employee
officer/stockholder of the Company at March 31, 2000 and 1999,
respectively. Accrued expenses - related parties includes professional
fees of approximately $8,000 and $7,000 to a director/stockholder of the
Company at March 31, 2000 and 1999 respectively. In addition, accrued
expense - related parties includes $60,000 and $35,000 respectively at
March 31, 2000 and 1999 for interest and other expenses due to the
Company's Chairman/President. Tel has obtained professional services from
the officer/stockholder with the related fees amounting to $42,464,
$46,164 and $35,600 for the years ended March 31, 2000, 1999 and 1998,
respectively. Additionally, Tel obtained professional services from the
director/stockholder in the amounts of $84,000 and $76,500 for fiscal
years 2000 and 1999, respectively.
The Company's $30,000 convertible subordinated note-related party matured
on March 31, 1997. The Company renegotiated such note and satisfied
$15,000 of this obligation and extended the maturity date of the remaining
$15,000 until March 31, 2000. In April 2000, the maturity date of the note
was extended to September 30, 2000. This note accrues interest
semi-annually at a rate of 7%. The subordinate note is for past
professional fees and services converted into a note payable due to an
officer/stockholder of the Company. The notes are convertible to common
stock at the option of the holder at $1.50 per share, at any time prior to
maturity.
11. Leases
The Company rents its office space and manufacturing facility under a
lease agreement expiring in August, 2008. Under terms of the lease, the
Company pays all real estate taxes and utility costs for the premises.
In addition, the Company has an agreement to lease equipment for use in
the operations of the business under operating leases.
The following is a schedule of future minimum rental payments for
operating leases for the five years subsequent to the year ended March 31,
2000.
2001 $ 82,136
2002 79,592
2003 72,985
2004 73,514
2005 and thereafter 351,681
30
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Financial Statements (Continued)
11. Leases (Continued)
Total rent expense, including real estate taxes, was approximately
$101,000, $83,000, and $80,000 for the years ended March 31, 2000, 1998
and 1997, respectively.
12. Significant Customer Concentrations
For the fiscal year ended March 31, 2000, one customer represented over
12% of total sales which included commercial sales of approximately
$35,000 and government sales of $587,000. This customer did not represent
over 10% of sales for either fiscal year 1999 or 1998. For the fiscal year
ended March 31, 1999, one customer represented over 10% of total sales
which included commercial sales of approximately $77,000 and government
sales of $288,000. This customer did not represent over 10% of sales for
either fiscal year 2000 or 1998. Another customer represented over 10% of
sales (all included in the government segment) for the fiscal year ended
March 31, 1998. This customer did not represent over 10% of sales for
fiscal years 2000 or 1999. As of March 31, 2000, the individual account
balances represent 12% and 11% of the Company's accounts receivable. As of
March 31, 2000, receivables from the U.S. government represented
approximately 33% of total accounts receivable. As of March 31, 1999 two
individual account balances represent 32% and 11% of the Company's
accounts receivable.
13. Stock Option Plan
The Company has a stock option plan that provides for the granting of
options to employees and directors. Activity during 2000, 1999, and 1998
is summarized below (in number of options):
2000 1999 1998
------- ------- -------
Held at beginning of year 45,344 32,166 93,219
Granted 61,800 29,500 --
Exercised (3,333) (15,222) (61,053)
Canceled or expired (18,500) (1,100) --
------- ------- -------
Held at end of year 85,311 45,344 32,166
======= ======= =======
31
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Financial Statements (Continued)
13. Stock Option Plan (Continued)
As of March 31, 2000, the Company had the following options outstanding:
Weighted
Average
Number of Remaining Options
Options Exercise Contract life Exercisable
Outstanding Price (years) At March 31, 2000
-------------- ------------ --------------- -----------------
5,000 2.375 3.2 2,000
11,400 1.84 4.7 0
4,000 1.66 4.2 800
46,400 1.5265 4.7 0
2,000 1.375 3.0 800
2,400 1.25 2.0 1,440
3,600 .72 1.2 3,600
1,600 .66 1.0 1,600
8,911 .375 .8 8,911
-------------- ----------------
85,311 19,151
For the years ended March 31, 2000, 1999 and 1998 19,151, 15,844, and
16,323 of options are outstanding, vested, and exercisable.
The per share weighted-average fair value of stock options granted for the
years 2000 and 1999 were $1.43 and $1.95 respectively, on the date of
grant using the Black Scholes option-pricing model with the following
weighted-average assumptions: expected dividend yield of 0.0%, risk-free
interest rate of 5%, volatility factor of 135%, and an expected life of 5
years. No stock options were granted in 1998. The Company applies
Accounting Principles Board Opinion No. 25 in accounting for its stock
options and, accordingly, no compensation expense has been recognized for
its stock options in the financial statements. 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 Company's net income would not have
been materially affected. The pro forma amounts are indicated below:
2000 1999
-------- ----------
Net income (loss)- as reported $600,553 $(146,681)
Net income (loss)- pro forma 583,899 (160,135)
Basic earnings (loss) per share - as reported $ 0.28 (0.07)
Basic earnings (loss) per share - pro forma 0.28 (0.08)
Diluted earnings (loss) per share - as reported $ 0.28 (0.07)
Diluted earnings (loss) per share - pro forma 0.27 (0.08)
32
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Financial Statements (Continued)
13. Stock Option Plan (Continued)
In June 1998, the Board of Directors of the Company adopted a new 1998
Stock Option Plan ("the Plan") which reserves for issuance up to 250,000
shares of its Common Stock. The Plan, which has a term of ten years from
the date of adoption is administered by the Board of Directors or by a
committee appointed by the Board of Directors. The selection of
participants, allotment of shares, and other conditions related to the
purchase of options is determined by the Board of Directors. Options
granted under the Plan are exercisable up to a period of 5 years from the
date of grant at an exercisable price which is not less than the fair
market value of the common stock at the date of grant, except to a
shareholder owning 10% or more of the outstanding common stock of the
Company, at which the exercise price may not be less than 110% of the fair
value of the common stock at the date of grant.
14. Segment Information
In 1999, the Company adopted SFAS 131. Segment information has been
restated to present the Company's two reportable segments, government and
commercial.
The Company evaluates the performance of its segments and allocates
resources to them based on gross margin. There are no intersegment
revenues.
The Company is organized primarily on the basis of its avionics products.
The government segment consists primarily of the sale of test equipment to
the U.S. and foreign governments and militaries either direct or through
distributors. The commercial segment consists of sales of test equipment
to domestic and foreign airlines and to commercial distributors. Segment
assets include accounts receivable and work-in-process inventory. Asset
information, other than accounts receivable and work-in-process inventory,
is not reported, since the Company does not produce such information
internally. All long-lived assets are located in the U.S.
33
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Financial Statements (Continued)
14. Segment Information (Continued)
The table below presents information about reportable segments for the
years ending March 31:
--------------------------------------- ----------------- ---------------- ----------------- ----------------
Reconciling
2000 Government Commercial Items Total
--------------------------------------- ----------------- ---------------- ----------------- ----------------
--------------------------------------- ----------------- ---------------- ----------------- ----------------
Revenues $3,172,923 $1,957,859 $ -- $5,130,782
--------------------------------------- ----------------- ---------------- ----------------- ----------------
Cost of Sales 1,596,453 893,316 -- 2,489,769
--------------------------------------- ----------------- ---------------- ----------------- ----------------
--------------------------------------- ----------------- ---------------- ----------------- ----------------
Gross Margin $1,576,470 $1,064,543 $2,641,013
--------------------------------------- ----------------- ---------------- ----------------- ----------------
--------------------------------------- ----------------- ---------------- ----------------- ----------------
Engineering, research, and 1,051,833 1,051,833
Development
--------------------------------------- ----------------- ---------------- ----------------- ----------------
Selling, general, and administrative 1,165,844 1,165,844
--------------------------------------- ----------------- ---------------- ----------------- ----------------
--------------------------------------- ----------------- ---------------- ----------------- ----------------
Interest, net (64,378) (64,378)
--------------------------------------- ----------------- ---------------- ----------------- ----------------
--------------------------------------- ----------------- ---------------- ----------------- ----------------
(Loss) before income taxes $358,958
--------------------------------------- ----------------- ---------------- ----------------- ----------------
--------------------------------------- ----------------- ---------------- ----------------- ----------------
Segment Assets $1,163,321 $545,928 $2,223,516 $3,932,765
--------------------------------------- ----------------- ---------------- ----------------- ----------------
--------------------------------------- ----------------- ---------------- ----------------- ----------------
--------------------------------------- ----------------- ---------------- ----------------- ----------------
1999 Government Commercial Reconciling Total
Items
--------------------------------------- ----------------- ---------------- ----------------- ----------------
--------------------------------------- ----------------- ---------------- ----------------- ----------------
Revenues $1,730,776 $1,753,723 $ -- $3,484,499
--------------------------------------- ----------------- ---------------- ----------------- ----------------
Cost of Sales 838,734 721,258 -- 1,559,992
--------------------------------------- ----------------- ---------------- ----------------- ----------------
--------------------------------------- ----------------- ---------------- ----------------- ----------------
Gross Margin $892,042 $1,032,465 $1,924,507
--------------------------------------- ----------------- ---------------- ----------------- ----------------
--------------------------------------- ----------------- ---------------- ----------------- ----------------
Engineering, research, and 1,204,007 1,204,077
Development
--------------------------------------- ----------------- ---------------- ----------------- ----------------
Selling, general, and administrative 920,547 920,547
--------------------------------------- ----------------- ---------------- ----------------- ----------------
--------------------------------------- ----------------- ---------------- ----------------- ----------------
Interest, net (44,419) (44,149)
--------------------------------------- ----------------- ---------------- ----------------- ----------------
--------------------------------------- ----------------- ---------------- ----------------- ----------------
Loss before income taxes $(244,266)
--------------------------------------- ----------------- ---------------- ----------------- ----------------
--------------------------------------- ----------------- ---------------- ----------------- ----------------
Segment Assets $728,497 $250,740 $1,239,271 $2,218,508
--------------------------------------- ----------------- ---------------- ----------------- ----------------
34
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Financial Statements (Continued)
14. Segment Information (Continued)
--------------------------------------- ----------------- ---------------- ----------------- ----------------
1998 Government Commercial Reconciling Total
Items
--------------------------------------- ----------------- ---------------- ----------------- ----------------
--------------------------------------- ----------------- ---------------- ----------------- ----------------
Revenues $2,469,670 $1,489,563 $ -- $3,959,242
--------------------------------------- ----------------- ---------------- ----------------- ----------------
Cost of Sales 893,249 666,293 -- 1,559,542
--------------------------------------- ----------------- ---------------- ----------------- ----------------
--------------------------------------- ----------------- ---------------- ----------------- ----------------
Gross Margin $1,576,421 $823,279 $2,399,700
--------------------------------------- ----------------- ---------------- ----------------- ----------------
--------------------------------------- ----------------- ---------------- ----------------- ----------------
Engineering, research, and 902,250 902,250
Development
--------------------------------------- ----------------- ---------------- ----------------- ----------------
Selling, general, and administrative 909,505 909,505
--------------------------------------- ----------------- ---------------- ----------------- ----------------
--------------------------------------- ----------------- ---------------- ----------------- ----------------
Interest, net (68,847) (68,847)
--------------------------------------- ----------------- ---------------- ----------------- ----------------
--------------------------------------- ----------------- ---------------- ----------------- ----------------
Income before income taxes $519,098
--------------------------------------- ----------------- ---------------- ----------------- ----------------
--------------------------------------- ----------------- ---------------- ----------------- ----------------
Segment Assets $143,987 $395,552 $1,401,602 $1,941,141
--------------------------------------- ----------------- ---------------- ----------------- ----------------
The Company primarily develops and designs test equipment for the avionics
industry and as such, the Company's products and designs cross segments.
The Company's general and administrative costs and marketing strategies
are not segment specific. As a result, selling, general, and
administrative expenses are not managed on a segment basis. Interest, net
includes expenses on debt and income earned on cash balances both
maintained at the corporate level.
Foreign sales are based on the country in which the customer is located.
Foreign sales were approximately $1,495,000, $833,000 and $1,150,000 for
the years ended March 31, 2000, 1999, and 1998, respectively. All other
sales were to customers located in the U.S.
For the fiscal years ended March 31, 2000 and 1999, there was a domestic
commercial customer that accounted for approximately 11% of total
commercial sales in each year. One domestic distributor accounted for 10%,
13% and 15% of commercial sales for the years ended March 31, 2000, 1999,
and 1998, respectively. No end user customer accounted for more than 10%
of commercial sales for these years. Foreign commercial sales were 20%,
19% and 21% of total commercial sales for the years ended March 31, 2000,
1999 and 1998, respectively. Sales to an international distributor
accounted for approximately 12% of total sales in fiscal year 2000. Sales
to another international distributor accounted for 10% of total sales in
fiscal year 1999. Government sales to the U.S. Air Force were 34% of total
government sales for the year ended March 31, 1998.
Sales to the U.S. Government were approximately $968,000, $669,000, and
$1,213,000 for the years ended March 31, 2000, 1999, and 1998,
respectively.
35
TEL-INSTRUMENT ELECTRONICS CORP.
Schedule II - Valuation and Qualifying Accounts
Balance at Charged to Charged
Beginning Costs and to Other Balance at
Description of Period Expenses Accounts Deductions End of Year
Year ended March 31, 1998:
Allowance for doubtful
accounts $65,521 $(6,700) $ 42,757(2) $ 16,064
======= ======= ======== ========
Allowance for obsolete
inventory $68,419 $ 32,799(1) $ 35,620
======= ======== ========
Year ended March 31, 1999:
Allowance for doubtful
Accounts $16,064 $ 479(2) $ 15,585
======= ======== ========
Allowance for obsolete
Inventory $35,620 $(6,000) $ 29,620
======= ======= ========
Year ended March 31, 2000:
Allowance for doubtful
Accounts $15,585 (3,987) $ -- $ 11,598
======= ======= ======== ========
Allowance for obsolete
inventory $29,620 $20,500 5,996(1) $ 44,124
======= ======= ======== ========
(1) Amounts represent disposals of obsolete inventory.
(2) Amount represents write off of accounts receivable.
36
TEL-INSTRUMENT ELECTRONICS CORP.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
No disagreements arose between the Registrant and its independent
auditors' regarding accounting and financial matters during the twelve
months preceding March 31, 2000.
PART III
Item 10. Directors and Executive Officers of the Registrant
DIRECTORS AND EXECUTIVE OFFICERS
Year First
Elected a
Name (age) Position Director
---------- -------- ----------
Harold K. Fletcher (1) Chairman of the Board, 1982
(75) President and Chief
Executive Officer
since 1982.
George J. Leon Director; Investment 1986
(56) Manager and beneficiary of
the George Leon Family Trust
(investments) since 1986.
Robert J. Melnick Chief Operating Officer and Vice 1998
(65) President since 1999; Marketing
and Management Consultant for the
Company since 1991.
Jeff C. O'Hara (1) Director; Chief Financial Officer of 1998
(42) Alarm Security Group; Financial
Consultant from 1996 to 1998. Chief
Financial Officer of Keywell Corporation.
Robert H. Walker Director; Retired Executive Vice 1984
(64) President, Robotic Vision
Systems, Inc. (design and
manufacture of robotic
vision systems),
1983-1997.
(1) Mr. O'Hara is the son-in-law of Mr. Fletcher
37
TEL-INSTRUMENT ELECTRONICS CORP.
Item 10. Directors and Executive Officers of the Registrant (Continued)
Officers
--------
Donald S. Bab Secretary and General Counsel since 1982.
Richard J. Wixson Vice President and Director of Manufacturing,
employed by Tel in his present capacity since
1987.
Item 11. Executive Compensation
The following table and accompanying notes set forth information
concerning compensation for the fiscal years ended March 31, 2000, 1999,
and 1998.
Stock Other
Name and Principal Position Year Salary Options Compensation
-------------------------------------------------------------------------
Harold K. Fletcher 2000 $130,000 --
Chairman of Board 1999 100,000 --
President and Chief 1998 100,000 $20,000(1)
Executive Officer
(1) Represents bonus based on the Company's profitability.
38
TEL-INSTRUMENT ELECTRONICS CORP.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following tables set forth, as of March 31, 2000, the number and
percentage of the outstanding shares of common stock, beneficially owned
by each director and by each beneficial owner of 5% or more of such
shares, and by all officers and directors as a group.
Number of Shares Percentage
Name and Address Beneficially Owned of Class (1)
---------------- ------------------ ------------
Harold K. Fletcher, Director 496,102(2) 23.5%
728 Garden Street
Carlstadt, New Jersey 07072
George J. Leon, Director 309,787(3) 14.6%
116 Glenview
Toronto, Ontario
Canada M4R1P8
Robert J. Melnick, Director 22,000(4) 1.0%
57 Huntington Road
Basking Ridge, New Jersey 07920
Jeff C. O'Hara, Director 105,500 5.0%
Alarm Security Group
4343 Commerce Court, Suite 600
Lisle, Illionois 60532
Robert H. Walker, Director 24,516(5) 1.2%
425 Robro Drive East
Hauppague, New York 11788
Donald S. Bab, Secretary 65,634(6) 3.1%
330 Madison Avenue
New York, New York 10017
All Officers and Directors 1,070,239(7) 50.3%
as a Group (8 persons)
(1) The class includes 2,113,290 shares outstanding. The common stock
deemed to be owned which is not outstanding but subject to currently
exercisable options is deemed to be outstanding for determining the
percentage of all outstanding stock owned.
(2) Includes 24,681 shares owned by Mr. Fletcher's wife, 4,254 shares
owned by his son, 261,295 owned by a family partnership in which Mr.
Fletcher is a partner.
39
TEL-INSTRUMENT ELECTRONICS CORP.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(Continued)
Mr. Fletcher disclaims beneficial ownership of the shares owned by
his wife and son and by the partnership.
(3) Includes 300,267 shares owned by the George Leon Family Trust, of
which Mr. Leon is a beneficiary, and 9,520 shares subject to
currently exercisable stock option. Mr. Leon disclaims beneficial
ownership of the shares owned by the trust.
(4) Includes 2,000 shares subject to currently exercisable stock options
(5) Includes 5,983 shares subject to currently exercisable stock
options.
(6) Mr. Bab has a convertible debenture in the amount of $15,000 that is
convertible into common stock at $1.50 per share.
(7) Includes 17,453 shares subject to currently exercisable options held
by all executive offices and directors of the Company (including
those individually named above).
Item 13. Certain Relationships and Related Transactions
The disclosures required by this item are contained in Note 10 to the
financial statements included on pages 29 and 30 of this document.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 10-K
a.) The following documents are filed as a part of this report:
Pages
-----
(1) Financial Statements:
Report of Independent Accountants 16
Balance Sheets - March 31, 2000 and 1999 17
Statements of Operations - Years Ended
March 31, 2000, 1999 and 1998 18
Statements of Changes in Stockholders'
Equity/(Deficiency) - Years Ended March 31, 2000,
1999 and 1998 19
Statements of Cash Flows - Years Ended
March 31, 2000, 1999 and 1998 20
40
TEL-INSTRUMENT ELECTRONICS CORP.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 10-K
(Continued)
Pages
-----
Notes to Financial Statements 21-35
(2) Financial Statement Schedule
II - Valuation and Qualifying Accounts 36
b.) No reports on Form 8-K were filed during the fourth quarter of 2000.
c.) Exhibits identified in parentheses below on file with the Securities
and Exchange Commission, are incorporated herein by reference as
exhibits hereto.
*(3.1) Tel-Instrument Electronics Corp.'s Certificate of
Incorporation, as amended.
*(3.2) Tel-Instrument Electronics Corp.'s By-Laws, as amended.
*(3.3) Tel-Instrument Electronics Corp.'s Restated Certificate of
Incorporation dated November 8, 1996.
*(4.1) Specimen of Tel-Instrument Electronics Corp.'s Common Stock
Certificate.
*(4.2) Specimen of Tel-Instrument Electronics Corp.'s Convertible
Preferred Stock Certificate.
(10.1) 7%, $30,000 Convertible Subordinated Note dated March 31, 1992
between Registrant and Donald S. Bab.
(10.2) Distributor Agreement with Muirhead Avionics & Accessories
Ltd.
(10.3) Naval Air Warfare Center Aircraft Division Contract No.
N68335-97-D-0060
(10.4) Lease dated December 7, 1998, by and between Registrant and
210 Garibaldi Avenue Corp.
**(27.) Financial Data Schedule
* Incorporated by reference to Registration 33-18978 dated November 7,
1988.
** Financial Data Schedule which is submitted electronically to the
Securities and Exchange Commission for information only and is not
filed.
The Company will furnish, without charge to a security holder, upon
request, copy of the documentary portions which are incorporated by
reference, and will furnish any other exhibit at cost.
41
TEL-INSTRUMENT ELECTRONICS CORP.
Signatures
Pursuant to the requirements of Section 13 or 15(d) 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.
(Registrant)
Dated: July 12, 2000 By: /s/ Harold K. Fletcher
------------------- ----------------------
President and Director
(Principal Executive
Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated and by
signature hereto.
Signature Title Date
--------- ----- ----
/s/ Harold K. Fletcher Director July 12, 2000
--------------------------- --------------
/s/ Harold K. Fletcher
/s/ Joseph P. Macaluso Principal Accounting Officer July 12, 2000
--------------------------- --------------
/s/ Joseph P. Macaluso
/s/ George J. Leon Director July 12, 2000
--------------------------- --------------
/s/ George J. Leon
/s/ Robert Melnick Director July 12, 2000
--------------------------- --------------
/s/ Robert Melnick
/s/ Jeff O'Hara Director July 12, 2000
--------------------------- --------------
/s/ Jeff O'Hara
/s/ Robert H. Walker Director July 12, 2000
--------------------------- -------------
/s/ Robert H. Walker
Supplemental Information to be Furnished with Reports Filed
Pursuant to Section 15(d) of the Act by Registrants Which Have Not
Registered Securities Pursuant to Section 12 of the Act.
No annual report to security holders covering the fiscal year
ended March 31, 2000, except in the form set forth in this Form
10-K, has been prepared. No proxy statement, form of proxy, or
other proxy soliciting material has been sent to shareholders with
respect to any annual or other meeting of shareholders. No annual
report or proxy material is contemplated.
42