Back to GetFilings.com
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 December 31, 2003
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 33-18978
TEL-INSTRUMENT ELECTRONICS CORP
(Exact name of the Registrant as specified in Charter)
New Jersey 22-1441806
(State of Incorporation) (I.R.S. Employer ID Number)
728 Garden Street, Carlstadt, New Jersey 07072
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone No. including Area Code: 201-933-1600
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
Indicate the number of shares outstanding of the issuer's common stock, as of
the latest practical date:
2,144,151 shares of Common stock, $.10 par value as of February 9, 2004.
TEL-INSTRUMENT ELECTRONICS CORPORATION
TABLE OF CONTENTS
PAGE
----
Item 1. Financial Statements (Unaudited):
Condensed Comparative Balance Sheets
December 31, 2003 and March 31, 2003 1
Condensed Comparative Statements of Operations -
Three and Nine Months Ended December 31, 2003 and 2002 2
Condensed Comparative Statements of Cash Flows -
Nine Months Ended December 31, 2003 and 2002 3
Notes to Condensed Financial Statements 4-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-11
Item 4. Controls and Procedures 11
Part II Other Information
Item 4. Submission of matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
Certifications 14-17
Item 1 - Financial Statements
TEL-INSTRUMENT ELECTRONICS CORPORATION
CONDENSED COMPARATIVE BALANCE SHEETS
December 31, 2003 and March 31, 2003
ASSETS (Unaudited)
December 31, 2003 March 31, 2003
----------------- --------------
Current assets:
Cash $1,976,723 $1,680,124
Accounts receivable, net of allowance for doubtful
accounts of $36,598 at December 31, 2003 and
March 31, 2003 2,002,004 1,966,815
Inventories 1,880,015 2,262,147
Prepaid expenses and other current assets 85,773 42,587
Deferred income tax benefit - current 622,348 535,448
---------- ----------
Total current assets 6,566,863 6,487,121
Property, plant, and equipment, net 700,253 726,594
Other assets 297,293 97,462
---------- ----------
Total assets $7,564,409 $7,311,177
========== ==========
LIABILITIES & STOCKHOLDERS EQUITY
Current liabilities:
Note payable - related party - current portion $ 200,000 $ 200,000
Convertible subordinated notes - related party 7,500 7,500
Capitalized lease obligations - current portion 28,231 28,637
Accounts payable 371,337 503,216
Accrued payroll, vacation pay, deferred wages,
and payroll taxes 383,191 436,630
Income taxes payable -- 103,924
Accrued expenses 1,056,017 1,052,327
---------- ----------
Total current liabilities 2,046,276 2,332,234
Notes payable - related party - non-current portion 50,000 50,000
Capitalized lease obligations - excluding current portion 453 21,069
---------- ----------
Total liabilities 2,096,729 2,403,303
Stockholders' equity:
Common stock 214,418 213,583
Additional paid-in capital 3,960,886 3,944,812
Retained earnings 1,292,376 749,479
---------- ----------
Total stockholders' equity 5,467,680 4,907,874
---------- ----------
Total liabilities and stockholders' equity $7,564,409 $7,311,177
========== ==========
See accompanying notes to condensed financial statement
1
TEL-INSTRUMENT ELECTRONICS CORPORATION
CONDENSED COMPARATIVE STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
Dec. 31, 2003 Dec. 31, 2002 Dec. 31, 2003 Dec. 31, 2002
------------- ------------- ------------- -------------
Sales
Government, net $ 2,002,133 $ 2,435,114 $ 5,634,389 $ 7,448,690
Commercial, net 912,138 631,689 2,954,504 1,450,748
----------- ----------- ----------- -----------
Total Sales 2,914,271 3,066,803 8,588,893 8,899,438
Cost of sales 1,417,825 1,437,563 3,897,156 4,209,428
----------- ----------- ----------- -----------
Gross margin 1,496,446 1,629,240 4,691,737 4,690,010
Operating expenses:
Selling, general & administrative 715,465 803,872 2,165,055 2,167,533
Engineering, research, & development 551,869 391,690 1,619,917 1,260,736
----------- ----------- ----------- -----------
Total operating expenses 1,267,334 1,195,562 3,784,972 3,428,269
Income from operations 229,112 433,678 906,765 1,261,741
Other income (expense):
Interest income 3,928 17,954 19,838 33,743
Interest expense (4,587) (15,653) (22,529) (48,941)
----------- ----------- ----------- -----------
Income before taxes 228,453 435,979 904,074 1,246,543
Provision for income taxes, net 91,266 174,173 361,177 497,993
----------- ----------- ----------- -----------
Net income $ 137,187 $ 261,806 $ 542,897 $ 748,550
=========== =========== =========== ===========
Basic income per common share $ 0.06 $ 0.12 $ 0.25 $ 0.35
Diluted income per common share $ 0.06 $ 0.12 $ 0.24 $ 0.35
Dividends per share None None None None
Weighted average shares outstanding
Basic 2,144,151 2,135,801 2,141,896 2,135,536
Diluted 2,232,820 2,159,985 2,230,565 2,158,985
See accompanying notes to condensed financial statements.
2
TEL-INSTRUMENT ELECTRONICS CORPORATION
CONDENSED COMPARATIVE STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended Nine Months Ended
December 31, 2003 December 31,2002
----------------- ----------------
Cash flows from operating activities
Net income $ 542,897 $ 748,550
Adjustments to reconcile net income to cash used
In operating activities:
Deferred income taxes (86,900) 107,371
Depreciation 196,487 188,135
Reserve for obsolescence 40,000 45,000
Changes in assets or liabilities:
Increase in accounts receivable, net (35,189) (941,560)
Decrease in inventories, net 342,132 626,796
Increase in prepaid expenses and other current assets (43,186) (8,244)
Increase in other assets (199,831) (5,575)
(Decrease) increase in accounts payable (131,879) 335,382
Increase in accrued payroll, vacation pay, deferred wages,
and payroll taxes (53,439) 64,302
Decrease in income taxes payable (103,924) --
Increase in accrued expenses 3,690 374,521
----------- -----------
Net cash provided by operations 470,858 1,534,678
----------- -----------
Cash flows from investing activities:
Cash purchases of property, plant and equipment (170,146) (90,537)
----------- -----------
Net cash used in investing activities (170,146) (90,537)
----------- -----------
Cash flows from financing activities:
Proceeds from exercise of stock options 16,909 3,090
Repayment of note payable - related party -- (100,000)
Repayment of capitalized lease obligations (21,022) (97,336)
----------- -----------
Net cash used in financing activities (4,113) (194,246)
----------- -----------
Net increase in cash 296,599 1,249,895
Cash at beginning of period 1,680,124 1,198,191
----------- -----------
Cash at end of period $ 1,976,723 $ 2,448,086
=========== ===========
Supplemental Cash Flow Information:
Interest paid $ 26,105 $ 77,243
=========== ===========
Taxes paid $ 462,029 $ 428,029
=========== ===========
See accompanying notes to condensed financial statements
3
TEL-INSTRUMENT ELECTRONICS CORP
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note 1 Basis of Presentation
In the opinion of management, the accompanying unaudited condensed financial
statements contain all adjustments (consisting only of normal recurring
accruals) necessary to present fairly the financial position of Tel-Instrument
Electronics Corp as of December 31, 2003, the results of operations for the
three and nine months ended December 31, 2003 and December 31, 2002, and
statements of cash flows for the nine months ended December 31, 2003 and
December 31, 2002. These results are not necessarily indicative of the results
to be expected for the full year.
The financial statements have been prepared in accordance with the requirements
of Form 10-Q and consequently do not include disclosures normally made in an
Annual Report on Form 10-K. The March 31, 2003 results included herein have been
derived from the audited financial statements included in the Company's annual
report on Form 10-K. Accordingly, the financial statements included herein
should be reviewed in conjunction with the financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 2003.
Note 2 Accounts Receivable
The following table sets forth the components of accounts receivable:
December 31, 2003 March 31, 2003
----------------- --------------
Commercial $ 919,998 $ 555,076
Government 1,118,604 1,448,337
Allowance for Bad Debts (36,598) (36,598)
----------- -----------
Total $ 2,002,004 $ 1,966,815
=========== ===========
Note 3 Inventories
Inventories consist of:
December 31, 2003 March 31, 2003
---------------- --------------
Purchased Parts $ 645,632 $ 1,074,442
Work-in-Process 1,290,763 1,289,578
Finished Goods 96,433 10,940
Less: Reserve for Obsolescence (152,813) (112,813)
----------- -----------
Total $ 1,880,015 $ 2,262,147
=========== ===========
4
TEL-INSTRUMENT ELECTRONICS CORP
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note 4 Earnings Per Share
The Company's basic income per share is based on net income for the relevant
period, divided by the weighted average number of common shares outstanding
during the period. Diluted income per share is based on net income, divided by
the weighted average number of common shares outstanding during the period,
including common share equivalents, such as outstanding stock options.
Note 5 Stock Options
The Company accounts for its stock option plan in accordance with the provisions
of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations. The Company has adopted the
disclosure only provisions of Statement of Financial Accounting Standards No.
123 and 148, "Accounting for Stock-Based Compensation" ("SFAS 123 and 148").
Under SFAS 123 and 148 the Company provides pro forma net income and pro forma
earnings per share disclosures for employee stock option grants made since
fiscal 1996 as if the fair-value-based method as defined in SFAS No. 123 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, volatility at 50% and an
expected life of 5 years. Had the Company determined compensation cost based on
the fair market value at the grant date for its stock options under SFAS No.
123, the pro forma amounts are indicated below:
Nine Months Ended Nine Months Ended
December 31, 2003 December 31, 2002
----------------- -----------------
Net income - as reported $ 542,897 $ 748,550
Less fair value of stock options (60,750) (58,082)
--------- ---------
Net income - pro forma 482,147 690,468
========= =========
Basic earnings per share - as reported 0.25 0.35
Basic earnings per share - pro forma 0.23 0.32
Diluted earnings per share - as reported 0.24 0.35
Diluted earnings per share - pro forma 0.22 0.32
During the nine months ended December 31, 2003, the Company sold 8,350 shares of
common stock upon exercise of previously granted employee options, pursuant to
the exemption from registration provided by Sec. 4(2) of the Securities Act of
1933.
5
TEL-INSTRUMENT ELECTRONICS CORP
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note 6 Government and Commercial Sales
The Company is organized on the basis of its avionics products. The government
market consists primarily of the sale of test equipment to U.S. and foreign
governments and militaries, either direct or through distributors. The
commercial market consists of sales of test equipment to domestic and foreign
airlines and to commercial distributors. The commercial market also includes
sales related to repairs and calibration which have a lower gross margin. The
Company primarily develops and designs test equipment for the avionics industry
and, as such, the Company's products and designs may be sold in the government
and commercial markets.
The table below presents information about sales and gross margin. Cost of sales
includes certain allocation factors for indirect costs.
Three Months Ended Three Months Ended
December 31, 2003 December 31, 2002
Government Commercial Government Commercial
---------- ---------- ---------- ----------
Sales $2,002,133 $912,138 $2,435,114 $631,689
Cost of Sales 906,451 511,374 1,126,062 311,501
---------- -------- ---------- --------
Gross Margin $1,095,682 $400,764 $1,309,052 $320,188
========== ======== ========== ========
Three Months Ended Three Months Ended
December 31, 2003 December 31, 2002
Government Commercial Government Commercial
---------- ---------- ---------- ----------
Sales $5,634,389 $2,954,504 $7,448,690 $1,450,748
Cost of Sales 2,382,096 1,515,060 3,436,478 772,950
---------- ---------- ---------- ----------
Gross Margin $3,252,293 $1,439,444 $4,012,212 $ 677,798
========== ========== ========== ==========
Note 7 Subsequent Events
In January 2004, the Company acquired privately held Innerspace Technology, Inc.
(ITI) of Waldwick, NJ. ITI has been in business for over 30 years designing,
manufacturing and distributing a variety of shipboard and underwater instruments
to support hydrographers, oceanographers, researchers, engineers, geophysicists,
and surveyors worldwide. ITI has total annual sales of approximately $1 million
dollars, and the purchase price was $547,000 and employment contracts were
signed with the principals. This acquisition was financed internally from
available funds, and, as such, the Company's cash balance was reduced in January
2004. The Company hopes to significantly increase the sales of ITI's products by
expanding distribution and enhancing marketing and product development; however,
there can be no assurance.
The Company has been approved for listing of its common stock on the American
Stock Exchange (Amex). The Company began trading on the Amex on February 10,
2004 with the stock symbol TIK.
6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
A number of the statements made by the Company in this report may be regarded as
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995.
Forward-looking statements include, among others, statements concerning the
Company's outlook, pricing trends and forces within the industry, the completion
dates of capital projects, expected sales growth, cost reduction strategies and
their results, long-term goals of the Company and other statements of
expectations, beliefs, future plans and strategies, anticipated events or trends
and similar expressions concerning matters that are not historical facts.
All predictions as to future results contain a measure of uncertainty and
accordingly, actual results could differ materially. Among the factors that
could cause a difference are: changes in the general economy; changes in demand
for the Company's products or in the cost and availability of its raw materials;
the actions of its competitors; the success of our customers; technological
change; changes in employee relations; government regulations; litigation,
including its inherent uncertainty; difficulties in plant operations and
materials; transportation, environmental matters; and other unforeseen
circumstances. A number of these factors are discussed in the Company's previous
filings with the Securities and Exchange Commission.
Critical Accounting Policies
In preparing our financial statements and accounting for the underlying
transactions and balances, we apply our accounting policies as disclosed in Note
2 of our Notes to Financial Statements included in our Form 10-K. The Company's
accounting policies that require a higher degree of judgment and complexity used
in the preparation of financial statements include:
Revenue recognition - revenues are recognized at the time of shipment to, or
acceptance by customer, provided title and risk of loss is transferred to the
customer. Provisions, when appropriate, are made where the right to return
exists. Revenues under service contracts are recognized when the services are
performed.
Property and equipment - property and equipment are stated at cost, less
accumulated depreciation. Depreciation is provided using the straight-line
method over the estimated useful lives of the respective assets over periods
ranging from three to eight years. Useful lives are estimated at the time the
asset is acquired and are based upon historical experience with similar assets
as well as taking into account anticipated technological or other changes.
Leasehold improvements are amortized over the term of the lease or the useful
life of the asset, whichever is shorter.
Inventory reserves - inventory reserves 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 inventory write-downs may be required.
Warranty reserves - warranty reserves are estimated based upon historical rates
and specific items that are identifiable and can be estimated at time of sale.
While warranty costs have historically been within our expectations and the
provisions established, future warranty costs could be in excess of our warranty
reserves. A significant increase in these costs could adversely affect our
operating results for the period and the periods these additional costs
materialize. Warranty reserves are adjusted from time to time when actual
warranty claim experience differs from estimates.
7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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 this positive trend
will continue.
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. These amounts are periodically
evaluated. The deferred tax asset 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
Sales for the three and nine months ended December 31, 2003 decreased 5% and
3.5%, respectively. The decrease in sales is primarily attributed to the reduced
shipments of the AN/APM-480 to the U.S. Navy. The Company, in agreement with the
U.S. Navy, has temporarily decreased the number of units it is currently
shipping in anticipation of these units being returned for up-grades and
enhancements. The total number of units under contract has not changed. However,
this decline was partially offset by an increase in commercial sales for both
periods, primarily as a result of the introduction of the TR-220/210 family of
products, and the T-47G and the T-30D. The decline in sales of the AN/APM-480
for the nine months ended December 31, 2003 was also partially offset by the
increase in the shipment of DME test sets.
The Company continues to invest in new product development. Engineering,
research, and development expenditures increased 28% for the nine months ended
December 31, 2003, as compared to the same period in the prior fiscal year, and
represented 19% of total sales for the nine months ended December 31, 2003 as
compared to 14% for the same period last year. The introduction of the
TR-220/TR-210 Multi-Function test sets was very successful. These products
accounted for 16% and 12% of total sales, respectively, for the three and nine
months ended December 31, 2003. The Company continues to evaluate and develop
new products. Research and development activities include the design of the next
generation of IFF test sets, development of a foundation technology for future
products, and incorporation other product enhancements. The Company is also
developing a multi-function bench test set, which will add a new market and a
diversification opportunity for the future.
In January 2004, the Company acquired privately held Innerspace Technology, Inc.
(ITI) of Waldwick, NJ. ITI has been in business for over 30 years designing,
manufacturing and distributing a variety of shipboard and underwater instruments
to support hydrographers, oceanographers, researchers, engineers, geophysicists,
and surveyors worldwide. ITI has total annual sales of approximately $1 million
dollars, and the purchase price was $547,000 and the Company signed employment
contracts with the principals. The Company hopes to significantly increase the
sales of ITI's products by expanding distribution and enhancing marketing and
product development; however, there can be no assurance (see Note 7 to Financial
Statements).
8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Overview (continued)
The Company has been active in responding to customer requests for quotation,
and continues to pursue opportunities in both the commercial and government
markets, both domestically and internationally. Exploration of opportunities in
non-avionic government and commercial markets also continues in an attempt to
broaden the Company's product line. The Company continues its efforts with
Semaphore Capital Advisors LLC to pursue growth through acquisitions and
alliances of compatible businesses or technologies. In addition, the Company is
working with Investment Partners Group, exploring the licensing of compatible
technologies.
Results of Operations
Sales
For the nine months ended December 31, 2003, net sales decreased $310,545 (3.5%)
as compared to the nine months ended December 31, 2002. Government sales
decreased $1,814,301 (24.4%) for the nine months ended December 31, 2003 as
compared to the nine months ended December 31, 2002. The decrease in sales is
primarily attributed to the reduced shipments of the AN/APM-480 to the U.S.
Navy. The Company, in agreement with the U.S. Navy, has temporarily decreased
the number of units it is currently shipping in anticipation of these units
being returned for up-grades and enhancements. The total number of units under
contract has not changed. This decrease in sales was partially offset by an
increase in the shipment of Precision DME test sets. Commercial sales increased
$1,503,756 (103.7%) for the nine months ended December 31, 2003 as compared to
the same period last year. The introduction of the TR-220 Multi-Function test
set and a sales promotion of the T-49C Transponder/TCAS test set accounted for
this increase. The Company's repairs and calibration business also increased in
this period. However, the commercial market remains uncertain, primarily as a
result of the weak financial position of most commercial airlines.
For the three months ended December 31, 2003, net sales decreased $152,532
(5.0%) as compared to the three months ended December 31, 2002. Government sales
decreased $432,981 (17.8%) for the three months ended December 31, 2003 as
compared to the three months ended December 31, 2002. The decrease in sales is
primarily attributed to the reduced shipments of the AN/APM-480 to the U.S. Navy
as discussed above. This decrease was partially offset by a net increase in
other government products. Commercial sales increased $280,449 (44.4%) for the
three months ended December 31, 2003 as compared to the same period last year.
The introduction of the TR-220/TR-210 Multi-Function test sets accounted for
most of this increase. The Company's repairs and calibration business also
increased in this period. This increase in commercial sales were partially
offset by a decrease in the sale of the Company's T-49C Transponder/TCAS ramp
test set as a result of ending a sales promotion.
9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued)
Results of Operations (continued)
Gross Margin
Gross margin dollars decreased $1,727 for the nine months ended December 31,
2003 as compared to the same period last year. This decrease, for the most part,
is attributed to the lower overall sales volume, and the higher percentage of
sales to distributors, who are sold to at a discount, partially offset by higher
gross profit on certain products. The gross margin percentage for the nine
months ended December 31, 2003 was 54.6% compared to 52.7% for the nine months
ended December 31, 2002.
Gross margin dollars decreased $132,794 (8.2%) for the three months ended
December 31, 2003 as compared to the same period last year. This decrease in
gross margin, for the most part, is attributed to the lower sales volume. The
gross margin percentage for the three months ended December 31, 2003 was 51.3%
as compared to 53.1% for the three months ended December 31, 2002.
Operating Expenses
Selling, general and administrative expenses decreased $2,478 (0.1%) for the
nine months ended December 31, 2003 as compared to the nine months ended
December 31, 2002. Lower relocation, recruitment, selling commissions, and
professional fees were mostly offset by an increase in personnel and related
salaries, benefits and travel expenses.
Selling, general and administrative expenses decreased $88,407 (11.0%) for the
three months ended December 31, 2003 as compared to the three months ended
December 31, 2002. This decrease is mainly attributed to lower professional
fees, and relocation expenses.
Engineering, research and development expenses increased $160,179 (40.9%) and
$359,181 (28.5%), respectively, for the three and nine months ended December 31,
2003, as compared to same periods in the prior fiscal year. The higher level of
expenditures is associated with an increase in research and development
activities, including the next generation of IFF test sets, developing a
foundation technology for future products, and incorporating other product
enhancements. The Company is also developing a bench test set, which will add a
new market and diversification opportunity for the future.
Income Taxes
Income taxes decreased $82,907 and $136,816, respectively, for the three and
nine months ended December 31, 2003 as compared to the same periods last year as
a result of the lower profit. The provision for income taxes represents the
effective federal and state tax rate on the Company's income before taxes. The
Company has utilized all its net operating loss carryforwards and the Company
will pay federal taxes this fiscal year.
10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued)
Liquidity and Capital Resources
At December 31, 2003 the Company had positive working capital of $4,520,587 as
compared to $4,154,887 at March 31, 2003. For the nine months ended December 31,
2003, cash provided by operations was $470,858 as compared to $1,534,678 for the
nine months ended December 31, 2002. This decrease in cash from operations is
primarily attributable to an increase in inventories, an increase in other
assets, a decrease in accrued expenses, and payment of income taxes.
The Company has a line of credit of $1,750,000 from Fleet Bank. The line of
credit bears an interest rate of 0.5% above the lender's prevailing base rate,
which is payable monthly, based upon the outstanding balance. At December 31,
2003, the Company had no outstanding balance. The line of credit is
collateralized by substantially all of the assets of the company. The credit
facility requires the Company to maintain certain financial covenants. As of
December 31, 2003, the Company was in compliance with all financial covenants.
The line of credit expires at September 30, 2004.
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 at that time. The Company has also retained
Semaphore Capital Advisors as its investment bankers to help pursue acquisitions
and alliances and, if needed, to help raise capital. The Company maintains its
cash balance primarily in a money market account in the event the cash is needed
for an acquisition. Some of this cash was used to purchase Innerspace
Technology, Inc. (see above).
There was no significant impact on the Company's operations as a result of
inflation for the nine months ended December 31, 2003.
These financial statements should be read in conjunction with the Company's
Annual Report on Form 10-K to the Securities and Exchange Commission for the
fiscal year ended March 31, 2003.
Item 4. Controls and Procedures
The Company adopted disclosure controls and procedures, as called for by the
recently adopted legislation and rules of the Securities and Exchange
Commission. Under rules promulgated by the S.E.C., disclosure controls and
procedures are defined as "those controls or other procedures of the issuer that
are designed to ensure that information required to be disclosed by the issuer
in the reports filed or submitted by it under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the
Commission's rules and forms." The Chief Executive Officer and the Principal
Accounting Officer of the Company evaluated the Company's disclosure controls
and procedures at January 30, 2004, and concluded that they are effective.
Furthermore, there were no significant changes in the Company's internal
controls, or in other factors that could significantly affect these controls,
after January 30, 2004, the date of the evaluation by the Chief Executive
Officer and the Principal Accounting Officer.
11
Part II Other Information
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Shareholders was held on November 12, 2003 (the
"Annual Meeting").
(b) Not applicable because (i) there was no solicitation in opposition to
management's nominees as listed in the Company's proxy statement; and (ii)
all of such nominees who were directors, previously reported to the
Commission, were re-elected.
(c) At the Annual Meeting, the Company's shareholders voted in favor of
re-electing management's nominees for election as directors of the Company
as follows:
For Against
--- -------
Harold K. Fletcher 1,616,834 0
George J. Leon 1,616,834 0
Robert J. Melnick 1,616,834 0
Jeff C. O'Hara 1,616,834 0
Robert H. Walker 1,616,834 0
The shareholders also voted all 1,616,834 shares in favor of ratifying the audit
committee's appointment of BDO Seidman LLP, as the Company's independent
auditors for the fiscal year ending March 31, 2004.
(d) Not applicable
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 Cerification by CEO pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sabanes-Oxley
Act of 2002.
32.2 Cerification by CFO pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sabanes-Oxley
Act of 2002.
b. Reports on Form 8-K.
Report on Form 8-K regarding the acquisition of Innerspace
Technology was submitted January 26, 2004 under Item 9.
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: February 13, 2004 By: /s/ Harold K. Fletcher
----------------------
Harold K. Fletcher
Chairman and President
Date: February 13, 2004 By: /s/ Joseph P. Macaluso
----------------------
Joseph P. Macaluso
Principal Accounting Officer
13