UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2004
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 33-18978
TEL-INSTRUMENT ELECTRONICS CORP.
(Exact name of the Registrant as specified in Charter)
New Jersey 22-1441806
(State of Incorporation) (I.R.S. Employer ID Number)
728 Garden Street, Carlstadt, New Jersey 07072
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone No. including Area Code: 201-933-1600
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X|
Indicate the number of shares outstanding of the issuer's common stock, as of
the latest practical date:
2,144,151 shares of Common stock, $.10 par value as of August 9, 2004.
TEL-INSTRUMENT ELECTRONICS CORPORATION
TABLE OF CONTENTS
PAGE
----
Part I - Financial Information
Item 1. Condensed Consolidated Financial Statements (Unaudited):
Condensed Consolidated Comparative Balance Sheets
June 30, 2004 and March 31, 2004 1
Condensed Consolidated Comparative Statements of Operations -
Three Months Ended June 30, 2004 and 2003 2
Condensed Consolidated Comparative Statements of Cash Flows -
Three Months Ended June 30, 2004 and 2003 3
Notes to Condensed Consolidated Financial Statements 4-7
Item 2. Management's Discussion and Analysis of the Results of
Operations and Financial Conditions 8-11
Item 3. Quantitative and Qualitative Disclosures about Market Risk 12
Item 4. Controls and Procedures 12
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
Certifications 14-17
Item 1 - Financial Statements
TEL-INSTRUMENT ELECTRONICS CORPORATION
CONDENSED CONSOLIDATED COMPARATIVE BALANCE SHEETS
June 30, 2004 March 31, 2004
------------- --------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 868,062 $1,509,828
Accounts receivable, net 2,374,033 1,266,905
Inventories, net 2,173,318 2,202,143
Prepaid expenses and other current assets 265,716 263,734
Deferred income tax benefit 546,384 581,348
---------- ----------
Total current assets 6,227,513 5,823,958
Property, plant and equipment, net 920,694 867,886
Intangible assets, net 391,498 413,047
Other assets 287,610 287,610
---------- ----------
Total assets $7,827,315 $7,392,501
========== ==========
LIABILITIES & STOCKHOLDERS EQUITY
Current liabilities:
Note payable - related party - current portion $ 50,000 $ 250,000
Convertible subordinated notes - related party 7,500 7,500
Notes payable - other 87,000 87,000
Capitalized lease obligations - current portion 17,104 24,768
Accounts payable 597,348 346,169
Deferred revenues 70,538 44,663
Accrued payroll, vacation pay payroll taxes 386,113 333,180
Accrued expenses 1,023,465 963,528
---------- ----------
Total current liabilities 2,239,068 2,056,808
Notes payable - related party - non-current portion 200,000 --
Deferred taxes - long term 48,000 48,000
---------- ----------
Total liabilities 2,487,068 2,104,808
Stockholders' equity:
Common stock 214,418 214,418
Additional paid-in capital 3,960,886 3,960,886
Retained earnings 1,164,943 1,112,389
---------- ----------
Total stockholders' equity 5,340,247 5,287,693
---------- ----------
Total liabilities and stockholders' equity $7,827,315 $7,392,501
========== ==========
See accompanying notes to condensed financial statements
-1-
TEL-INSTRUMENT ELECTRONICS CORPORATION
CONDENSED CONSOLIDATED COMPARATIVE STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
------------------
June 30, 2004 June 30, 2003
------------- -------------
Net sales $ 2,812,800 $ 3,057,906
Cost of sales 1,335,240 1,286,522
----------- -----------
Gross margin 1,477,560 1,771,384
Operating expenses:
Selling, general and administrative 833,211 734,999
Amortization of acquired intangibles 21,549 --
Engineering, research and development 532,450 567,910
----------- -----------
Total operating expenses 1,387,210 1,302,909
----------- -----------
Income from operations 90,350 468,475
Other income (expense):
Interest income 3,504 10,722
Interest expense (6,337) (8,985)
----------- -----------
Income before taxes 87,517 470,212
Provision for income taxes 34,963 188,269
----------- -----------
Net income 52,554 281,943
=========== ===========
Basic income per common share $ 0.02 $ 0.13
=========== ===========
Diluted income per common share $ 0.02 $ 0.13
=========== ===========
Dividends per share None None
Weighted average shares outstanding
Basic 2,144,151 2,138,551
Diluted 2,270,496 2,169,585
See accompanying notes to condensed financial statements
-2-
TEL-INSTRUMENT ELECTRONICS CORPORATION
CONDENSED CONSOLIDATED COMPARATIVE STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months ended
------------------
June 30, 2004 June 30, 2003
------------- -------------
Cash flows from operating activities:
Net income $ 52,554 $ 281,943
Adjustments to reconcile net income to net
Cash provided by operating activities:
Deferred income taxes 34,964 (62,293)
Depreciation 74,907 60,313
Amortization of acquired intangibles 21,549 --
Changes in assets and liabilities:
Increase in accounts receivable (1,107,128) (47,064)
Decrease (increase) in inventories 28,825 (110,092)
Increase in prepaid expenses & other current assets (1,982) (37,506)
Increase in other assets -- (7,501)
Increase in accounts payable 251,179 86,133
Increase in income taxes payable -- 165,561
Increase in accrued payroll, vacation pay
and payroll taxes 52,933 58,078
Increase (decrease) in deferred
revenues and accrued expenses 85,812 (11,310)
----------- -----------
Net cash (used in) provided by operating activities (506,387) 376,262
----------- -----------
Cash flows from investing activities:
Purchases of property, plant and equipment (127,715) (49,720)
----------- -----------
Net cash used in investing activities (127,715) (49,720)
----------- -----------
Cash flows from financing activities:
Proceeds from the exercise of stock options -- 14,625
Repayment of loan on life insurance policy -- (172,426)
Payment of capitalized lease obligations (7,664) (5,957)
----------- -----------
Net cash used in financing activities (7,664) (163,758)
----------- -----------
Net (decrease) increase in cash and cash equivalents (641,766) 162,784
Cash and cash equivalents at beginning of period 1,509,828 1,680,124
----------- -----------
Cash and cash equivalents at end of period $ 868,062 $ 1,842,908
=========== ===========
Taxes paid -- $ 85,000
Interest paid $ 2,591 $ 23,362
See accompanying notes to condensed financial statements
-3-
TEL-INSTRUMENT ELECTRONICS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Basis of Presentation
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments necessary to present fairly the
financial position of Tel-Instrument Electronics Corp. as of June 30, 2004, the
results of operations for the three months ended June 30, 2004 and June 30,
2003, and statements of cash flows for the three months ended June 30, 2004 and
June 30, 2003. These results are not necessarily indicative of the results to be
expected for the full year.
The financial statements have been prepared in accordance with the requirements
of Form 10-Q and consequently do not include disclosures normally made in an
Annual Report on Form 10-K. The March 31, 2004 results included herein have been
derived from the audited financial statements included in the Company's annual
report on Form 10-K. Accordingly, the financial statements included herein
should be reviewed in conjunction with the financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 2004.
Note 2 Accounts Receivable, net
Accounts receivable, net consist of:
June 30, 2004 March 31, 2004
------------- --------------
Commercial $ 694,706 $ 862,259
Government 1,720,925 446,244
Less: Allowance for doubtful debts (41,598) (41,598)
---------- ----------
$2,374,033 $1,266,905
========== ==========
Note 3 Inventories, net
Inventories, net consist of:
June 30, 2004 March 31, 2004
------------- --------------
Purchased parts $ 931,983 $ 846,782
Work-in-process 1,362,230 1,401,722
Finished Goods 35,003 94,537
Less: Reserve for obsolescence (155,898) (140,898)
---------- ----------
$2,173,318 $2,202,143
========== ==========
-4-
TEL-INSTRUMENT ELECTRONICS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 4 Earnings Per Share
The Company's basic income per common share is based on net income for the
relevant period, divided by the weighted average number of common shares
outstanding during the period. Diluted income per common share is based on net
income, divided by the weighted average number of common shares outstanding
during the period, including common share equivalents, such as outstanding stock
options.
Note 5 Stock Options
The Company accounts for its stock option plan in accordance with the provisions
of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations. The Company has adopted the
disclosure only provisions of Statement of Financial Accounting Standards No.
123 and 148, "Accounting for Stock-Based Compensation" ("SFAS 123 and 148").
Under SFAS 123 and 148 the Company provides pro forma net income and pro forma
earnings per share disclosures for employee stock option grants made since
fiscal 1996 as if the fair-value-based method as defined in SFAS No. 123 had
been applied. The Company currently does not plan to adopt the fair value based
method prescribed by SFAS 123.
The Company estimates the fair value of each option using the Black Scholes
option-pricing model with the following weighted-average assumptions: expected
dividend yield of 0.0%, risk-free interest rate of 3.5% and volatility at 50%
and an expected life of 5 years. Had the Company determined compensation cost
based on the fair market value at the grant date for its 306,300 outstanding
stock options under SFAS No. 123, the pro forma amounts are indicated below:
Three Months Ended Three Months Ended
------------------ ------------------
June 30, 2004 June 30, 2003
------------- -------------
Net income - as reported $ 52,554 $281,943
Less fair value of stock options (11,318) (17,333)
-------- --------
Net income - pro forma 41,236 264,610
======== ========
Basic earnings per share - as reported 0.02 0.13
Basic earnings per share - pro forma 0.02 0.12
Diluted earnings per share - as reported 0.02 0.13
Diluted earnings per share - pro forma 0.02 0.12
-5-
TEL-INSTRUMENT ELECTRONICS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 6 Segment Information
Information is presented for the Company's three reportable segments, avionics
government, avionics commercial and marine systems. The marine systems division
was acquired on January 16, 2004, and, as such, no amounts are shown for the
quarter ended June 30, 2003. There are no inter-segment revenues.
The Company is organized primarily on the basis of its avionics and marine
instrument products. The avionics government market consists primarily of the
design, manufacture, and sale of test equipment to U.S. and foreign governments
and militaries, either direct or through distributors. The avionics commercial
market consists primarily of the design, manufacture, and sales of test
equipment to domestic and foreign airlines, to commercial distributors, and to
general aviation repair and maintenance shops. The avionics commercial market
also includes sales related to repairs and calibration which have lower gross
margins. The Company primarily develops and designs test equipment for the
avionics industry and, as such, the Company's products and designs cross
segments. The marine instrumentation systems segment consists of sales to
hydrographic, oceanographic, researchers, engineers, geophysicists, and
surveyors.
The table below presents information about sales and gross margin. Cost of sales
includes certain allocation factors for indirect costs. Additionally,
administrative expenses have been allocated between avionics and marine systems
based upon a percentage of total sales.
Three Months Ended Avionics Avionics Avionics Marine Corporate
June 30, 2004 Gov't Comm'l. Total Systems Items Total
- ------------- ---------- ---------- ---------- --------- --------- ----------
Revenues $1,901,858 $ 681,213 $2,583,071 $ 229,729 $2,812,800
Cost of Sales 787,576 406,178 1,193,754 141,486 1,335,240
---------- ---------- ---------- ----- ----------
Gross Margin 1,114,282 275,035 1,389,317 88,243 1,477,560
---------- ---------- ---------- ----- ----------
Engineering, research, and 490,865 41,585 532,450
Development
Selling, general, and admin. 685,357 147,854 833,211
Amortization of intangibles 21,549 21,549
Interest expense, net 2,576 257 -- 2,833
---------- --------- -------- ----------
Total expenses 1,178,798 189,696 21,549 1,390,043
---------- --------- -------- ----------
Income before income taxes $ 210,519 $(101,453) $(21,549) $ 87,517
========== ========= ======== ==========
Three Months Ended Avionics Avionics Avionics Marine Corporate
June 30, 2003 Gov't Comm'l. Total Systems Items Total
- ------------- ---------- ---------- ---------- --------- --------- ----------
Revenues $1,869,489 $1,188,417 $3,057,906 -- $3,057,906
Cost of Sales 726,926 559,596 1,286,522 -- 1,286,522
---------- ---------- ---------- ----- ----------
Gross Margin 1,142,563 628,821 1,771,384 -- 1,771,384
---------- ---------- ---------- ----- ----------
Engineering, research,& dev. 567,910 567,910
Selling, general, and admin. 734,999 734,999
Interest expense, net (1,737) (1,737)
---------- ----------
Total expenses 1,301,172 1,301,172
Income before income taxes $ 470,212 -- $ 470,212
========== ===== ==========
-6-
TEL-INSTRUMENT ELECTRONICS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 7 Acquisition
On January 16, 2004, the Company acquired Innerspace Technology, Inc.
("ITI") for $547,000, including a note and employment agreements with
principals. The following table represents the unaudited consolidated
results of operations as though the acquisition of ITI occurred on April
1, 2003.
Quarter Ended Quarter Ended
June 30, 2004 June 30, 2003
(as reported) (pro forma)
Net sales $2,812,800 $3,267,906
Income before taxes 87,517 431,776
Net income 52,554 259,281
Basic income per common share 0.02 0.12
Diluted income per common share 0.02 0.12
-7-
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
A number of the statements made by the Company in this report may be regarded as
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995.
Forward-looking statements include, among others, statements concerning the
Company's outlook, pricing trends and forces within the industry, the completion
dates of capital projects, expected sales growth, cost reduction strategies and
their results, long-term goals of the Company and other statements of
expectations, beliefs, future plans and strategies, anticipated events or trends
and similar expressions concerning matters that are not historical facts.
All predictions as to future results contain a measure of uncertainty and
accordingly, actual results could differ materially. Among the factors that
could cause a difference are: changes in the general economy; changes in demand
for the Company's products or in the cost and availability of its raw materials;
the actions of its competitors; the success of our customers; technological
change; changes in employee relations; government regulations; litigation,
including its inherent uncertainty; difficulties in plant operations and
materials; transportation, environmental matters; and other unforeseen
circumstances. A number of these factors are discussed in the Company's filings
with the Securities and Exchange Commission.
Critical Accounting Policies
In preparing the financial statements and accounting for the underlying
transactions and balances, we apply our accounting policies as disclosed in Note
2 of our Notes to Financial Statements included in our Form 10-K. The Company's
accounting policies that require a higher degree of judgment and complexity used
in the preparation of financial statements include:
Revenue recognition - revenues are recognized at the time of shipment to, or
acceptance by customer provided title and risk of loss is transferred to the
customer. Provisions, when appropriate, are made where the right to return
exists. Revenues under service contracts are recognized when the services are
performed.
Property and equipment - property and equipment are stated at cost, less
accumulated depreciation. Depreciation is provided using the straight-line
method over the estimated useful lives of the respective assets over periods
ranging from three to eight years. Useful lives are estimated at the time the
asset is acquired and are based upon historical experience with similar assets
as well as taking into account anticipated technological or other changes.
Leasehold improvements are amortized over the term of the lease or the useful
life of the asset, whichever is shorter.
Inventory reserves - inventory reserves or write-downs are estimated for excess,
slow-moving and obsolete inventory as well as inventory whose carrying value is
in excess of net realizable value. These estimates are based on current
assessments about future demands, market conditions and related management
initiatives. If market conditions and actual demands are less favorable than
those projected by management, additional reserves or inventory write-downs may
be required.
-8-
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued)
Results of Operations (continued)
Critical Accounting Policies (continued)
Accounts receivable - the Company performs ongoing credit evaluations of its
customers and adjusts credit limits based on customer payment and current credit
worthiness, as determined by review of their current credit information. The
Company continuously monitors credits and payments from its customers and
maintains provision for estimated credit losses based on its historical
experience and any specific customer issues that have been identified. While
such credit losses have historically been within our expectation and the
provision established, the Company cannot guarantee that it will continue to
receive positive results.
Warranty reserves - warranty reserves are based upon historical rates and
specific items that are identifiable and can be estimated at time of sale. While
warranty costs have historically been within our expectations and the provisions
established, future warranty costs could be in excess of our warranty reserves.
A significant increase in these costs could adversely affect our operating
results for the period and the periods these additional costs materialize.
Warranty reserves are adjusted from time to time when actual warranty claim
experience differs from estimates.
Income taxes - deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using enacted tax rates and laws that will be in effect when
such differences are expected to reverse. The measurement of deferred tax assets
is reduced, if necessary, by a valuation allowance for any tax benefit which is
not more likely than not to be realized. The effect on deferred tax assets and
liabilities of a change in tax rate is recognized in the period that such tax
rate changes are enacted.
Overview
For the first quarter ended June 30, 2004, total sales decreased 8% to
$2,812,800 and net income decreased to $52,554 in the first quarter of the
current fiscal year as compared to $281,943 for the same period last year. In
January 2004, the Company completed its acquisition of Innerspace Technology,
Inc. ("ITI"), a company selling its products to the marine industry. ITI is a
wholly-owned subsidiary of the Company, and ITI's balance sheet and results of
operations are consolidated in the Company's financial statements for the
quarter ended June 30, 2004 (see Note 6 to the Notes to the Financial
Statements).
For the quarter ended June 30, 2004, sales of avionics products were $2,583,071
(92% of total sales), as compared to sales of $3,057,906 (100% of total sales)
for the quarter ended June 30, 2003. The decline in sales is primarily
associated with the decrease in avionics commercial sales. Income before taxes
for the avionics segment was $210,549 for the quarter ended June 30, 2004 as
compared to $470,212 for the quarter ended June 30, 2003.
The marine systems segment generated sales of $229,729 (8% of total sales), and
incurred a loss before taxes of $101,453 for the quarter ended June 30, 2004.
-9-
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued)
Results of Operations (continued)
Overview (continued)
Deliveries of the AN/APM-480 IFF (Identification, Friend or Foe) Transponder Set
Test Set (TSTS) to the U.S. Navy continued in the first quarter of fiscal year
2005. As of June 30, 2004, the Company has shipped 1,203 of the 1,300 units
under contract, and expects to ship the remaining units in the current fiscal
year. This program firmly established the Company as one of the leading
suppliers in the avionics test equipment industry, and improved its market
position.
Investment in new product development continues in order to meet the expected
needs of its customers and remain as one of the leaders in the industry. The
Company continues its work on the next generation of IFF test sets in
anticipation of U.S. and NATO requirements for more sophisticated IFF testing.
The Company anticipates that most of the AN/APM-480's will be returned and
modified, in the future, to accommodate more sophisticated IFF testing. Although
there is no assurance that the Company will receive any such modification
contracts, the Company believes that it is well positioned to obtain such
contracts.
The Company has been active in responding to requests for quotation for new
government programs, which will award new test equipment contracts, and is
currently in the process of submitting proposals for several large government
programs. The Company continues actively to pursue opportunities in both the
commercial and government avionics and marine systems markets, both domestically
and internationally. The Company continues its efforts with Semaphore Capital
Advisors LLC to pursue growth through acquisitions and alliances of compatible
businesses or technologies.
Sales
For the three months ended June 30, 2004, total avionics sales decreased
$474,835 (15.5%) to $2,583,071 as compared to the three months ended June 30,
2003. Avionics commercial sales decreased $507,204 (42.7%) to $681,213 for the
quarter ended June 30, 2004 as compared to $1,188,417 for the same period in the
prior fiscal year. Commercial sales for the first quarter ended June 30, 2003
were higher as a result of a sales promotion of the T-49C Transponder/TCAS test
set, resulting in higher commercial sales last year. Avionics government sales
increased $32,369 (1.7%) to $1,901,858 as compared to $1,869,489 for the first
three months of the prior fiscal year. Shipment of the T-30CM under a contract
with the U.S. Navy and sales of the AN/APM-480 to customers other than the U.S.
Navy were mostly offset by a decline in sales of other government products, and
lower sales of the AN/APM-480 to the U.S. Navy. Marine systems sales were
$229,729 for the quarter ended June 30, 2004.
Gross Margin
Gross margin decreased $293,824 (16.6%) for the three months ended June 30, 2004
as compared to the same three months in the prior fiscal year. The decrease in
gross margin is primarily attributed to the lower sales volume, lower absorption
of overhead expenses, and a change in product mix. The gross margin percentage
for the three months ended June 30, 2004 was 52.5% as compared to 57.9% for the
three months ended June 30, 2003, as a result of the lower sales volume,
including the associated lower absorption rate of overhead expenses, change in
product mix and ITI's lower gross margin.
-10-
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued)
Results of Operations (continued)
Operating Expenses
Selling, general and administrative expenses increased $98,212 (13.4%) for the
three months ended June 30, 2004, as compared to the three months ended June 30,
2003. This increase is primarily attributed to the selling expenses for the
marine systems division, which were not included in the quarter ended June 30,
2003.
Engineering, research and development expenses decreased $35,460 (6.2%). Lower
outside contract expenditures was partially offset by engineering expenditures
associated with the marine systems division and with higher recruitment fees.
Income Taxes
A provision for income taxes was recorded in the amount of $34,963 for the three
months ended June 30, 2004 as compared to a tax provision of $188,269 for the
three months ended June 30, 2003. These amounts represent the effective federal
and state tax rate of approximately 40% on the Company's net income before
taxes.
Liquidity and Capital Resources
At June 30, 2004 the Company had working capital of $3,988,445 as compared to
$3,767,150 at March 31, 2004. In May 2004, the Company and its
Chairman/President renegotiated the terms of the notes payable-related party. As
such, $200,000 of these notes was re-classified as long-term. The Notes now
become due in consecutive years beginning March 31, 2005. For the three months
ended June 30, 2004, the Company used $506,387 in operations as compared to the
cash provided by operations of $376,262 for the three months ended June 30,
2003. This decline in cash from operations is primarily attributed to an
increase in accounts receivable, which almost doubled from March 31, 2004 as a
result of significant amount of the sales being shipped at the end of the
quarter, and the decrease in net income.
The Company has a line of credit of $1,750,000 from Fleet Bank. The line of
credit bears an interest rate of 0.5% above the lender's prevailing base rate,
which is payable monthly, based upon the outstanding balance. The Company does
not pay to maintain this open line. At June 30, 2004 the Company had no
outstanding balance. The line of credit is collateralized by substantially all
of the assets of the Company and expires in September 2004. The credit facility
requires the Company to maintain certain financial covenants. As of June 30,
2004, the Company was in compliance with all financial covenants.
Based upon the current backlog, its existing credit line, and cash balance, the
Company believes that it has sufficient working capital to fund its operating
plans for at least the next twelve months. However, as the Company pursues
additional opportunities, the need for additional capital may arise. The Company
will evaluate its alternatives when these opportunities arise. The Company has
also retained Semaphore Capital Advisors as its investment bankers to help
pursue acquisitions and alliances and, if needed, to help raise capital. The
Company maintains its cash balance primarily in a money market account in the
event the cash is needed for acquisition. There was no significant impact on the
Company's operations as a result of inflation for the three months ended June
30, 2004. These financial statements should be read in conjunction with the
Company's Annual Report on Form 10-K to the Securities and Exchange Commission
for the fiscal year ended March 31, 2004.
-11-
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company, at this time, is generally not exposed to financial market risks,
including changes in interest rates, foreign currency exchange rates, and
marketable equity security prices.
Item 4. Controls and Procedures
The Company adopted disclosure controls and procedures, as called for by the
recently adopted legislation and rules of the Securities and Exchange
Commission. Under Rules promulgated by the SEC, disclosure controls and
procedures are defined as "those controls or other procedures of the issuer that
are designed to ensure that information required to be disclosed by the issuer
in the reports filed or submitted by it under the Exchange Act is recorded,
processed, summarized, and reported, within the time periods specified in the
commission's rules and forms." The Chief Executive Officer and Principal
Accounting Officer evaluated the Company's Disclosure Controls and Procedures at
June 30, 2004 and have concluded that they are effective, based on their
evaluation of these controls and procedures required by paragraph (b) of
Exchange Act Rules 13a-15 or 15d-15.
There were no changes in internal control over financial reporting identified in
connection with the evaluation as of June 30, 2004 by the Chief Executive
Officer and Principal Accounting Officer, required by paragraph (d) of Exchange
Act Rules 13a-15 or 15d-15, which occurred during our last fiscal quarter and
which have materially affected, or are reasonably likely to materially affect,
internal controls over financial reporting.
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
31.1 Certification by CEO pursuant to Rule 15d-14 under the
Securities Exchange Act.
31.2 Certification by CFO pursuant to Rule 15d-14 under the
Securities Exchange Act.
32.1 Certification by CEO pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
32.2 Certification by CFO pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
b. Reports on Form 8-K.
Report on Form 8-K regarding press release announcing results for
the year ended March 31, 2004 was submitted on June 22,2004.
Report on Form 8-K regarding press release announcing the
certification of its T-47G Flight Line Test Set for use with DoD
Mark XII "Identification, Friend or Foe (IFF) platforms was
submitted on July 1, 2004.
-12-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TEL-INSTRUMENT ELECTRONICS CORP.
Date: August 13, 2004 By: /s/ Harold K. Fletcher
----------------------------
/s/ Harold K. Fletcher
Chairman and President
Date: August 13, 2004 By: /s/ Joseph P. Macaluso
----------------------------
/s/ Joseph P. Macaluso
Principal Accounting Officer
-13-