Attached files
| file | filename |
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| EX-32.2 - EX-32.2 - TEL INSTRUMENT ELECTRONICS CORP | ex32-2.htm |
| EX-32.1 - EX-32.1 - TEL INSTRUMENT ELECTRONICS CORP | ex32-1.htm |
| EX-31.2 - EX-31.2 - TEL INSTRUMENT ELECTRONICS CORP | ex31-2.htm |
| EX-31.1 - EX-31.1 - TEL INSTRUMENT ELECTRONICS CORP | ex31-1.htm |
| EX-23.1 - EX-23.1 - TEL INSTRUMENT ELECTRONICS CORP | ex23-1.htm |
UNITED STATES
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 ended March 31, 2016
Commission File No. 001-31990
TEL-INSTRUMENT ELECTRONICS CORP.
(Exact name of Registrant as specified in its charter)
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New Jersey
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22-1441806
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(State of incorporation)
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(IRS Employer Identification Number)
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One Branca Road
East Rutherford, New Jersey
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07073
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(Address of principal executive offices)
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(Zip Code)
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Registrant's telephone number, including area code: (201) 933-1600
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class
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Name of Exchange on Which Registered
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Common Stock $.10 par value
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NYSE - MKT
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Indicate by checkmark if registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by checkmark if registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☒
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Act). Yes ☐ No ☒
The aggregate market value of the voting and non-voting common stock held by non-affiliates on September 30, 2015 (the last business day of our most recently completed second fiscal quarter) was $7,881,206 based on the closing price of $4.65 on September 30, 2015.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 3,255,887 shares of common stock, par value $0.10 per share, were outstanding as of June 23, 2016.
TABLE OF CONTENTS
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PART I.
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Item 1.
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Item 1A.
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PART II.
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PART III.
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Item 10.
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PART IV.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Included in this Annual Report on Form 10-K are “forward-looking” statements, as well as historical information. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that the expectations reflected in these forward-looking statements will prove to be correct. Our actual results could differ materially from those anticipated in forward-looking statements as a result of certain factors, including matters described in the section titled “Risk Factors.” Forward-looking statements include those that use forward-looking terminology, such as the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “project,” “plan,” “will,” “shall,” “should,” and similar expressions, including when used in the negative. Although we believe that the expectations reflected in these forward-looking statements are reasonable and achievable, these statements involve risks and uncertainties and we cannot assure you that actual results will be consistent with these forward-looking statements. Important factors that could cause our actual results, performance or achievements to differ from these forward-looking statements include the following:
• the availability and adequacy of our cash flow to meet our requirements;
• economic, competitive, demographic, business and other conditions in our local and regional markets;
• changes in our business and growth strategy;
• changes or developments in laws, regulations or taxes in the electronics/aerospace industry;
• actions taken or not taken by third-parties, including our vendors, customers and competitors;
• the availability of additional capital; and
• other factors discussed elsewhere in this Annual Report.
All forward-looking statements attributable to us are expressly qualified in their entirety by these and other factors. We undertake no obligation to update or revise these forward-looking statements, whether to reflect events or circumstances after the date initially filed or published, to reflect the occurrence of unanticipated events or otherwise unless required by applicable law.
PART I
General
Tel-Instrument Electronics Corp. (“Tel”, “TIC” or the “Company”) has been in business since 1947, and is a leading designer and manufacturer of avionics test and measurement solutions for the global commercial air transport, general aviation, and government/military aerospace and defense markets. The Company designs, manufactures and sells instruments to test and measure, and calibrates and repairs a wide range of airborne navigation and communication equipment.
Tel’s instruments are used to test navigation and communications equipment installed in aircraft, both on the flight line (“ramp testers”) and in the maintenance shop (“bench testers”), and range in list price from $7,500 to $80,750 per unit. Tel continues to develop new products in anticipation of customers’ needs, and to maintain its strong market position. Its development of multifunction testers has made it easier for customers to perform ramp tests with less operator training, a fewer number of test sets, and lower product support costs.
The Company has become a major manufacturer and supplier of Identification Friend or Foe (“IFF”) flight line test equipment. The Company has been awarded two major contracts from both the U.S. Navy and the U.S. Army for IFF flight line test equipment (see below). The products under these contracts represent cutting edge technology and, together with derivative products, should provide Tel with a competitive advantage for years to come. Revenues from these programs will be the foundation for our profitability.
It is important that we capture the major share of the large international IFF market which should generate substantial revenues starting in the 2018 fiscal year timeframe. We believe that we are well positioned as our CRAFT and TS-4530A flight-line test sets have been endorsed by the U.S. military and we have already delivered test sets into 18 international markets. The commercial avionics industry is undergoing a great deal of change and we believe our new hand-held products that we are planning to introduce within the next 12 months will generate increased market share at very attractive gross margin levels. We are also working closely with our military customers on new potential market opportunities that will be needed to maintain our sales and profitability.
Tel believes it has built a solid infrastructure to support its business, and the outlook for the Company to be positive as a result of its improved financial position, core technologies, and customer relations.
We continue to evaluate other attractive potential market opportunities.
Communications/Navigation (COMM/NAV) Radio Frequency (RF) Avionics Flight line Tester”) (“CRAFT”) (AN/USM-708 and AN/USM-719) with the U.S. Navy
The AN/USM-708, the basic CRAFT test set, is a key product for the Company as it represents a new generation technology product. The AN/USM-708 and AN/USM-719 (IFF only) contract was competitively awarded to the Company by the United States Navy. The AN/USM-708 CRAFT unit combines advanced IFF (including Mode 5 encryption technology) navigation, communication, and sonobuoy test capabilities in a portable test set, which will utilize a flexible and expandable digital-signal-processing-based architecture. Both the AN/USM-708 and the AN/USM-719 have been certified by the AIMS Program Office. This program represented the culmination of a multi-year, multi-million dollar investment by the Company in Mode 5 technology and may provide a significant competitive advantage in the years to come. Management believes that the CRAFT program also has significant potential for sales into the balance of the U.S. Military, NATO, and internationally, as the new Mode 5 IFF systems are installed in overseas aircraft platforms. The Joint Strike Fighter (“JSF”) program by itself is expected to generate significant CRAFT orders as this program continues to ramp up limited rate production.
The contract for the AN/USM-708 and AN/USM-719 was a significant milestone for the Company because the development of this proprietary technology, which has been funded by the Company, establishes Tel’s position as a leader in the industry, and will meet the U.S. Navy’s test requirements for years to come. The Company believes that, given the unique nature of this design, this product will generate sales to other military customers. The CRAFT test set replaces seven obsolete U.S. Navy test sets that collectively cost approximately $300,000, making the CRAFT test set an excellent value to the government. This unit has been well received by the end users. The Company believes that the core technology in the AN/USM-708 can be the foundation for additional military and commercial products.
Item 1. Business (continued)
General (continued)
Communications/Navigation (COMM/NAV) Radio Frequency (RF) Avionics Flight line Tester”) (“CRAFT”) (AN/USM-708 and AN/USM-719) with the U.S. Navy (continued)
The initial contract was for 1,200 test sets with a contract value of approximately $31 million. The Company has received orders for all 1,200 test sets, as well as approximately $4.7 million for testing, documentation and qualification units. In October 2013, the Company received an additional award for CRAFT products with a maximum value of $9.5 million. This new contract is in support of the U.S. Navy, U.S. Marine Corps, U.S. Army and various Foreign Military Sales customers under the Foreign Military Sales program. The Company has received orders totaling approximately $9.2 million under this new contract. This brings the total contract value and orders received to over $40 million.
The Company has received orders from Lockheed Martin for the AN/USM-708 units, totalling approximately $4.4 million. These units are to be used on the JSF F-35 Program. The Company also receives orders from other customers for this product.
As of March 31, 2016, the Company had open orders for AN/USM-708 and AN/USM-719 for 90 test sets, totaling approximately $3 million. This does not include the 36 unit $1.3 million order from the U.S. Special Forces or other Navy orders received after March 31, 2016.
TS-4530A IFF test set with the U.S. Army Aviation and Missile Command
In February 2009, the Company was awarded a firm fixed price indefinite-delivery/indefinite-quantity (“IDIQ”) contract by the U.S. Army Aviation and Missile Command with a maximum dollar value of approximately $44 million, depending on the number of units purchased (see Item 3, Legal Proceedings). The Company’s win of the critical TS-4530A Mode 5 U.S. Army program represented another major event for our future. Management believes that this award, in conjunction with our U.S. Navy CRAFT Mode 5 program, provides Tel with market leadership in the Mode 5 IFF flight-line test business and should provide a significant constant revenue stream going forward. This program takes full advantage of the significant investment that the Company has made in its proprietary Mode 5 technology.
The program is for Mode 5 conversion kits and new IFF test sets, which incorporate the Company’s proprietary electronics and IFF technology in addition to Mode S Enhanced Surveillance (“EHS”) and Automatic Dependent Surveillance - Broadcast (“ADS-B”) test functionality. The U.S. Army completed its production assurance review, and the Company has successfully completed testing conducted by the United States Department of Defense (“DOD”) AIMS Program Office to approve its TS-4530A Flight Line Test Set authorizing its use for Mark XIIA IFF Mode S (ELS/EHS/ADS-B) and TCAS systems. The TS-4530A program is a critical program which should help drive TIC’s revenue growth and profitability. (Please see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.)
The Company has received approximately $26.9 million in delivery orders on the TS-4530A program out of a maximum contract value of approximately $44 million. The Company received a full production release for the kits, and commenced shipment of these kits in July 2014. The U.S. Army has ordered about 50% of the maximum quantity of sets, so any additional U.S. Army kit or set orders would be at higher commercial prices. In August 2015, we received the full rate production release for the TS-4530A SETS from the U.S. Army. The Company continues to explore opportunities for this product in both the domestic and international markets and has received 43 orders at a value of $931,680 outside the contract with the U.S. Army.
As of March 31, 2016, the Company has open orders for 74 kits and 538 sets, totaling $6.5 million.
Item 1. Business (continued)
General (continued)
Intermediate Level TACAN Test Set (“ITATS”) ((AN/ARM-206) with the U.S. Navy)
The AN/ARM-206 or ITATS is a bench test set combining advanced digital technology with state of the art automated testing capabilities. The ITATS product is a fully automated TACAN test set for use in U.S. Navy Intermediate Level repair locations. This product represents an important expansion to Tel’s current product line, and the automated testing capabilities will provide a significant labor savings benefit to our customers. This contract with the U.S. Navy has options for approximately 148 units with a total value of over $12 million. Given the unique nature of the design, this unit could also generate sales to other military customers, both domestically and overseas.
U.S. Navy issued a production release in February 2013 for 102 units at a contract value of $5.3 million.
In January 2014, the Company received a $2.14 million contract modification on the ITATS program This contract modification entails the sale of certain intellectual property (“IP”) to the U.S. Navy plus the sale of ancillary test support equipment, and a modest increase in the recurring price to reflect several product enhancements. As part of this contract modification, the Company sold certain IP in the aggregate amount of $1,526,795 of which $1,200,000 of the IP sale proceeds was paid to the Company’s subcontractor on this program. As part of this agreement with the Company’s subcontractor, upon payment of the $1,200,000, the outstanding amount due to the subcontractor in the amount of $790,535 was discharged. The Company also received $117,095 for engineering enhancements for this program. The sale of the IP for the ITATS program should have no impact on sales of these units to the U.S. Navy or other customers. As of March 31, 2016, the Company has open orders for 14 units, totaling $787,000, including enhancements.
We also continue to market this unit to other domestic and international customers and have received interest in this test set from both the U.S. Air Force and various international customers.
Legacy Products
The Company continues to ship its legacy products, including a redesign of our DME-P bench test set which is sold exclusively in Europe. TIC has also responded to a five year Indefinite-Delivery, Indefinite-Quantity (“IDIQ”) solicitation from the U.S. Army for additional T-47NH units which we hope to receive in calendar year 2016.
The Company’s legacy products include:
Commercial
The TR-220 Test Set, which provides test capability for Traffic and Collision Avoidance Systems (TCAS), Distance Measuring Equipment (DME) and Transponders (Modes A, C, and S). The TR-220 features state-of-the-art design technology. Microprocessor control results in easy-to-use operation that requires minimum amounts of training. Setup menu allows storage of various test parameters to facilitate quick recall of test conditions.
The T-30D Ramp Test Set, which is an easy to use and rugged Test Set designed to fully test VOR/GS/LOC & MB equipment. With fully variable signals, the operator can test and verify a wide range of navigation equipment. The built in battery and charging unit makes it easy to maintain and its all-weather, rugged design allows it to be utilized in any environment.
Item 1. Business (continued)
General (continued)
Military
The TR-420 (Multi-function including Mode 5) Ramp Test Set is the next generation of avionics support equipment. The TR-420 is a battery powered portable unit used to test the operation of Transponders and Interrogators including: IFF (with Mode 5) Mode S Transponders, EHS, and ADS-B. TACAN/DME, ADS-B Transmit/Receive and TCAS testing functionality are also offered as part of the standard test set capability. Tests of both Transponders and Interrogators can be performed by using the TR-420 hand held antenna to radiate to and from the unit-under-test (UUT) or by directly connecting to the UUT antenna port. The TR-420 employs a user interface with a large 5.7 in. color LCD screen and surrounding soft-keys. This allows for easy and quick access to a multiple of test screens, menus and display options.
The T-47NC and T-47NH Multifunction Ramp Test Set is a battery powered portable unit used to test the operation of Transponders and Interrogators including: Mode S Transponders, TCAS Interrogators, and TACAN/DME equipment that are installed in aircraft and other vehicles. Tests of both Transponders and Interrogators can be performed by using the T-47NC/NH directional antenna to radiate to and from the unit-under-test (UUT) or by directly connecting to the UUT antenna port. The T-47N provides test capability for Mode S Elementary and Enhanced Surveillance. The T-47N can receive and display information contained in Mode S DF-17 Extended Squitter (ADS-B). The T-47NC/NH is self-contained comprising of a built-in battery charger, and all accessories are neatly stored within the removable cover. An easy to understand front panel interface controlled by the use of toggle switches with an easy to read display makes use simple and requires little or no training. The supplied directional antenna with an active LED and optical sight is used for both interrogator and transponder testing. The battery is installed and removable through the front panel. Utilize a KIR/KIT computer module or interchange it with a KIV-6 module which fits neatly in the provided bay.
The T-47G Multi-Function Ramp Test Set, with EHS, is a battery powered portable unit used to test Interrogators, Transponders including Mode S and IFF, TACAN/DME, and TCAS equipment which are installed in aircraft and other vehicles. Tests of both Transponders and Interrogators can be performed by using the supplied Directional Antenna to radiate signals to or from the Unit under Test (UUT), or by directly connecting to the UUT antenna port. The T-47G is completely self-contained comprising of a built-in battery charger and all accessories stored with in the removable cover. An easy to understand and operate front panel interface, controlled by the use of toggle switches, and an easy to read display, makes use simple and requires little or no training. The Directional Antenna with an active LED display and optical sight is used for both Interrogator and Transponder testing. The battery is installed and removable through the front panel.
The TR-100AF is an easy to operate and rugged ramp test set used to verify airborne TACAN equipment. This test set has full selectability of bearing, range, frequency, and velocity to custom program TACAN test scenarios. The test set has a built-in battery charger with front panel access as well as direct connect capabilities for accurate measurements of power and frequency.
The AN/APM-480A Transponder, Interrogator, TCAS Test Set provides unsurpassed reliability, accurate testing of airborne Transponders, Interrogators, and TCAS systems. Proven "In the Field" ruggedness, an easy to use operator interface and displayed results will provide the operator with unrivaled capability and results.
New Products
TIC continues to invest in new products and recently introduced the TR-36, a new commercial Nav/Comm test set. We are making some modifications to this unit based on customer feedback and have delivered some prototype units to domestic and international customers and are in the process of making some enhancements The commercial market is a large and important market segment for TIC and we are optimistic that this new product will help us regain a significant market share in this segment. We are also planning to take our CRAFT and TS-4530A technology and introduce smaller hand-held products in the 12 months, which will broaden our product line for both commercial and military applications. With the recent acquisition of Aeroflex, our primary competitor, by Cobham (a U.K. company), TIC is now the only domestic and small business supplier of avionic test equipment in our existing market segments.
Item 1. Business (continued)
General (continued)
New Products (continued)
The TR-36 NAV/COMM/ELT/EPIRB Test Set is the Company’s latest offering. Updated to the latest in hardware and software the TR-36 can easily provide comprehensive ramp testing in an user-friendly, light weight high-precision instrument for rapid functional testing of VOR, LOC/GS, MB, and VHF COMM (AM/FM), ELT and EPIRB avionic equipment all in a weather proof package with color display. Tel is known for our intuitive and innovative user interface, but now updated to include ELT, EPIRB and SECAL. The TR-36 has long battery life, a rugged and light weight package and an easy to see and use color front screen. The TR-36 packs all of the latest features with excellent reliability, performance and resolution of all measured or transmitted parameters.
The T-47/M5 (TIC’s newest test set) has capabilities that allow full testing, simulation and analysis of the following systems: Interrogator/Transponder Test set for Modes 1, 2, 3A, C, S, EHS, ADS-B TX and RX (compliant) with 4 and Mode 5, TCAS I, II and E-TCAS. Comprehensive testing of TACAN Receiver Transmitters in A/A, G/A, and A/A BCN. Direct Connect and over the Air options. Utilizing the KIV-77 Crypto appliqué (not included) for Mode 4 & Mode 5 testing and built in USB connection available for remote diagnostic testing and download of test results to a PC. This test set will also be available in kit form as a Mode 5 upgrade to our large base of installed Mode 4 1FF test sets. Test set features include:
· Comprehensive Interrogator and Transponder tests Modes 1, 2, 3A, C, S, EHS, Mode 4 and Mode 5;
· Full TACAN testing of A/A, G/A and A/A BCN on all 252 TACAN channels X and Y;
· TCAS I, TCAS II and E-TCAS airborne systems intruder simulations;
· Modes 4 and 5 testing with a built in powered bay for the KIV-77 Crypto Appliqué;
· Full Testing of ADS-B in compliance with RTCA DO-260 A and B requirements;
· Light Weight compact package in a MILSPEC Class 1 Container;
· Long Lasting Battery;
· Supports Remote Client testing utilizing USB connection to any laptop or desktop computer;
· Large Full Color Display with User Friendly easy to navigate interface.
Future Prospects
The Company has built a very solid position in the Mode 5 IFF and TACAN test set market. We believe that we are well positioned as our CRAFT and TS-4530A flight-line test sets have been endorsed by the U.S. military and we have already delivered test sets into 18 international markets. The commercial avionics industry is undergoing a great deal of change, and we believe our new hand-held products, that we are planning to introduce in twelve months, will generate increased market share at very attractive gross margin levels. We are also working closely with our military customers on new potential market opportunities that will be needed to maintain our sales and profitability growth.
During fiscal 2016, the Company received the following significant orders for our legacy products:
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$277,000 from India for T-47G and our new TR-36 Test Sets;
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$102,200 from a U.S. Company for our TR-100AF Test Sets;
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$245,000 from Italy for upgrades to its Precision DME Test Sets;
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$212,000 from our commercial U.S. distributor for TR-220 Test Sets.
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Historically, the Company receives regular smaller orders for both its commercial and government products, as these products are widely used in the Avionics Test Equipment market.
Item 1. Business (continued)
General (continued)
Competition
The Company manufactures and sells commercial and military products as a single avionics business, and its designs and products cross both markets.
The general aviation market consists of some 1,000 avionics 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 test equipment is dominated by two designers and manufacturers, the Company and Aeroflex, Inc., a division of Cobham (a U.K. company), (“Aeroflex”), with Aeroflex being substantially larger than Tel. This market is relatively narrow and highly competitive. Tel has been successful because of its high quality, new technology, user friendly products and competitive prices.
The military market is large and is dominated by large corporations with substantially greater resources than the Company, including Aeroflex. Tel competitively bids for government contracts on the basis of the engineering quality and innovation of its products, competitive price, and "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. There are a limited number of competitors who are qualified to bid for “small business set asides.” The military market consists of many independent purchasing agencies and offices. The process of awarding contracts is heavily regulated by the U.S. Department of Defense.
Over the last ten years, the Company has won several large, competitively bid contracts from the military and has become the primary supplier for the U.S. Military, as well as the NATO countries, of flight line IFF test equipment. The CRAFT AN/USM-708, CRAFT AN/USM-719,TS-4530A, and TR-47M5 programs, discussed previously, involve a new generation of technology, including the next generation of IFF testing, and is expected to enable the Company to continue to be a major supplier of avionics test equipment to the military for years to come. Tel believes its new technology will also allow it to increase sales to the commercial, avionics market in the future and expand into the very large secure communication test market.
Marketing and Distribution
Domestic commercial sales are made throughout the U.S. to commercial airlines and general aviation businesses directly or through distributors. No direct commercial customer accounted for more than 10% of commercial sales in fiscal years 2016 and 2015. Domestic distributors receive a 15%-20% discount for stocking, selling, and, in some cases, providing product calibration and repairs. Tel gives a 5% to 15% discount to non-stocking distributors, and to independent sales representatives, depending on their sales volume and promotional effort. The loss of any one of these distributors would not have a material adverse effect on the Company or its operations. Commercial sales represented 7% and 12% of total sales, respectively, for the fiscal years ended March 31, 2016 and 2015. A commercial distributor represented more than 21% and 22%, respectively, of commercial sales during fiscal years 2016 and 2015.
Marketing to the U.S. Government is made directly by employees of the Company or through independent sales representatives, who receive similar commissions to the commercial distributors. For the years ended March 31, 2016 and 2015, sales to the U.S. Government, including shipments through the government’s logistics centers, represented approximately 79% and 77%, respectively, of avionics sales. No other government customer represented over 10% of government sales for fiscal years 2016 and 2015.
International sales are made throughout the world to government and commercial customers, directly through American export agents, or through the Company’s overseas distributors at a discount reflecting a 20% to 22% selling commission, under written or oral, year-to-year arrangements. The Company has an exclusive distribution agreement with Muirhead Avionics and Accessories, Ltd (“Muirhead”), based in the United Kingdom, to represent the Company in parts of Europe, and with Victory Aerospace in Australia and New Zealand. Tel also sells its products through exclusive distributors in Spain, Portugal, and the Far East and is exploring distribution in other areas. For the years ended March 31, 2016 and 2015, total international sales were 8% and 10%, respectively, of sales. Additionally, the Company has an agreement with M.P.G. Instruments s.r.l., based in Italy, wherein this distributor has the exclusive sales rights for DME/P ramp and bench test units. The Company continues to explore additional marketing opportunities in other parts of the world, including the Far East. No international distributor accounted for more than 10% of total sales for the fiscal years ended March 31, 2016 and 2015. The Company has no material assets overseas.
Item 1. Business (continued)
General (continued)
Marketing and Distribution (continued)
Tel also provides customers with calibration and repair services. Repairs and calibrations accounted for 4% and 5% of sales for the years ended March 31, 2016 and 2015, respectively.
Future domestic market growth, if any, will be affected in part by whether the U.S. Federal Aviation Administration (“FAA”) implements additional plans to upgrade the U.S. air traffic control system regulations and by continuing recent industry trends towards more sophisticated avionics systems, both of which would require the design and manufacture of new test equipment. The major development in the commercial marketplace is the ADS-B requirement for all aircraft after January 1, 2020. TIC’s new products will address this testing requirement. Military contracts are awarded and implemented by extensive government regulation. The Company believes its test equipment is recognized by its customers for its quality, durability, reliability, affordability, and by its advanced technology.
Backlog
Set forth below is Tel’s avionics backlog at March 31, 2016 and 2015:
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Commercial
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Government
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Total
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March 31, 2016
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$
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221,453
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$
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11,410,210
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$
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11,631,663
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||||||
|
March 31, 2015
|
$
|
450,497
|
$
|
28,289,279
|
$
|
28,739,776
|
||||||
Tel believes that most of its backlog at March 31, 2016 will be delivered during the next 12-18 months. 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 by the government. Historically, the Company obtains orders which are required to be filled in less than 12 months, and therefore, these anticipated orders are not reflected in the backlog.
Suppliers
Tel obtains its purchased parts from a number of suppliers. These materials are standard in the industry, and the Company foresees no difficulty in obtaining purchased parts, as needed, at acceptable prices.
Patents and Environmental Laws
Tel has no patents or licenses which are material to its business, and there are no material costs incurred to comply with environmental laws.
Engineering, Research, and Development
In the fiscal years ended March 31, 2016 and 2015, Tel spent $2,038,126 and $1,961,275, respectively, on the engineering, research, and development of new and improved products. None of these amounts were sponsored by customers. Engineering, research, and development expenditures in fiscal year 2016 were made primarily for the TR-36, a new commercial navigation/communication test set, the T47-M5 test set, development of smaller hand-held products utilizing CRAFT and TS-4530A technology, continuing engineering for the CRAFT and TS-4530A programs, and the incorporation of other product enhancements in existing designs as well as an upgrade of our T-760 Precision DME (Distance Measuring Equipment) Test Set. The Company owns all of these designs with the exception of the AN/ARM-206 product.
Tel's management believes that continued significant expenditures for engineering, research, and development are necessary to enable Tel to expand its products, sales, and profits, and to remain competitive.
Personnel
At June 11, 2016, Tel had forty full-time employees in manufacturing, materials management, and quality assurance, eleven in administration and sales, including customer services and product support, and fourteen in engineering, research and development, none of whom belongs to a union. From time to time, the Company also employs independent contractors to support its manufacturing, engineering, and sales organizations. At June 11, 2016, the Company utilized one independent contractor in manufacturing for assembly and test, and one in sales and in program management. Tel has been successful in attracting skilled and experienced management, sales and engineering personnel.
Item 1. Business (continued)
General (continued)
Where You Can Find More Information
The public may read and copy any materials the Company files with the U.S. Securities and Exchange Commission (the “SEC”) at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0030. The SEC maintains an Internet website (sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.
We are a smaller reporting company as defined in Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
Not Applicable.
The Company leases its general office and manufacturing facility in East Rutherford, NJ (approximately 27,000 square feet) under an operating lease agreement which expires July 31, 2016. The lease is for a five year period, beginning August 1, 2011, with a five year option in a one-story facility. In June 2016, the Company extended the lease term for another five years until August 2021. We believe that our facilities are adequate for our needs for the foreseeable future. Under terms of the lease, the Company is also responsible for its proportionate share of the additional rent to include all real estate taxes, insurance, snow removal, landscaping and other building charges. The Company is also responsible for the utility costs for the premises. 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 also leases a small office in Lawrence, Kansas under an operating lease agreement which expires June 30, 2017.
On March 24, 2009, Aeroflex Wichita, Inc. (“Aeroflex”) filed a petition against the Company and two of its employees in the District Court, Sedgwick County, Kansas, Case No. 09 CV 1141 (the “Aeroflex Action”), alleging that the Company and its two employees misappropriated Aeroflex’s proprietary technology in connection with the Company winning a substantial contract from the U.S. Army (the “Award”), to develop new Mode-5 radar test sets and kits to upgrade the existing TS-4530 radar test sets to Mode 5. Aeroflex’s petition alleges that in connection with the Award, the Company and its named employees misappropriated Aeroflex’s trade secrets; tortiously interfered with its business relationship; conspired to harm Aeroflex and tortiously interfered with its contract and seeks injunctive relief and damages. The central basis of all the claims in the Aeroflex Action is that the Company misappropriated and used Aeroflex proprietary technology and confidential information in winning the Award. In February 2009, subsequent to the Company winning the Award, Aeroflex filed a protest of the Award with the Government Accounting Office (“GAO”). In its protest, Aeroflex alleged, inter alia, that the Company used Aeroflex’s proprietary technology in order to win the Award, the same material allegations as were later alleged in the Aeroflex Action. On or about March 17, 2009, the U.S. Army Contracts Attorney and the U.S. Army Contracting Officer each filed a statement with the GAO, expressly rejecting Aeroflex’s allegations that the Company used or infringed Aeroflex proprietary technology in winning the Award, and concluding that the Company had used only its own proprietary technology. On April 6, 2009, Aeroflex withdrew its protest.
Item 3. Legal Proceedings (continued)
In December 2009, the Kansas District Court dismissed the Aeroflex Action on jurisdiction grounds. Aeroflex appealed this decision. In May 2012, the Kansas Supreme Court reversed the decision and remanded the Aeroflex Action to the Kansas District Court for further proceedings. The Company has been engaged in discovery and depositions for the last three quarters, which has resulted in substantially higher legal expense.
On May 23, 2016, the Company filed a motion for summary judgment based on Aeroflex’s lack of jurisdictional standing to bring the case. The motion asserts that Aeroflex does not own the intellectual property at issue since it is a bare licensee of Northrop Grumman. Northrop Grumman has declined to join this suit as plaintiff. Aeroflex lacks standing to sue alone. Also, the motion raises the fact that in December 2011 Aeroflex allowed the license to expire, so that Aeroflex’s claims are either moot or it lacks standing to sue for damages allegedly accruing after the license ended. Tel believes we have a solid legal position and it is expected that this action will be heard in the September 2016 timeframe. The June 2, 2016 Amended Supplemental Modified Scheduling Order has the trial date set for February 13, 2017 and is estimated to last three weeks, but this date may be subject to postponement. The Company is optimistic as to the outcome of this litigation. However, the outcome of any litigation is unpredictable and an adverse decision in this matter could have a material adverse effect on our financial condition, results of operations or liquidity.
Other than the matters outlined above, we are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of executive officers of our Company, threatened against or affecting our Company, or our common stock in which an adverse decision could have a material effect.
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
a) Market Information
The common stock, $0.10 par value per share, of the registrant (“Common Stock”) is traded on the NYSE - MKT under the symbol “TIK”. The following table sets forth the high and low per share sale prices for our Common Stock for the periods indicated as reported for fiscal years 2016 and 2015 by the NYSE - MKT:
|
Fiscal Year
|
||||||||
|
Ended March 31,
|
||||||||
|
2016
|
High
|
Low
|
||||||
|
First Quarter
|
$
|
6.35
|
$
|
4.87
|
||||
|
Second Quarter
|
5.27
|
3.98
|
||||||
|
Third Quarter
|
5.52
|
4.60
|
||||||
|
Fourth Quarter
|
4.76
|
3.70
|
||||||
|
2015
|
||||||||
|
First Quarter
|
$
|
5.60
|
$
|
4.40
|
||||
|
Second Quarter
|
5.78
|
4.99
|
||||||
|
Third Quarter
|
5.38
|
4.34
|
||||||
|
Fourth Quarter
|
6.55
|
4.30
|
||||||
b) Holders
The Company has approximately 197 holders of its Common Stock as of June 18, 2016. This figure does not take into account those shareholders whose certificates are held in the name of broker-dealers or other nominees.
c) Dividends
We have not declared or paid any dividends on our Common Stock and intend to retain any future earnings to fund development and growth of our business. Therefore, we do not anticipate paying dividends on our common stock for the foreseeable future. There are no restrictions on our present ability to pay dividends to stockholders of our common stock, other than those prescribed by law.
d) Securities Authorized for Issuance under Equity Compensation Plans
The following table provides information as of March 31, 2016 regarding compensation plans under which equity securities of the Company are authorized for issuance.
|
Plan category
|
Number of securities to be issued upon exercise of outstanding options
|
Weighted average exercise price of outstanding options
|
Number of options remaining available for future issuance under Equity Compensation Plans
|
|||||||||
|
Equity Compensation Plans approved by shareholders
|
85,000
|
$
|
5.33
|
--
|
||||||||
|
Equity Compensation Plans not approved by shareholders
|
--
|
--
|
--
|
|||||||||
|
Total
|
85,000
|
$
|
5.33
|
--
|
||||||||
See “Equity Compensation Plan Information” under Item 12 below.
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters (continued)
Rule 10B-18 Transactions
During the year ended March 31, 2016, there were no repurchases of the Company’s Common Stock by the Company.
Recent Sales of Unregistered Securities
None.
The Company is a smaller reporting company as defined in Item 10 (f) of Regulation S-K and therefore is not required to provide the information under this item.
Forward Looking Statements
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 1965.
Forward-looking statements include, among others, statements concerning the Company’s outlook, pricing trends and forces within the industry, the completion dates of 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 SEC.
General
Management’s discussion and analysis of results of operations and financial condition is intended to assist the reader in the understanding and assessment of significant changes and trends related to the results of operations and financial position of the Company together with its subsidiary. This discussion and analysis should be read in conjunction with the consolidated financial statements and accompanying financial notes, and with the Critical Accounting Policies noted below. The Company’s fiscal year begins on April 1 and ends on March 31. Unless otherwise noted, all references in this document to a particular year shall mean the Company’s fiscal year ending on March 31.
Overview
The Company has built a very solid position in the Mode 5 IFF and TACAN test set market, and its existing contracts as well as the introduction of new products should result in strong revenues and improved profitability through fiscal year 2017. Our gross margin percentage is expected to remain well below our historical 50% average for the next year as most of the TS-4530A and ITATS products were both bid competitively at tight margins. Revenues will benefit from the start of TS-4530A SET production, but TS-4530A KITS production as well as the ITATS program are expected to be completed by the middle of the 2016 calendar year. Going forward, it is important that TIC capture the majority share of the large IFF international market which should generate revenues starting in the 2018 fiscal year timeframe. We believe that we are well positioned as our CRAFT and TS-4530A flight-line test sets have been endorsed by the U.S. military and we have already delivered test sets into 18 international markets. Tel is starting to see a pick-up in international activity based on the January 1, 2020 deadline for Mode 5 compliance. The commercial avionics industry is undergoing a great deal of change, and we believe our new hand-held products that we are planning to introduce by the end of calendar year 2016 will generate increased market share at very attractive gross margin levels. We are also working closely with our military customers on new potential market opportunities that will be needed to maintain our sales and profitability growth.
The Company showed significantly improved operating results for fiscal year 2016. All three major programs shipped at a consistent rate. Our military legacy business continued to be consistent, but commercial sales remain weak. In August 2015, we received the Full Rate Production Release for the TS-4530A SETS from the U.S. Army. The backlog at March 31, 2016 was approximately $11.6 million as compared to $28.7 million a year ago. The revenue increase in fiscal year 2016 enhanced the Company’s liquidity position, thereby enabling the Company to pursue opportunities worldwide and increase our new product development efforts.
Fiscal year 2016 highlights:
|
·
|
Revenues increased 36% in fiscal year 2016 as compared to fiscal year 2015.
|
|
·
|
Income from operations increased to $2.6 million for fiscal year 2016 as compared to $330k in fiscal year 2015.
|
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview (continued)
Fiscal year 2016 highlights (continued):
|
·
|
$1.4 million improvement in net working capital to a $4.0 million since March 31, 2015.
|
|
·
|
Net income was $1,004,153 for the year ended March 31, 2016 as compared to a net loss of $280,440 for year ended March 31, 2015. Net income for fiscal year 2016 was negatively impacted by the change in the fair value of the warrants in the amount of $617,241 as compared to $164,653 in fiscal year 2015.
|
|
·
|
The Company received orders for an additional 61 CRAFT test sets from Lockheed Martin in the amount of $2.2 million. These units are to be used on the Joint Strike Fighter program (“JSF”) program. This brings total CRAFT orders for this program to $4.4 million.
|
|
·
|
Introduction of the TR-36 Navigation/Communication Test Set (the “TR-36”), representing our first new product introduction into the commercial market for the last 10 years. The TR-36 provides comprehensive ramp testing in a user-friendly, light weight high-precision instrument for rapid functional testing of VOR, LOC/GS, MB, and VHF COMM (AM/FM), ELT and EPIRB avionic equipment all in a weather proof package with color display. We believe this product will be very competitive in this market.
|
|
·
|
Investment in new lightweight, hand held test set design for commercial and military customers that we expect to expand our product line and allow us to compete in this very large radio test set market.
|
|
·
|
Engagement of our new partner, Blue Star Engineering and Electronics Ltd. (“Blue Star”). Blue Star will handle all the Company’s interests in India, Nepal, Sri Lanka, Maldives and Bangladesh for both General Aviation and Military markets. The market in this region represents a significant opportunity for the Company.
|
|
·
|
As developments of our major programs are complete, engineering efforts have been directed to new product development, and we have a few new products in the pipeline, in addition to the recently introduced TR-36.
|
Based on existing backlog and recurring orders, existing cash and the credit line from Bank of America, the Company believes that it will have adequate liquidity, and backlog to fund operating plans for at least the next twelve months. Currently, the Company has no material future capital expenditure requirements. However, there can be no assurances that the Company will achieve revenue and profitability goals or will not require additional financing.
Results of Operations 2016 Compared to 2015
Sales
For the year ended March 31, 2016 sales increased $6,608,853 (36.3%) to $24,804,825 as compared to $18,195,972 for the year ended March 31, 2015.
Avionics government sales increased $7,084,484 (44.5%) to $23,011,016 for the year ended March 31, 2016 as compared to $15,926,532 for the year ended March 31, 2015. The increase in revenues is mostly attributed to the increase in shipments of the AN/USM-708 test set, TS-4530A KITS and SETS and the AN/ARM-206 test set associated with the Company’s three major programs. Commercial sales decreased $475,631 (21.0%) to $1,793,809 for the year ended March 31, 2016 as compared to $2,269,440 for the year ended March 31, 2015. This decrease is attributed to lower sales of the TR-220 as well as lower sales for calibration and repairs and spare parts.
Gross Margin
Gross margin increased $2,544,898 (46.8%) to $7,985,590 for the year ended March 31, 2016 as compared to $5,440,692 for the year ended March 31, 2015. This increase is mostly attributed to the increase in volume of sales, especially for the CRAFT, TS-4530A and ITATS programs. Gross margin was also favorably impacted by the increase in selling prices for the CRAFT program for the new orders. The gross margin percentage for the year ended March 31, 2016 was 32.2%, as compared to 29.9% for the year ended March 31, 2015.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations 2016 Compared to 2015 (continued)
Operating Expenses
Selling, general and administrative expenses increased $218,513 (6.9%) to $3,367,544 for the year ended March 31, 2016 as compared to $3,149,031 for the year ended March 31, 2015.This increase was primarily attributed to higher accrued bonus compensation, salaries and related expenses and consulting fees offset partially by favorable settlement of an accrued liability, and lower litigation expenses and professional fees. Legal expenses associated with the Aeroflex litigation were $448,379 for the year ended March 31, 2016 as compared to $524,837 for the same period last year.
Engineering, research and development expenses increased $76,851 (3.9%) to $2,038,126 for the year ended March 31, 2016 as compared to $1,961,275 for the year ended March 31, 2015. While the Company has completed development on its major programs, research and development resources have now been focused on new product development, sustaining engineering and enhancements to existing products. The Company continues to invest in new products and introduced a new commercial Nav/Comm test set earlier this year. This is a large and important market segment for the Company, and we are optimistic that this new product will help us regain market share. We are also taking advantage of our CRAFT and TS-4530A technology to develop smaller hand-held products in the next 12 months, which will broaden our product line for both commercial and military applications. We have added additional personnel to research and development activities to accelerate our time to market.
Income from Operations
As a result of the above, the Company recorded income from operations in the amount of $2,579,920 for the fiscal year ended March 31, 2016 as compared to $330,386 for the year ended March 31, 2015.
Other Expense
For the year ended March 31, 2016, total other expense was $723,799 as compared to other expense of $690,198 for the year ended March 31, 2015. This change is primarily due to the loss of $617,241 on the change in the valuation of common stock warrants for the year ended March 31, 2016 as compared to a loss of $164,653 in the valuation of common stock warrants in same period in the prior year. Interest expense declined as a result of the lower interest rate on the new loan and the lower outstanding loan balance. Amortization of deferred financing charges and debt discount were lower as a result of the repayment of the loan with BCA Mezzanine Fund, L.P. (“BCA”), as these remaining expenses were recorded as a loss on the extinguishment of debt for the year ended March 31, 2015.
Income (Loss) before Income Taxes
As a result of the above, the Company recorded a profit before taxes of $1,856,121 for the year ended March 31, 2016 as compared to a loss before taxes of $359,812 for the fiscal year ended March 31, 2015.
Income Taxes
For the year ended March 31, 2016, the Company recorded a provision for income taxes of $851,968 as compared to an income tax benefit in the amount of $79,372 for the year ended March 31, 2015, primarily as a result of the increase in profitability from operations.
Net Income (Loss)
As a result of the above, the Company recorded net income of $1,004,153 for the year ended March 31, 2016 as compared to a net loss in the amount of $280,440 for the year ended March 31, 2015.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Liquidity and Capital Resources
At March 31, 2016, the Company had net working capital of $4,043,639 as compared to $2,599,117 at March 31, 2015. This change is primarily the result of the increase in net income from operation which resulted in the increase in cash, increase in inventories, and the large decrease in accounts payable and accrued liabilities partially offset by the decrease in accounts receivable.
During the year ended March 31, 2016, the Company’s cash balance increased by $786,701 to $972,633. The Company’s principal sources and uses of funds were as follows:
Cash provided by operating activities. For the year ended March 31, 2016, the Company provided $1,463,392 in cash from operations as compared to providing $401,298 in cash for operations for the year ended March 31, 2015. This increase in cash from operations is the result of the improvement in income from operations, lower payments of progress billings offset partially by a decrease in accounts receivable and decrease in accounts payable and accrued expenses.
Cash used in investing activities. For the year ended March 31, 2016, the Company used $61,306 of its cash for investing activities, as compared to $11,221 for the year ended March 31, 2015 as result of higher purchases of equipment.
Cash used in financing activities. For the year ended March 31, 2016, the Company used $615,385 in financing activities as compared to using $436,263 for the year ended March 31, 2015. This increase in cash used in financing activities is primarily the result of repayment of subordinated notes
In November 2014, the Company entered into loan agreement with a bank for $1,200,000. The proceeds from the loan was used to pay off the remaining balance of the loan with BCA in the amount of $1,153,109, including accrued interest of $4,467. The term of the loan is for 3 years and expires in November 2017. Monthly payments are at $36,551 including interest at 6%.
On March 21, 2016, the Company entered into a line of credit agreement with Bank of America, which expires March 31, 2017. The line provides a revolving credit facility with borrowing capacity of up to $500,000. There are no covenants or borrowing base calculations associated with his line of credit. Interest on any outstanding balance is payable monthly at an annual interest rate equal to the LIBOR (London Interbank Offered Rates) Daily Floating plus 3.75 percentage points. The Company’s interest rate was 4.96% at March 31, 2016. The line is collateralized by substantially all of the assets of the Company. The Company has not made any borrowings against this line of credit. As of March 31, 2016, the remaining availability under this line is $500,000.
In May 2016, BCA Mezzanine Fund LLP (“BCA”) exercised its “put option” wherein BCA is exercising its right to have the Company purchase the warrants for 236,920 shares from BCA (see Notes 10 and 19 in Notes to Consolidated Financial Statements). As of March 31, 2016, the total estimated value for all warrants was $1,136,203. The amount attributed to BCA was $938,203. However, this amount will be updated based upon more current information as of April 30, 2016. The Company has the option of paying the final amount or providing BCA a note payable for this amount at an interest rate of 14%. The note will be due in one year with no prepayment penalties. The Company is currently evaluating these options. The remaining warrant holder has not exercised their option.
Based on existing backlog and recurring orders, existing cash, and the credit line from Bank of America, the Company believes that it will have adequate liquidity and backlog to fund operating plans for at least the next twelve months. Currently, the Company has no material future capital expenditure requirements. However, there can be no assurances that the Company will achieve revenue and profitability goals or will not require additional financing. There was no significant impact on the Company’s operations as a result of inflation for the year ended March 31, 2016.
Critical Accounting Policies
In preparing the financial statements and accounting for the underlying transactions and balances, the Company applies its accounting policies as disclosed in Note 2 of our Notes to Consolidated Financial Statements. 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 the customer, provided title and risk of loss is transferred to the customer as the product price is fixed or determinable, collection of the resulting receivable is probable, evidence of an arrangement exists and product returns are reasonably estimable. Provisions, when appropriate, are made where the right to return exists.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Critical Accounting Policies (continued)
Revenues for repairs and calibrations of the Company’s products represented 3.7% and 5.4% of sales for the years ended March 31, 2016 and 2015, respectively. These revenues are for units that are periodically returned for annual calibrations and/or for repairs after the warranty period has expired. Revenues on repairs and calibrations are recognized at the time the repaired or calibrated unit is shipped, as it is at this time that the work is completed. The Company’s terms are F.O.B. Plant, and as such, delivery has occurred, and revenue recognized, when picked up and acknowledged by a common carrier.
Shipping and handling costs charged to customers are classified as sales, and the shipping and handling costs incurred are included in cost of sales.
Payments received prior to the delivery of units or services performed are recorded as deferred revenues.
With respect to warranty revenues, upon the completion of two years from the date of sale, considered to be the warranty period, the Company offers customers an optional warranty. Amounts received for warranties are recorded as deferred revenue and recognized over the respective terms of the agreements.
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. While such write-downs 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 operating results for the current period and any future periods these additional costs materialize. Warranty reserves are adjusted from time to time when actual warranty claim experience differs from estimates. For the year ended March 31, 2016 warranty costs were $367,935 as compared to $279,955 for the year ended March 31, 2015 and are included in Cost of Sales in the accompanying statement of operations.
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. For the year ended March 31, 2016 and 2015 approximately 79% and 77%, respectively, of the Company’s sales were to the U.S. Government. While such credit losses have historically been within our expectation and the provision established, the Company cannot guarantee that it will continue to receive positive results.
Income taxes - deferred tax assets arise from a variety of sources, the most significant being: a) tax losses that can be carried forward to be utilized against profits in future years; b) expenses recognized in the books but disallowed in the tax return until the associated cash flow occurs; and c) valuation changes of assets which need to be tax effected for book purposes but are deductible only when the valuation change is realized. 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 are expected to 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. In assessing the need for a valuation allowance, future taxable income is estimated, considering the realization of tax loss carryforwards. Valuation allowances related to deferred tax assets can also be affected by changes to tax laws, changes to statutory tax rates and future taxable income levels. In the event it was determined that the Company would not be able to realize all or a portion of its deferred tax assets in the future, the Company would reduce such amounts through a charge to income in the period in which that determination is made. Conversely, if it were determined that it would be able to realize the deferred tax assets in the future in excess of the net carrying amounts, Tel would decrease the recorded valuation allowance through an increase to income in the period in which that determination is made. In its evaluation of a valuation allowance, the Company takes into account existing contracts and backlog, and the probability that options under these contract awards will be exercised as well as sales of existing products. The Company prepares profit projections based on the revenue and expenses forecast to determine that such revenues will produce sufficient taxable income to realize the deferred tax assets.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Off Balance Sheet Arrangements
The Company is not party to any off-balance sheet arrangements that may affect its financial position or its results of operations.
New Accounting Pronouncements
In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09 ("Improvements to Employee Share-Based Payment Accounting") which simplifies several aspects of accounting for share-based payment transactions including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The new standard is effective for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years with early adoption permitted. The Company is evaluating the impact that the adoption of this standard will have on the Company’s consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02 ("Leases"), which introduces the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance. The new standard establishes a right-of-use ("ROU") model that requires a lessee to record an ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. The new standard is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years with early adoption permitted. The Company is evaluating the impact that the adoption of this standard will have on the Company’s consolidated financial statements.
In January 2016, the FASB issued ASU No. 2016-01 (ASC Subtopic 825-10), Financial Instruments - Overall Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in this ASU require entities to measure all investments in equity securities at fair value with changes recognized through net income. This requirement does not apply to investments that qualify for the equity method of accounting, to those that result in consolidation of the investee, or for which the entity meets a practicability exception to fair value measurement. Additionally, the amendments eliminate certain disclosure requirements related to financial instruments measured at amortized cost and add disclosures related to the measurement categories of financial assets and financial liabilities. The amendments in this ASU are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted for only certain portions of the ASU. The Company is in the process of assessing the impact, if any, on its consolidated financial statements.
In November 2015, the FASB issued ASU 2015-17, which is an update to Topic 740, "Income Taxes". The update will require that all deferred tax assets and liabilities be classified as non-current. The update is effective for fiscal years, and the interim periods within those years, beginning after December 15, 2016. ASU 2015-17 will have a material impact on the Company's balance sheet, as the deferred tax reported as a current asset will be reported as a non-current asset once the update is effective, resulting in a decrease to the Company's current ratio. As of March 31, 2016, the Company reported $578,507 of deferred tax as a current asset. It will not have any material impact on the Company's results of operations.
In September 2015, the FASB issued ASU 2015-16 (ASC Topic 805), Business Combinations Simplifying the Accounting for Measurement-Period Adjustments. The amendments in this update require that an acquirer recognize measurement period adjustments in the period in which the adjustments are determined. The income effects of such measurement period adjustments are to be recorded in the same period’s financial statements but calculated as if the accounting had been completed as of the acquisition date. The impact of measurement period adjustments to earnings that relate to prior period financial statements are to be presented separately on the income statement or disclosed by line item. The amendments in this update are for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted for public business entities for reporting periods for which financial statements have not yet been issued. The adoption of this new guidance is not expected to have a material impact on the Company’s consolidated financial statements and disclosures.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
New Accounting Pronouncements (continued):
In May 2014, the FASB issued ASU 2014-09 that introduces a new five-step revenue recognition model in which an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires disclosures sufficient to enable users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, including qualitative and quantitative disclosures about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. This standard is effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period. The Company is currently evaluating the new guidance to determine the impact, if any, it will have on its consolidated financial statements.
In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements - Going Concern”, which requires management to evaluate whether conditions or events raise substantial doubt about the entity’s ability to continue as a going concern and, if so, to provide related footnote disclosures. The guidance is effective for annual or interim reporting periods beginning on or after December 15, 2016. Early adoption is permitted. The Company does not expect the adoption of this ASU to have a material impact on the Company’s consolidated Financial Statements.
In July 2015, the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory”. This ASU applies to inventory that is measured using first-in, first-out (“FIFO”) or average cost. Under the updated guidance, an entity should measure inventory that is within scope at the lower of cost and net realizable value, which is the estimated selling prices in the ordinary course of business, less reasonably predicable costs of completion, disposal and transportation. Subsequent measurement is unchanged for inventory that is measured using last-in, last-out (“LILO”). This ASU is effective for annual and interim periods beginning after December 15, 2016, and should be applied prospectively with early adoption permitted at the beginning of an interim and annual reporting period. We are currently evaluating the impact of adopting ASU 2015-11 on our consolidated financial statements and related disclosures.
No other recently issued accounting pronouncements had or are expected to have a material impact on the Company’s condensed consolidated financial statements.
We do not hold any derivative instruments and do not engage in any hedging activities.
|
|
Pages
|
|
(1) Financial Statements:
|
|
|
|
|
| 23 | |
| 24 | |
| 25 | |
| 26 | |
| 27 | |
| 28 | |
|
|
|
The Board of Directors and Stockholders of
Tel-Instrument Electronics Corp.
East Rutherford, New Jersey
We have audited the accompanying consolidated balance sheets of Tel-Instrument Electronics Corp. (the “Company”) as of March 31, 2016 and 2015 and the related consolidated statements of operations, changes in stockholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also 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, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Tel-Instrument Electronics Corp. and subsidiary as of March 31, 2016 and 2015, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
/s/ BDO USA, LLP
Woodbridge, New Jersey
June 29, 2016
TEL-INSTRUMENT ELECTRONICS CORP.
|
ASSETS
|
March 31, 2016
|
March 31, 2015
|
||||||
|
Current assets:
|
||||||||
|
Cash
|
$
|
972,633
|
$
|
185,932
|
||||
|
Accounts receivable, net of allowance for doubtful accounts
of $7,500 and $24,975, respectively
|
1,454,361
|
1,625,171
|
||||||
|
Inventories, net
|
4,679,032
|
4,032,074
|
||||||
|
Prepaid expenses and other current assets
|
128,071
|
286,431
|
||||||
|
Deferred tax asset
|
578,507
|
1,064,395
|
||||||
|
Total current assets
|
7,812,604
|
7,194,003
|
||||||
|
|
||||||||
|
Equipment and leasehold improvements, net
|
193,518
|
270,792
|
||||||
|
Deferred tax asset – non-current
|
2,065,126
|
2,377,583
|
||||||
|
Other assets
|
36,871
|
41,109
|
||||||
|
|
||||||||
|
Total assets
|
$
|
10,108,119
|
$
|
9,883,487
|
||||
|
|
||||||||
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
||||||||
|
|
||||||||
|
Current liabilities:
|
||||||||
|
Current portion of long-term debt
|
$
|
418,255
|
$
|
387,839
|
||||
|
Capital lease obligations – current portion
|
10,232
|
16,758
|
||||||
|
Accounts payable
|
1,686,469
|
2,811,781
|
||||||
|
Deferred revenues – current portion
|
48,766
|
18,609
|
||||||
|
Federal and state taxes payable
|
53,623
|
-
|
||||||
|
Accrued expenses - vacation pay, payroll and payroll withholdings
|
836,589
|
594,114
|
||||||
|
Accrued expenses - related parties
|
213,344
|
170,348
|
||||||
|
Accrued expenses – other
|
501,687
|
595,437
|
||||||
|
Total current liabilities
|
3,768,965
|
4,594,886
|
||||||
|
|
||||||||
|
Subordinated notes payable – related parties
|
25,000
|
250,000
|
||||||
|
Capital lease obligations – long-term
|
20,524
|
4,561
|
||||||
|
Long-term debt, net of debt discount
|
304,560
|
708,604
|
||||||
|
Warrant liability
|
1,136,203
|
518,962
|
||||||
|
Deferred revenues – long-term
|
172,703
|
133,650
|
||||||
|
Other long-term liabilities
|
7,800
|
33,000
|
||||||
|
|
||||||||
|
Total liabilities
|
5,435,755
|
6,243,663
|
||||||
|
|
||||||||
|
Commitments and contingencies
|
||||||||
|
|
||||||||
|
Stockholders’ equity
|
||||||||
|
Common stock, 4,000,000 shares authorized, par value $.10 per share,
3,255,887 and 3,256,887 shares issued and outstanding, respectively
|
325,586
|
325,686
|
||||||
|
Additional paid-in capital
|
8,074,655
|
8,046,168
|
||||||
|
Accumulated deficit
|
(3,727,877
|
)
|
(4,732,030
|
)
|
||||
|
|
||||||||
|
Total stockholders’ equity
|
4,672,364
|
3,639,824
|
||||||
|
|
||||||||
|
Total liabilities and stockholders’ equity
|
$
|
10,108,119
|
$
|
9,883,487
|
||||
The accompanying notes are an integral part of the consolidated financial statements.
TEL-INSTRUMENT ELECTRONICS CORP.
|
|
For the years ended March 31,
|
|||||||
|
|
2016
|
2015
|
||||||
|
|
||||||||
|
Net sales
|
$
|
24,804,825
|
$
|
18,195,972
|
||||
|
|
||||||||
|
Cost of sales
|
16,819,235
|
12,755,280
|
||||||
|
|
||||||||
|
Gross margin
|
7,985,590
|
5,440,692
|
||||||
|
|
||||||||
|
Operating expenses:
|
||||||||
|
Selling, general and administrative
|
3,367,544
|
3,149,031
|
||||||
|
Engineering, research and development
|
2,038,126
|
1,961,275
|
||||||
|
|
||||||||
|
Total operating expenses
|
5,405,670
|
5,110,306
|
||||||
|
|
||||||||
|
Income from operations
|
2,579,920
|
330,386
|
||||||
|
|
||||||||
|
Other income (expense):
|
||||||||
|
Amortization of debt discount
|
-
|
(75,308
|
)
|
|||||
|
Amortization of deferred financing costs
|
(5,429
|
)
|
(69,165
|
)
|
||||
|
Change in fair value of common stock warrants
|
(617,241
|
)
|
(164,653
|
)
|
||||
|
Loss on extinguishment of debt
|
-
|
(188,102
|
)
|
|||||
|
Interest expense
|
(58,133
|
)
|
(145,658
|
)
|
||||
|
Interest expense - related parties
|
(42,996
|
)
|
(47,312
|
)
|
||||
|
|
||||||||
|
Total other expense
|
(723,799
|
)
|
(690,198
|
)
|
||||
|
|
||||||||
|
Income (loss) before income taxes
|
1,856,121
|
(359,812
|
)
|
|||||
|
|
||||||||
|
Provision (benefit) for income taxes
|
851,968
|
(79,372
|
)
|
|||||
|
|
||||||||
|
Net income (loss)
|
$
|
1,004,153
|
$
|
(280,440
|
)
|
|||
|
|
||||||||
|
|
||||||||
|
Basic income (loss) per common share
|
$
|
0.31
|
$
|
(0.09
|
)
|
|||
|
Diluted income (loss) per common share
|
$
|
0.31
|
$
|
(0.09
|
)
|
|||
|
|
||||||||
|
Weighted average number of shares outstanding
|
||||||||
|
Basic
|
3,256,887
|
3,253,992
|
||||||
|
Diluted
|
3,261,153
|
3,253,992
|
||||||
The accompanying notes are an integral part of the consolidated financial statements.
TEL-INSTRUMENT ELECTRONICS CORP.
|
Common Stock
|
Additional
|
|||||||||||||||||||
|
# of Shares
|
Paid-In
|
Accumulated
|
||||||||||||||||||
|
Issued
|
Amount
|
Capital
|
Deficit
|
Total
|
||||||||||||||||
|
Balances at April 1, 2014
|
3,251,387
|
$
|
325,136
|
$
|
7,987,100
|
$
|
(4,451,590
|
)
|
$
|
3,860,646
|
||||||||||
|
Stock-based compensation
|
-
|
-
|
33,008
|
-
|
33,008
|
|||||||||||||||
|
Issuance of common stock in connection with the exercise of stock options
|
5,500
|
550
|
26,060
|
-
|
26,610
|
|||||||||||||||
|
Net loss
|
-
|
-
|
-
|
(280,440
|
)
|
(280,440
|
)
|
|||||||||||||
|
Balances at March 31, 2015
|
3,256,887
|
$
|
325,686
|
$
|
8,046,168
|
$
|
(4,732,030
|
)
|
$
|
3,639,824
|
||||||||||
|
Stock-based compensation
|
-
|
-
|
32,277
|
-
|
32,277
|
|||||||||||||||
|
Net income
|
-
|
-
|
-
|
1,004,153
|
1,004,153
|
|||||||||||||||
|
Reversal of shares intended to be issued in connection with the exercise of stock options
|
(1,000
|
)
|
(100
|
)
|
(3,790
|
)
|
-
|
(3,890
|
)
|
|||||||||||
|
Balances at March 31, 2016
|
3,255,887
|
$
|
325,586
|
$
|
8,074,655
|
$
|
(3,727,877
|
)
|
$
|
4,672,364
|
||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
TEL-INSTRUMENT ELECTRONICS CORP.
|
|
For the years ended March 31,
|
|||||||
|
|
2016
|
2015
|
||||||
|
Cash flows from operating activities:
|
||||||||
|
Net income (loss)
|
$
|
1,004,153
|
$
|
(280,440
|
)
|
|||
|
Adjustments to reconcile net (loss) income to net cash
(Used in) provided by operating activities:
|
||||||||
|
Deferred income taxes
|
798,345
|
(79,372
|
)
|
|||||
|
Allowance for doubtful accounts
|
(17,295
|
)
|
(2,487
|
)
|
||||
|
Depreciation and amortization
|
164,774
|
177,291
|
||||||
|
Amortization of debt discount
|
-
|
75,308
|
||||||
|
Amortization of deferred financing costs
|
5,429
|
69,165
|
||||||
|
Change in fair value of common stock warrant
|
617,241
|
164,653
|
||||||
|
Provision for inventory obsolescence
|
60,713
|
24,287
|
||||||
|
Loss on extinguishment of debt
|
-
|
188,102
|
||||||
|
Non-cash stock-based compensation
|
32,277
|
33,008
|
||||||
|
Changes in assets and liabilities:
|
||||||||
|
Decrease in accounts receivable
|
188,105
|
472,956
|
||||||
|
Increase in inventories
|
(707,671
|
)
|
(16,959
|
)
|
||||
|
Decrease (increase) in prepaid expenses and other assets
|
153,279
|
(2,057
|
)
|
|||||
|
(Decrease) increase in accounts payable
|
(1,125,312
|
)
|
521,923
|
|||||
|
Increase (decrease) in deferred revenues
|
69,210
|
(18,843
|
)
|
|||||
|
Increase in federal and state taxes payable
|
53,623
|
-
|
||||||
|
Increase in accrued payroll, vacation pay & withholdings
|
242,475
|
149,876
|
||||||
|
Decrease in accrued expenses – related party and other
|
(50,754
|
)
|
(276,538
|
)
|
||||
|
Decrease in progress billings
|
-
|
(775,475
|
)
|
|||||
|
Decrease in other long-term liabilities
|
(25,200
|
)
|
(23,100
|
)
|
||||
|
Net cash provided by operating activities
|
1,463,392
|
401,298
|
||||||
|
|
||||||||
|
Cash flows from investing activities:
|
||||||||
|
Acquisition of equipment
|
(61,306
|
)
|
(11,221
|
)
|
||||
|
Net cash used in investing activities
|
(61,306
|
)
|
(11,221
|
)
|
||||
|
|
||||||||
|
Cash flows from financing activities:
|
||||||||
|
Proceeds from exercise of stock options
|
-
|
26,610
|
||||||
|
Repayment of subordinated notes - related parties
|
(225,000
|
)
|
-
|
|||||
|
Proceeds from issuance of debt
|
18,000
|
1,200,000
|
||||||
|
Expenses associated with long-term debt
|
-
|
(16,287
|
)
|
|||||
|
Repayment of long-term debt
|
(391,628
|
)
|
(1,592,977
|
)
|
||||
|
Repayment of capitalized lease obligations
|
(16,757
|
)
|
(53,609
|
)
|
||||
|
Net cash used in financing activities
|
(615,385
|
)
|
(436,263
|
)
|
||||
|
|
||||||||
|
Net increase (decrease) in cash
|
786,701
|
(46,186
|
)
|
|||||
|
Cash, beginning of year
|
185,932
|
232,118
|
||||||
|
Cash, end of year
|
$
|
972,633
|
$
|
185,932
|
||||
|
|
||||||||
|
Supplemental cash flow information:
|
||||||||
|
Taxes paid
|
$
|
-
|
$
|
20,500
|
||||
|
Interest paid
|
$
|
59,100
|
$
|
166,040
|
||||
|
Supplemental non-cash information:
|
||||||||
|
Capital lease obligations
|
$
|
26,194
|
$
|
-
|
||||
The accompanying notes are an integral part of the consolidated financial statements.
TEL-INSTRUMENT ELECTRONICS CORP.
1. Business, Organization, and Liquidity
Business and Organization
Tel-Instrument Electronics Corp. (“Tel” or the “Company”) has been in business since 1947. The Company is a leading designer and manufacturer of avionics test and measurement instruments for the global, commercial air transport, general aviation, and government/military defense markets. Tel provides instruments to test, measure, calibrate, and repair a wide range of airborne navigation and communication equipment. The Company sells its equipment in both domestic and international markets. Tel continues to develop new products in anticipation of customers’ needs and to maintain its strong market position. Its development of multi-function testers has made it easier for customers to perform ramp tests with less operator training, fewer test sets, and lower product support costs. The Company has become a major manufacturer and supplier of Identification Friend or Foe (“IFF”) flight line test equipment and over the last few years was awarded three major military contracts.
2. Summary of Significant Accounting Policies
Principles of Consolidation:
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States, and include the Company and its wholly-owned subsidiary. All significant inter-company accounts and transactions have been eliminated.
Revenue Recognition:
Revenues are recognized at the time of shipment to, or acceptance by the customer, provided title and risk of loss is transferred to the customer as the product price is fixed or determinable, collection of the resulting receivable is probable, evidence of an arrangement exists and product returns are reasonably estimable. Provisions, when appropriate, are made where the right to return exists.
Revenues for repairs and calibrations of the Company’s products represented 3.7% and 5.4% of sales for the years ended March 31, 2016 and 2015, respectively. These revenues are for units that are periodically returned for annual calibrations and/or for repairs after the warranty period has expired. Revenues on repairs and calibrations are recognized at the time the repaired or calibrated unit is shipped, as it is at this time that the work is completed. The Company’s terms are F.O.B. Plant, and as such, delivery has occurred, and revenue recognized, when picked up and acknowledged by a common carrier.
Shipping and handling costs charged to customers are classified as sales, and the shipping and handling costs incurred are included in cost of sales.
Payments received prior to the delivery of units or services performed are recorded as deferred revenues.
With respect to warranty revenues, upon the completion of two years from the date of sale, considered to be the warranty period, the Company offers customers an optional warranty. Amounts received for warranties are recorded as deferred revenue and recognized over the respective terms of the agreements.
Fair Value of Financial Instruments:
The Company estimates that the fair value of all financial instruments at March 31, 2016 and March 31, 2015, as defined in Financial Accounting Standards Board (“FASB”) ASC 825 “Financial Instruments”, does not differ materially, except for the items discussed below, from the aggregate carrying values of its financial instruments recorded in the accompanying consolidated balance sheets. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. Considerable judgment is required in interpreting market data to develop the estimates of fair value.
The carrying amounts reported in the consolidated balance sheets as of March 31, 2016 and March 31, 2015 for cash, accounts receivable and accounts payable approximate the fair value because of the immediate or short-term maturity of these financial instruments. Each reporting period we evaluate market conditions including available interest rates, credit spreads relative to our credit rating and liquidity in estimating the fair value of our debt. After considering such market conditions, we estimate that the fair value of debt approximates its carrying value.
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Consolidated Financial Statements (Continued)
2. Summary of Significant Accounting Policies (continued)
Concentrations of Credit Risk:
Cash held in banks: The Company maintains cash balances at a financial institution that is insured by the Federal Deposit Insurance Corporation (“FDIC”) up to federally insured limits. At times balances may exceed FDIC insured limits. The Company has not experienced any losses in such accounts.
Accounts Receivable: The Company’s avionics customer base is primarily comprised of airlines, distributors, and the U.S. Government. As of March 31, 2016, the Company believes it has no significant risk related to its concentration within its accounts receivable.
Inventories:
Inventories are stated at the lower of cost or market. Cost is determined on a first-in, first-out basis. Inventories are written down if the estimated net realizable value is less than the recorded value. The Company reviews the carrying cost of inventories by product to determine the adequacy of reserves for obsolescence. In accounting for inventories, the Company must make estimates regarding the estimated realizable value of inventory. The estimate is based, in part, on the Company’s forecasts of future sales and age of inventory. 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.
Equipment and Leasehold Improvements:
Office and manufacturing equipment are stated at cost, net of accumulated depreciation. Depreciation and amortization are provided on a straight-line basis over periods ranging from 3 to 5 years.
Leasehold improvements are amortized over the term of the lease or the useful life of the asset, whichever is shorter.
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.
When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is included in the Statement of Operations.
Engineering, Research and Development Costs:
Engineering, research and development costs are expensed as incurred.
Advertising Expenses:
Advertising expenses consist primarily of costs for direct advertising. The Company expenses all advertising costs as incurred, and classifies these costs under selling, general and administrative expenses. Advertising costs amounted to $577 and $-0- for the years ended March 31, 2016 and 2015, respectively.
Deferred Revenues:
Amounts billed in advance of the period in which the service is rendered or product delivered are recorded as deferred revenue. At March 31, 2016 and 2015, deferred revenues totaled $221,469 and $152,259, respectively. See above for additional information regarding our revenue recognition policies.
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Consolidated Financial Statements (Continued)
2. Summary of Significant Accounting Policies (continued)
Net Income (Loss) per Common Share:
Basic net income (loss) per share attributable to common stockholders is computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted income per share is computed by dividing diluted net income by the weighted-average number of common shares outstanding during the period, including common stock equivalents, such as stock options and warrants using the treasury stock method. Diluted loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period, and excludes the anti-dilutive effects of common stock equivalents.
Accounting for Income Taxes:
The Company accounts for income taxes using the asset and liability method described in FASB ASC 740, “Income Taxes”. Deferred tax assets arise from a variety of sources, the most significant being: a) tax losses that can be carried forward to be utilized against profits in future years; b) expenses recognized for financial reporting purposes but disallowed in the tax return until the associated cash flow occurs; and c) valuation changes of assets which need to be tax effected for book purposes but are deductible only when the valuation change is realized.
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 are expected to 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. In assessing the need for a valuation allowance, future taxable income is estimated, considering the realization of tax loss carryforwards. Valuation allowances related to deferred tax assets can also be affected by changes to tax laws, changes to statutory tax rates and future taxable income levels. In the event it was determined that the Company would not be able to realize all or a portion of our deferred tax assets in the future, we would reduce such amounts through a charge to income in the period in which that determination is made. Conversely, if we were to determine that we would be able to realize our deferred tax assets in the future in excess of the net carrying amounts, we would decrease the recorded valuation allowance through an increase to income in the period in which that determination is made. In its evaluation of a valuation allowance the Company takes into account existing contracts and backlog, and the probability that options under these contract awards will be exercised as well as sales of existing products. The Company prepares profit projections based on the revenue and expenses forecast to determine that such revenues will produce sufficient taxable income to realize the deferred tax assets.
The Company accounts for uncertainties in income taxes under ASC 740-10-50 which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740-10 requires that the Company determine whether the benefits of its tax positions are more-likely-than-not of being sustained upon audit based on the technical merits of the tax position. The Company recognizes the impact of an uncertain income tax position taken on its income tax return at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. The implementation of ASC 740-10 had no impact on the Company’s results of operations or financial position.
Despite the Company’s belief that its tax return positions are consistent with applicable tax laws, one or more positions may be challenged by taxing authorities. Settlement of any challenge can result in no change, a complete disallowance, or some partial adjustment reached through negotiations or litigation.
Interest and penalties related to income tax matters, if applicable, will be recognized as income tax expense. During the years ended March 31, 2016 and 2015 the Company did not incur any expense related to interest or penalties for income tax matters, and no such amounts were accrued as of March 31, 2016 and 2015. The Company’s tax years remain open for examination by the tax authorities primarily beginning 2013 through present.
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Consolidated Financial Statements (Continued)
2. Summary of Significant Accounting Policies (continued)
Stock-based Compensation:
The Company accounts for stock-based compensation in accordance with FASB ASC 718 which requires the measurement of stock-based compensation based on the fair value of the award on the date of grant. The Company recognizes compensation cost on awards on a straight-line basis over the vesting period, typically four years. The Company estimates the fair value of each option granted using the Black-Scholes option-pricing model.
Additional information and disclosure are provided in Note 14 below.
Long-Lived Assets:
The Company assesses the recoverability of the carrying value of its long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future, undiscounted cash flows expected to be generated by an asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. No impairment losses have been recognized for the years ended March 31, 2016 and 2015, respectively.
Use of Estimates:
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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, warranty claims, inventory and accounts receivable valuations.
Reclassifications:
Certain prior year amounts have been reclassified to conform to the current year presentation.
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 credit limits for 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 the Company’s expectation and the provision established, the Company cannot guarantee that this will continue.
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 the Company’s expectations and the provisions established, future warranty costs could be in excess of the Company’s warranty reserves. A significant increase in these costs could adversely affect the Company’s 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. For the year ended March 31, 2016 warranty costs were $367,935 as compared to $279,955 for the year ended March 31, 2015 and are included in Cost of Sales in the accompanying statement of operations. See Note 6 for warranty reserves.
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Consolidated Financial Statements (Continued)
2. Summary of Significant Accounting Policies (continued)
Risks and Uncertainties:
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 its customers, research and development results, reliance on the government and commercial markets, litigation, and the renewal of its line of credit. The Company has major contracts with the U.S. Government, which like all government contracts are subject to termination.
New Accounting Pronouncements:
In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09 ("Improvements to Employee Share-Based Payment Accounting") which simplifies several aspects of accounting for share-based payment transactions including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The new standard is effective for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years with early adoption permitted. The Company is evaluating the impact that the adoption of this standard will have on the Company’s consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02 ("Leases"), which introduces the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance. The new standard establishes a right-of-use ("ROU") model that requires a lessee to record an ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. The new standard is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years with early adoption permitted. The Company is evaluating the impact that the adoption of this standard will have on the Company’s consolidated financial statements.
In January 2016, the FASB issued ASU No. 2016-01 (ASC Subtopic 825-10), Financial Instruments - Overall Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in this ASU require entities to measure all investments in equity securities at fair value with changes recognized through net income. This requirement does not apply to investments that qualify for the equity method of accounting, to those that result in consolidation of the investee, or for which the entity meets a practicability exception to fair value measurement. Additionally, the amendments eliminate certain disclosure requirements related to financial instruments measured at amortized cost and add disclosures related to the measurement categories of financial assets and financial liabilities. The amendments in this ASU are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted for only certain portions of the ASU. The Company is in the process of assessing the impact, if any, on its consolidated financial statements.
In November 2015, the FASB issued ASU 2015-17, which is an update to Topic 740, "Income Taxes". The update will require that all deferred tax assets and liabilities be classified as non-current. The update is effective for fiscal years, and the interim periods within those years, beginning after December 15, 2016. ASU 2015-17 will have a material impact on the Company's balance sheet, as the deferred tax reported as a current asset will be reported as a non-current asset once the update is effective, resulting in a decrease to the Company's current ratio. As of March 31, 2016, the Company reported $578,507 of deferred tax as a current asset. It will not have any material impact on the Company's results of operations.
In September 2015, the FASB issued ASU 2015-16 (ASC Topic 805), Business Combinations Simplifying the Accounting for Measurement-Period Adjustments. The amendments in this update require that an acquirer recognize measurement period adjustments in the period in which the adjustments are determined. The income effects of such measurement period adjustments are to be recorded in the same period’s financial statements but calculated as if the accounting had been completed as of the acquisition date. The impact of measurement period adjustments to earnings that relate to prior period financial statements are to be presented separately on the income statement or disclosed by line item. The amendments in this update are for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted for public business entities for reporting periods for which financial statements have not yet been issued. The adoption of this new guidance is not expected to have a material impact on the Company’s consolidated financial statements and disclosures.
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Consolidated Financial Statements (Continued)
2. Summary of Significant Accounting Policies (continued)
New Accounting Pronouncements (continued):
In May 2014, the FASB issued ASU 2014-09 that introduces a new five-step revenue recognition model in which an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires disclosures sufficient to enable users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, including qualitative and quantitative disclosures about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. This standard is effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period. The Company is currently evaluating the new guidance to determine the impact, if any, it will have on its consolidated financial statements.
In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements - Going Concern”, which requires management to evaluate whether conditions or events raise substantial doubt about the entity’s ability to continue as a going concern and, if so, to provide related footnote disclosures. The guidance is effective for annual or interim reporting periods beginning on or after December 15, 2016. Early adoption is permitted. The Company does not expect the adoption of this ASU to have a material impact on the Company’s consolidated Financial Statements.
In July 2015, the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory”. This ASU applies to inventory that is measured using first-in, first-out (“FIFO”) or average cost. Under the updated guidance, an entity should measure inventory that is within scope at the lower of cost and net realizable value, which is the estimated selling prices in the ordinary course of business, less reasonably predicable costs of completion, disposal and transportation. Subsequent measurement is unchanged for inventory that is measured using last-in, last-out (“LILO”). This ASU is effective for annual and interim periods beginning after December 15, 2016, and should be applied prospectively with early adoption permitted at the beginning of an interim and annual reporting period. We are currently evaluating the impact of adopting ASU 2015-11 on our consolidated financial statements and related disclosures.
No other recently issued accounting pronouncements had or are expected to have a material impact on the Company’s condensed consolidated financial statements.
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Consolidated Financial Statements (Continued)
3. Accounts Receivable
The following table sets forth the components of accounts receivable:
|
|
March 31,
|
|||||||
|
|
2016
|
2015
|
||||||
|
Government
|
$
|
1,343,477
|
$
|
1,440,378
|
||||
|
Commercial
|
118,384
|
209,768
|
||||||
|
Less: Allowance for doubtful accounts
|
(7,500
|
)
|
(24,975
|
)
|
||||
|
|
$
|
1,454,361
|
$
|
1,625,171
|
||||
4. Inventories
Inventories consist of:
|
|
March 31,
|
|||||||
|
|
2016
|
2015
|
||||||
|
Purchased parts
|
$
|
3,420,249
|
$
|
2,746,671
|
||||
|
Work-in-process
|
1,446,293
|
1,514,356
|
||||||
|
Finished goods
|
102,490
|
334
|
||||||
|
Less: Allowance for obsolete inventory
|
(290,000
|
)
|
(229,287
|
)
|
||||
|
|
$
|
4,679,032
|
$
|
4,032,074
|
||||
Work-in-process inventory includes $1,331,784 and $1,151,118 for government contracts at March 31, 2016 and 2015, respectively.
5. Equipment and Leasehold Improvements
Equipment and leasehold improvements consist of the following:
|
|
March 31,
|
|||||||
|
|
2016
|
2015
|
||||||
|
Leasehold Improvements
|
$
|
95,858
|
$
|
94,413
|
||||
|
Machinery and equipment
|
1,518,780
|
1,458,919
|
||||||
|
Automobiles
|
23,712
|
23,712
|
||||||
|
Sales equipment
|
572,236
|
572,236
|
||||||
|
Assets under capitalized leases
|
637,189
|
610,995
|
||||||
|
Less: Accumulated depreciation & amortization
|
(2,654,257
|
)
|
(2,489,483
|
)
|
||||
|
|
$
|
193,518
|
$
|
270,792
|
||||
Depreciation and amortization expense related to the assets above for the years ended March 31, 2016 and 2015 was $164,774 and $177,291 respectively.
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Consolidated Financial Statements (Continued)
6. Accrued Expenses
Accrued vacation pay, deferred wages, payroll and payroll withholdings consist of the following:
|
|
March 31,
|
|||||||
|
|
2016
|
2015
|
||||||
|
|
||||||||
|
Accrued vacation pay
|
$
|
394,404
|
$
|
328,777
|
||||
|
Accrued compensation and payroll withholdings
|
442,185
|
265,337
|
||||||
|
|
||||||||
|
|
$
|
836,589
|
$
|
594,114
|
||||
Accrued vacation pay, payroll and payroll withholdings includes $321,831 and $240,964 at March 31, 2016 and 2015, respectively, which is due to officers.
Accrued expenses - other consist of the following:
|
|
March 31,
|
|||||||
|
|
2016
|
2015
|
||||||
|
|
||||||||
|
Accrued commissions
|
8,189
|
117,523
|
||||||
|
Accrued legal costs
|
53,766
|
126,740
|
||||||
|
Warranty reserve
|
208,102
|
140,333
|
||||||
|
Accrued – other
|
231,630
|
210,841
|
||||||
|
|
||||||||
|
|
$
|
501,687
|
$
|
595,437
|
||||
The following table provides a summary of the changes in warranty reserves for the years ended March 31, 2016 and 2015:
|
March 31,
|
||||||||
|
|
2016
|
2015
|
||||||
|
Warranty reserve, at beginning of period
|
$
|
140,333
|
$
|
194,062
|
||||
|
Warranty expense
|
367,935
|
279,955
|
||||||
|
Warranty deductions
|
(300,166
|
)
|
(333,684
|
)
|
||||
|
Warranty reserve, at end of period
|
$
|
208,102
|
$
|
140,333
|
||||
Accrued expenses – related parties consists of the following:
|
|
March 31,
|
|||||||
|
|
2016
|
2015
|
||||||
|
|
||||||||
|
Interest due to the estate of the Company’s former Chairman
|
$
|
107,237
|
$
|
85,174
|
||||
|
Interest and other expenses due to the Company’s President/CEO
|
106,107
|
85,174
|
||||||
|
|
||||||||
|
|
$
|
213,344
|
$
|
170,348
|
||||
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Consolidated Financial Statements (Continued)
7. Income Taxes
Income tax (benefit) provision:
|
|
Fiscal Year Ended
|
|||||||
|
|
March 31,
|
March 31,
|
||||||
|
|
2016
|
2015
|
||||||
|
Current:
|
||||||||
|
Federal
|
$
|
52,123
|
$
|
-
|
||||
|
State and local
|
1,500
|
-
|
||||||
|
|
||||||||
|
Total current tax provision
|
53,623
|
-
|
||||||
|
|
||||||||
|
Deferred:
|
||||||||
|
Federal
|
796,500
|
(171,180
|
)
|
|||||
|
State and local
|
1,845
|
91,808
|
||||||
|
|
||||||||
|
Total deferred tax provision (benefit)
|
798,345
|
(79,372
|
)
|
|||||
|
|
||||||||
|
Total provision (benefit)
|
$
|
851,968
|
$
|
(79,372
|
)
|
|||
The approximate values of the components of the Company’s deferred taxes at March 31, 2016 and 2015 are as follows:
|
|
March 31,
|
March 31,
|
||||||
|
|
2016
|
2015
|
||||||
|
Deferred tax assets:
|
||||||||
|
Net operating loss carryforwards
|
$
|
1,802,492
|
$
|
2,865,606
|
||||
|
Tax credits
|
329,032
|
329,032
|
||||||
|
Charitable contributions
|
51
|
17
|
||||||
|
Allowance for doubtful accounts
|
2,550
|
8,499
|
||||||
|
Reserve for inventory obsolescence
|
98,614
|
78,024
|
||||||
|
Inventory capitalization
|
69,918
|
76,820
|
||||||
|
Deferred payroll
|
88,288
|
29,264
|
||||||
|
Vacation accrual
|
134,116
|
111,880
|
||||||
|
Warranty reserve
|
70,765
|
47,754
|
||||||
|
Deferred revenues
|
75,310
|
51,812
|
||||||
|
Stock options
|
23,544
|
23,561
|
||||||
|
Non-compete agreement
|
7,889
|
9,868
|
||||||
|
AMT credit
|
52,123
|
|||||||
|
Depreciation
|
26,721
|
(52,379
|
)
|
|||||
|
Deferred tax asset
|
2,781,413
|
3,579,758
|
||||||
|
Less valuation allowance
|
(137,780
|
)
|
(137,780
|
)
|
||||
|
|
||||||||
|
Deferred tax asset, net
|
$
|
2,643,633
|
$
|
3,441,978
|
||||
|
|
||||||||
|
Deferred tax asset – current
|
$
|
578,507
|
$
|
1,064,395
|
||||
|
Deferred tax asset – long-term
|
2,065,126
|
2,377,583
|
||||||
|
Total
|
$
|
2,643,633
|
$
|
3,441,978
|
||||
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Consolidated Financial Statements (Continued)
7. Income Taxes (Continued)
The recognized deferred tax asset is based upon the expected utilization of its benefit from future taxable income. The Company has federal net operating loss (“NOL”) carryforwards of approximately $5,301,000 as of March 31, 2016. These carryforward losses are available to offset future taxable income, and begin to expire in the year 2027. New Jersey State NOL carryforwards approximate $3,989,000 as of March 31, 2016. New Jersey State NOL carryforwards expire in 20 years, and certain of these amounts begin to expire in 2030.
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 sales 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 affect the Company’s ability to realize the deferred tax assets.
A reconciliation of the income tax (benefit) provision at the statutory Federal tax rate of 34% to the income tax (benefit) provision recognized in the financial statements is as follows:
|
|
March 31,
|
March 31,
|
||||||
|
|
2016
|
2015
|
||||||
|
|
||||||||
|
Income tax (benefit) provision – statutory rate
|
$
|
631,081
|
$
|
(122,338
|
)
|
|||
|
Income tax expenses – state and local, net of federal benefit
|
2,835
|
(104
|
)
|
|||||
|
Permanent items
|
12,194
|
10,802
|
||||||
|
Change in value of warrants – permanent difference
|
209,862
|
55,982
|
||||||
|
True-up of prior year’s deferred taxes
|
(4,281
|
)
|
(162,527
|
)
|
||||
|
Change in valuation allowance
|
-
|
137,780
|
||||||
|
Other
|
277
|
1,033
|
||||||
|
|
||||||||
|
Income tax provision (benefit)
|
$
|
851,968
|
$
|
(79,372
|
)
|
|||
8. Related Parties
Subordinated Notes
On February 22, 2010, the Company borrowed $250,000 in exchange for issuing subordinated notes to two executive officers and directors in the amount of $125,000 (individually, the “Subordinated Note” and collectively, the “Subordinated Notes”). Each officer and director also received 5,000 options to purchase Common Stock at an exercise price of $8.00 per share, the market price at the date of grant. In September 2010, these officers/directors entered into an Intercreditor and Subordination agreement which subordinated their loans to the BCA Loan Agreement (see Note 10 to Notes to Consolidated Financial Statements). The notes were to become due April 1, 2011 with an interest rate of 1% per month, payable on a monthly basis within 14 days of the end of each month. The Intercreditor and Subordination Agreement amongst the parties precludes the payment of principal or interest under these subordinated notes unless and until the Senior Obligations (as defined in the Intercreditor and Subordination Agreement) have been paid in full or without the express written consent of Senior Lender. The holders of Subordinated Notes agreed that the Company’s failure to pay the monthly interest amounts pursuant to the terms of the February 22, 2010 Subordinated Notes will not constitute an event of default on such notes if the Company is precluded from making these payments pursuant to the limitations included in the loan agreement with BCA Mezzanine Fund L.L.P. (“BCA”). Upon payment in full of the loan to BCA in November 2014, the Company was able to commence to pay down the principal balance of the Subordinated Notes. During fiscal year 2012, the Company’s Chairman, at the time, passed away. His surviving spouse has retained this Subordinated Note and continues to acknowledge the terms. During the fiscal year ended March 31, 2016, the Company repaid $225,000 of the Subordinated Notes. The outstanding balances at March 31, 2016 and 2015 were $25,000 and $250,000, respectively. Total interest expense was $42,966 and $47,312 for the years ended March 31, 2016 and 2015, respectively. Accrued interest at March 31, 2016 and 2015 was $107,237 and $85,174, respectively.
Services
The Company has obtained marketing and sales services from a brother-in-law of the Company’s CEO with the related fees and commissions amounting to $107,980 and $100,480 for the years ended March 31, 2016 and 2015, respectively.
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Consolidated Financial Statements (Continued)
9. Long-Term Debt
BCA Mezzanine Fund LLP
In September 2010 the Company entered into an agreement with BCA (“the “BCA Loan Agreement”) to lend the Company $2.5 million in the form of a promissory note (“the “BCA Note”). The Company incurred expenses of $541,604 in connection with this loan, including legal fees, investment banking fees and other transaction fees. These expenses were included as deferred financing costs in the accompanying balance sheets, and were amortized over the term of the loan using the straight-line method which approximates the effective interest rate method. For the years ended March 31, 2016 and 2015, the Company recorded amortization of deferred financing costs in the amount of $-0- and $69,165. On November 13, 2014, the Company paid off the BCA Note, and as a result, wrote-off the remaining balance of deferred charges in the amount of $89,365, and such amount is included in Loss on Extinguishment of Debt in the accompanying statement of operations for the year ended March 31, 2015. As of March 31, 2016 and March 31, 2015, there were no unamortized deferred financing costs related to the BCA loan.
The Company also issued warrants to BCA for 136,920 shares at an exercise price of $6.70 per share for nine years in conjunction with the issuance with the BCA Note. In connection with the initial warrants issued with this debt, the Company recorded a debt discount of $267,848. The debt discount was being amortized over the life of the loan.
In consideration for the waivers for non-compliance of the financial covenants, BCA received a total of 100,000 additional warrants to purchase shares of the Common Stock, which expire on September 10, 2019. Determining the warrant value to be recorded requires us to develop estimates to be used in calculating the fair value of the warrant. The fair value of the warrant is calculated using the Black-Scholes valuation model. See Note 19 which summarizes the additional warrants received by BCA. The value of the warrants was charged to debt discount in the accompanying balance sheet, and the amount was amortized over the remaining term of the loan.
Total amortization expense associated with the initial warrants, additional warrants and fees were $-0- and $75,308 for the years ended March 31, 2016 and 2015, respectively. On November 13, 2014, the Company paid off the BCA Note, and as a result, wrote off the remaining balance of unamortized discount in the amount of $98,737, and such amount is included in Loss on Extinguishment of Debt in the accompanying statement of operations for the year ended March 31, 2015.
Term Loans with Bank of America
On November 13, 2014, the Company entered into a term loan in the amount of $1,200,000 with Bank of America. The proceeds from the term loan were primarily used to pay off the remaining balance of the BCA Note in the amount of $1,153,109, including accrued interest of $4,467 (see above). The term loan is for three years, and expires on November 13, 2017. Monthly payments are at $36,551 including interest at 6%. The term loan is collateralized by substantially all of the assets of the Company. At March 31, 2016 and March 31, 2015, the outstanding balances were $693,407 and $1,076,894, respectively. At March 31, 2016, $407,598 was classified as current. The Company incurred expenses $16,287 in connection with this loan, including legal fees and other transaction fees. These expenses are included as deferred financing costs in the accompanying balance sheets, and are amortized over the term of the loan, using the straight-line method which approximates the effective interest rate method. For the years ended March 31, 2016 and 2015, the Company recorded amortization of deferred financing costs in the amount of $5,429 and $2,066, respectively. As of March 31, 2016 and March 31, 2015, the Company had unamortized deferred financing costs in the amount of $8,792 and $14,221, respectively.
In July 2015, the Company entered into a term loan in the amount of $18,000 with Bank of America. The term loan is for three years, and expires in July 2018. Monthly payments are at $536 including interest at 4.5%. The term loan is collateralized by substantially all of the assets of the Company. At March 31, 2016 and March 31, 2015, the outstanding balances were $14,211 and $-0-, respectively.
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Consolidated Financial Statements (Continued)
9. Long-Term Debt (continued)
Automobile Loan
In March 2014, the Company entered into a loan with Ford Credit for its van in the amount of $23,712. Such note has a term of five (5) years with an annual interest rate of 8.79% with monthly payments of $492. The outstanding balances at March 31, 2016 and 2015 were $15,197 and $19,549, respectively.
The annual maturities of long-term debt for the five fiscal years subsequent to March 31, 2016 are as follows:
|
2017
|
$
|
418,255
|
||
|
2018
|
297,176
|
|||
|
2019
|
7,384
|
|||
|
2020
|
-
|
|||
|
2021
|
-
|
|||
|
|
||||
|
Total Principal
|
722,815
|
|||
|
Less: Current Portion
|
(418,255
|
)
|
||
|
Total Long-Term Debt
|
$
|
304,560
|
10. Line of Credit
On March 21, 2016, the Company entered into a line of credit agreement with Bank of America, which expires March 31, 2017. The line provides a revolving credit facility with borrowing capacity of up to $500,000. There are no covenants or borrowing base calculations associated with this line of credit. Interest on any outstanding balances is payable monthly at an annual interest rate equal to the LIBOR (London Interbank Offered Rates) Daily Floating plus 3.75 percentage points. The Company’s interest rate was 4.96% at March 31, 2016. The line is collateralized by substantially all of the assets of the Company. The Company has not made any borrowings against this line of credit. As of March 31, 2016, the remaining availability under this line is $500,000.
11. Commitments
The Company leases its general office and manufacturing facility in East Rutherford, NJ (approximately 27,000 square feet) under an operating lease agreement which expires July 31, 2016. The lease is for a five year period, beginning August 1, 2011, with a five year option in a one-story facility. In June 2016, the Company extended the lease term for another five years until August 2021. Under terms of the lease, the Company is also responsible for its proportionate share of the additional rent to include all real estate taxes, insurance, snow removal, landscaping and other building charges. The Company is also responsible for the utility costs for the premises.
The Company also leases a small office in Lawrence, Kansas under an operating lease agreement which expires June 30, 2017.
In addition, the Company has agreements to lease equipment for use in the operations of the business under operating leases.
The following is a schedule of approximate future minimum rental payments for operating leases subsequent to the year ended March 31, 2016.
|
|
Years Ended March 31,
|
|||
|
2017
|
$
|
289,074
|
||
|
2018
|
288,857
|
|||
|
2019
|
283,593
|
|||
|
2020
|
282,540
|
|||
|
2021
|
282,540
|
|||
|
|
$
|
1,426,604
|
||
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Consolidated Financial Statements (Continued)
11. Commitments (continued)
Total rent expense, including common charges related to the building as well as equipment rentals, was approximately $358,000 and $355,000 for the years ended March 31, 2016 and 2015, respectively.
The Company sponsors a 401k Plan in which employee contributions on a pre-tax basis are supplemented by matching contributions by the Company. The Company charged to operations $27,916 and $23,555 as its matching contribution to the Company’s 401k Plan for the years ended March 31, 2016 and 2015, respectively.
12. Capitalized Lease Obligations
The Company has entered into lease commitments for furniture and equipment that meet the requirements for capitalization. The equipment has been capitalized and shown in equipment and leasehold improvements in the accompanying balance sheets. The related obligations are also recorded in the accompanying consolidated balance sheets and are based upon the present value of the future minimum lease payments with interest rates ranging from 9% to 14%. The net book value of equipment acquired under capitalized lease obligations amounted to $51,230 and $79,938 at March 31, 2016 and 2015, respectively. There was one new capital lease for the year ended March 31, 2016 in the amount of $26,194. There were no new capital lease obligations during the year ended March 31, 2015. As of March 31, 2016 and 2015, accumulated amortization under capital leases was $585,959 and $531,057, respectively.
At March 31, 2016, future payments under capital leases are as follows over each of the next five fiscal years:
|
2016
|
$
|
12,535
|
||
|
2017
|
7,864
|
|||
|
2018
|
7,864
|
|||
|
2019
|
7,864
|
|||
|
2020
|
--
|
|||
|
Total minimum lease payments
|
36,127
|
|||
|
Less amounts representing interest
|
(5,371
|
)
|
||
|
Present value of net minimum lease payments
|
30,756
|
|||
|
Less current portion
|
(10,232
|
)
|
||
|
Long-term capital lease obligation
|
$
|
20,524
|
13. Significant Customer Concentrations
For the years ended March 31, 2016 and 2015, sales to the U.S. Government represented approximately 79% and 77%, respectively of net sales. No other individual customer represented over 10% of net sales for these years. No direct customer accounted for more than 10% of commercial or government net sales. Our U.S. distributor accounted for 21% and 22% of commercial sales for the years ended March 31, 2016 and 2015, respectively.
Net sales to foreign customers were $1,900,724 and $1,809,495 for the years ended March 31, 2016 and 2015, respectively. All other sales were to customers located in the U.S. The following table presents net sales by U.S. and foreign countries:
|
|
2016
|
2015
|
||||||
|
United States
|
$
|
22,904,101
|
$
|
16,386,477
|
||||
|
Foreign countries
|
1,900,724
|
1,809,495
|
||||||
|
Total Avionics Sales
|
$
|
24,804,825
|
$
|
18,195,972
|
||||
Net sales related to any single foreign country did not comprise more than 10% of consolidated net sales. The Company had no assets outside the United States.
Receivables from the U.S. Government represented approximately 37% and 59%, respectively, of total receivables at March 31, 2016 and 2015, respectively. As of March 31, 2016, one individual customer accounted for 27% of the Company’s outstanding accounts receivable. As of March 31, 2015, no other individual customer accounted for over 10% of the Company’s outstanding accounts receivable.
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Consolidated Financial Statements (Continued)
14. Stock Option Plans
In March 2006, the Board adopted the 2006 Stock Option Plan (the “Plan”) which reserved for issuance options to purchase up to 250,000 shares of its Common Stock. The stockholders approved the Plan at the December 2006 annual meeting. The Plan, which had a term of ten years from the date of adoption, is administered by the Board of Directors (the “Board”) or by a committee appointed by the Board. The selection of participants, allotment of shares, and other conditions related to the grant of options, to the extent not set forth in the Plan, are determined by the Board. Options granted under the Plan are exercisable up to a period of 5 years from the date of grant at an exercise price which is not less than the fair market value of the common stock at the date of grant, except as to a stockholder owning 10% or more of the outstanding common stock of the Company, as to whom the exercise price must not be less than 110% of the fair market value of the common stock at the date of grant. Options, for the most part, are exercisable on a cumulative basis, 20% at or after each of the first, second, and third anniversary of the grant and 40% after the fourth year anniversary. These terms can be modified based upon approval of the Board.
The fair value of each option awarded is estimated on the date of grant using the Black-Scholes option valuation model that uses the assumptions noted in the following table. Expected volatilities are based on historical volatility of Common Stock. The expected life of the options granted represents the period of time from date of grant to expiration (5 years). The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant. The per share weighted-average fair value of stock options granted for the years ended March 31, 2016 and 2015 was $2.36 and $2.20, respectively, on the date of grant using the Black Scholes option-pricing model with the following assumptions:
| Dividend | Risk-free | ||||||||||||
|
Yield
|
Interest rate
|
Volatility
|
Life
|
||||||||||
|
2016
|
0.0
|
%
|
1.39
|
%
|
44.54
|
%
|
5 years
|
||||||
|
2015
|
0.0
|
1.68
|
%
|
47.21
|
%
|
5 years
|
|||||||
A summary of the status of the Company’s stock option plans for the fiscal years ended March 31, 2015 and 2014 and changes during the years are presented below (in number of options):
|
|
Number of Options
|
Average Exercise Price
|
Average Remaining
Contractual Term
|
Aggregate Intrinsic
Value
|
||||||||||
|
Outstanding options at April 1, 2014
|
88,000
|
$
|
6.12
|
|
||||||||||
|
Options granted
|
10,000
|
$
|
5.14
|
|
||||||||||
|
Options exercised
|
(5,500
|
)
|
$
|
4.84
|
|
|||||||||
|
Options canceled/forfeited
|
(21,000
|
)
|
$
|
6.19
|
|
|||||||||
|
|
|
|||||||||||||
|
Outstanding options at March 31, 2015
|
71,500
|
$
|
6.06
|
1.9 years
|
$
|
64,000
|
||||||||
|
Options granted
|
51,000
|
$
|
5.85
|
|
||||||||||
|
Options exercised
|
-
|
$
|
-
|
|
||||||||||
|
Options canceled/forfeited
|
(37,500
|
)
|
$
|
7.43
|
|
|||||||||
|
|
|
|||||||||||||
|
Outstanding options at March 31, 2016
|
85,000
|
$
|
5.33
|
3.4 years
|
$
|
9,000
|
||||||||
|
Vested Options:
|
|
|||||||||||||
|
March 31, 2016:
|
26,000
|
$
|
4.38
|
2.1 years
|
$
|
9,000
|
||||||||
|
March 31, 2015:
|
59,900
|
$
|
6.20
|
1.5 years
|
$
|
53,760
|
||||||||
Remaining options available for grant were -0- and 248,278 as of March 31, 2016 and 2015, respectively.
The total intrinsic value of options exercised during the years ended March 31, 2016 and 2015 were $-0- and $1,470, respectively. Cash received from the exercise of stock options for the years ended March 31, 2016 and 2015 was $-0- and $26,610, respectively.
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Consolidated Financial Statements (Continued)
14. Stock Option Plan (continued)
For the years ended March 31, 2016 and 2015, the unamortized compensation expense for stock options was $95,792 and $19,934, respectively. Unamortized compensation expense is expected to be recognized over a weighted-average period of approximately 1 year.
A summary of the Company’s non-vested shares as of March 31, 2016 and changes during the year ended March 31, 2016 is presented below:
|
Non-vested Shares
|
Shares
|
Weighted-Average
Grant-Date
Fair value
|
||||||
|
|
||||||||
|
Non-vested at April 1, 2015
|
11,600
|
$
|
5.34
|
|||||
|
Granted
|
51,000
|
$
|
5.85
|
|||||
|
Vested
|
(3,600
|
)
|
$
|
5.78
|
||||
|
Forfeited
|
-
|
$
|
-
|
|||||
|
Non-vested at March 31, 2016
|
59,000
|
$
|
5.75
|
|||||
The compensation cost that has been charged was $32,277 and $33,008 for the fiscal years ended March 31, 2016 and 2015, respectively. The total income tax benefit recognized in the statement of operations for share-based compensation arrangements was $-0- and $1,216 for the fiscal years ended March 31, 2016 and 2015, respectively, and relates to the compensation cost associated with non-qualified stock options
15. Net Diluted Income (Loss) per Share
Net income (loss) per share has been computed according to FASB ASC 260, “Earnings per Share,” which requires a dual presentation of basic and diluted earnings (loss) per share (“EPS”). Basic EPS represents net (loss) income divided by the weighted average number of common shares outstanding during a reporting period. Diluted EPS reflects the potential dilution that could occur if securities, including warrants and options, were converted into common stock. The dilutive effect of outstanding warrants and options is reflected in earnings per share by use of the treasury stock method. In applying the treasury stock method for stock-based compensation arrangements, the assumed proceeds are computed as the sum of the amount the employee must pay upon exercise and the amounts of average unrecognized compensation costs attributed to future services.
|
|
March 31, 2016
|
March 31, 2015
|
||||||
|
Basic net income (loss) per share computation:
|
||||||||
|
Net income(loss)
|
$
|
1,004,153
|
$
|
(280,440
|
)
|
|||
|
Weighted-average common shares outstanding
|
3,256,887
|
3,253,992
|
||||||
|
Basic net income (loss) per share
|
$
|
0.31
|
$
|
(0.09
|
)
|
|||
|
Diluted net income (loss) per share computation
|
||||||||
|
Net income (loss)
|
$
|
1,004,153
|
$
|
(280,440
|
)
|
|||
|
Weighted-average common shares outstanding
|
3,256,887
|
3,253,992
|
||||||
|
Incremental shares attributable to the assumed exercise
of outstanding stock options and warrants
|
4,266
|
-
|
||||||
|
Total adjusted weighted-average shares
|
3,261,153
|
3,253,992
|
||||||
|
Diluted net income (loss) per share
|
$
|
0.31
|
$
|
(0.09
|
)
|
|||
The following table summarizes securities that, if exercised, would have an anti-dilutive effect on earnings per share:
|
|
March 31,
2016
|
March 31,
2015
|
||||||
|
Stock options
|
65,000
|
71,500
|
||||||
|
Warrants
|
286,920
|
297,336
|
||||||
|
|
351,920
|
368,836
|
||||||
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Consolidated Financial Statements (Continued)
16. Segment Information
In accordance with FASB ASC 280, “Disclosures about Segments of an Enterprise and related information”, the Company determined it has two reportable segments - avionics government and avionics commercial. There are no inter-segment revenues.
The Company is organized primarily on the basis of its avionics products. The avionics government segment consists primarily of the design, manufacture, and sale of test equipment to the U.S. and foreign governments and militaries either directly or through distributors. The avionics commercial segment consists of design, manufacture, and sale of test equipment to domestic and foreign airlines, directly or through commercial distributors, and to general aviation repair and maintenance shops. The Company develops and designs test equipment for the avionics industry and as such, the Company’s products and designs cross segments.
Management evaluates the performance of its segments and allocates resources to them based on gross margin. The Company’s general and administrative costs and sales and marketing expenses, and engineering costs are not segment specific. As a result, all operating expenses are not managed on a segment basis. Net interest includes expenses on debt and income earned on cash balances, both maintained at the corporate level. 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.
The table below presents information about reportable segments for the years ended March 31:
|
2016
|
Avionics
|
Avionics
|
Avionics
|
Corporate/
|
||||||||||||||||
|
Government
|
Commercial
|
Total
|
Reconciling Items
|
Total
|
||||||||||||||||
|
Net sales
|
$
|
23,011,016
|
$
|
1,793,809
|
$
|
24,804,825
|
$
|
-
|
$
|
24,804,825
|
||||||||||
|
Cost of Sales
|
15,446,232
|
1,373,003
|
16,819,235
|
-
|
16,819,235
|
|||||||||||||||
|
Gross Margin
|
7,564,784
|
420,806
|
7,985,590
|
-
|
7,985,590
|
|||||||||||||||
|
Engineering, research, and development
|
2,038,126
|
-
|
2,038,126
|
|||||||||||||||||
|
Selling, general, and administrative
|
1,218,327
|
2,149,217
|
3,367,544
|
|||||||||||||||||
|
Amortization of deferred financing costs
|
-
|
5,429
|
5,429
|
|||||||||||||||||
|
Change in fair value of common stock warrant
|
-
|
617,241
|
617,241
|
|||||||||||||||||
|
Interest expense, net
|
-
|
101,129
|
101,129
|
|||||||||||||||||
|
3,256,453
|
2,873,016
|
6,129,469
|
||||||||||||||||||
|
Income (loss) before income taxes
|
$
|
4,729,137
|
$
|
(2,873,016
|
)
|
$
|
1,856,121
|
|||||||||||||
|
Segment Assets
|
$
|
5,644,551
|
$
|
488,842
|
$
|
6,133,393
|
$
|
3,974,726
|
$
|
10,108,119
|
||||||||||
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Consolidated Financial Statements (Continued)
16. Segment Information (continued)
|
2015
|
Avionics
|
Avionics
|
Avionics
|
Corporate/
|
||||||||||||||||
|
Government
|
Commercial
|
Total
|
Reconciling Items
|
Total
|
||||||||||||||||
|
Net sales
|
$
|
15,926,532
|
$
|
2,269,440
|
$
|
18,195,972
|
$
|
-
|
$
|
18,195,972
|
||||||||||
|
Cost of Sales
|
10,927,710
|
1,827,570
|
12,755,280
|
-
|
12,755,280
|
|||||||||||||||
|
Gross Margin
|
4,998,822
|
441,870
|
5,440,692
|
-
|
5,440,692
|
|||||||||||||||
|
Engineering, research, and development
|
1,961,275
|
-
|
1,961,275
|
|||||||||||||||||
|
Selling, general, and administrative
|
1,203,628
|
1,945,403
|
3,149,031
|
|||||||||||||||||
|
Amortization of debt discount
|
-
|
75,308
|
75,308
|
|||||||||||||||||
|
Amortization of deferred financing costs
|
-
|
69,165
|
69,165
|
|||||||||||||||||
|
Change in fair value of common stock warrant
|
-
|
164,653
|
164,653
|
|||||||||||||||||
|
Loss on extinguishment of debt
|
-
|
188,102
|
188,102
|
|||||||||||||||||
|
Interest expense, net
|
-
|
192,970
|
192,970
|
|||||||||||||||||
|
3,164,903
|
2,635,601
|
5,800,504
|
||||||||||||||||||
|
Income (loss) before income taxes
|
$
|
2,275,789
|
$
|
(2,635,601
|
)
|
$
|
(359,812
|
)
|
||||||||||||
|
Segment Assets
|
$
|
4,480,332
|
$
|
1,176,913
|
$
|
5,657,245
|
$
|
4,226,242
|
$
|
9,883,487
|
||||||||||
17. Quarterly Results of Operations (Unaudited)
Quarterly consolidated data for the years ended March 31, 2016 and 2015 is as follows:
|
|
Quarter Ended
|
|||||||||||||||
|
FY 2016
|
June 30
|
September 30
|
December 31
|
March 31
|
||||||||||||
|
|
||||||||||||||||
|
Net sales
|
$
|
5,845,919
|
$
|
6,818,390
|
$
|
5,970,865
|
$
|
6,169,651
|
||||||||
|
Gross margin
|
1,815,295
|
2,243,466
|
2,034,757
|
1,892,072
|
||||||||||||
|
Income before taxes
|
494,244
|
370,153
|
453,537
|
538,187
|
||||||||||||
|
Net income
|
279,066
|
199,466
|
226,586
|
299,035
|
||||||||||||
|
Basic income per share
|
0.09
|
0.06
|
0.07
|
0.09
|
||||||||||||
|
Diluted income per share
|
0.02
|
0.06
|
0.07
|
0.09
|
||||||||||||
|
FY 2015
|
June 30
|
September 30
|
December 31
|
March 31
|
||||||||||||
|
Net sales
|
$
|
3,129,076
|
$
|
3,587,674
|
$
|
5,030,097
|
$
|
6,449,125
|
||||||||
|
Gross margin
|
1,120,217
|
869,344
|
1,545,787
|
1,905,344
|
||||||||||||
|
Income (loss) before taxes
|
(497,187
|
)
|
(375,143
|
)
|
7,875
|
504,643
|
||||||||||
|
Net income (loss)
|
(384,005
|
)
|
(248,195
|
)
|
(20,944
|
)
|
372,704
|
|||||||||
|
Basic income (loss) per share
|
(0.12
|
)
|
(0.08
|
)
|
(0.01
|
)
|
0.11
|
|||||||||
|
Diluted income (loss) per share
|
(0.12
|
)
|
(0.08
|
)
|
(0.01
|
)
|
0.11
|
|||||||||
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Consolidated Financial Statements (Continued)
18. Fair Value Measurements
FASB ASC 820, “Fair Value Measurements” defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and prescribes disclosures about fair value measurements.
As defined in ASC 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on the observability of those inputs. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement).
The three levels of the fair value hierarchy defined by ASC 820 are as follows:
Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and listed equities.
Level 2 – Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reported date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category generally include non-exchange-traded derivatives such as commodity swaps, interest rate swaps, options and collars.
Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.
The valuation techniques that may be used to measure fair value are as follows:
Market approach — Uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities
Income approach — Uses valuation techniques to convert future amounts to a single present amount based on current market expectations about those future amounts, including present value techniques, option-pricing models and excess earnings method
Cost approach — Based on the amount that currently would be required to replace the service capacity of an asset (replacement cost)
The carrying value of the Company’s borrowings is a reasonable estimate of its fair value as borrowings under the Company’s credit facility have variable rates that reflect currently available terms and conditions for similar debt.
The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Consolidated Financial Statements (Continued)
18. Fair Value Measurements (continued)
The following table sets forth by level within the fair value hierarchy the Company’s financial assets and liabilities that were accounted for at fair value as of March 31, 2016 and March 31, 2015. As required by FASB ASC 820, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.
|
March 31, 2016
|
Level I
|
Level II
|
Level III
|
Total
|
|||||||||||||
|
|
|||||||||||||||||
|
Warrant Liability
|
$
|
-
|
$
|
-
|
$
|
1,136,203
|
$
|
1,136,203
|
|||||||||
|
Total Liabilities
|
$
|
-
|
$
|
-
|
$
|
1,136,203
|
$
|
1,136,203
|
|||||||||
|
March 31, 2015
|
Level I
|
Level II
|
Level III
|
Total
|
|||||||||||||
|
|
|||||||||||||||||
|
Warrant Liability
|
$
|
-
|
$
|
-
|
$
|
518,962
|
$
|
518,962
|
|||||||||
|
Total Liabilities
|
$
|
-
|
$
|
-
|
$
|
518,962
|
$
|
518,962
|
|||||||||
ASC 815, “Derivatives and Hedging” requires that we mark the value of our warrant to market and recognize the change in valuation in our statement of operations each reporting period. Determining the warrant liability to be recorded requires us to develop estimates to be used in calculating the fair value of the warrant.
The following table provides a summary of the changes in fair value of our Level 3 financial liabilities for the years ended March 31, 2016 and 2015 as well as the unrealized gains or losses included in income.
|
|
March 31, 2016
|
March 31, 2015
|
||||||
|
Fair value, at beginning of period
|
$
|
518,962
|
$
|
354,309
|
||||
|
|
||||||||
|
New issuances
|
-
|
-
|
||||||
|
Change in fair value
|
617,241
|
164,653
|
||||||
|
|
||||||||
|
Fair value, at end of period
|
$
|
1,136,203
|
$
|
518,962
|
||||
The common stock warrants were not issued with the intent of effectively hedging any future cash flow, fair value of any asset, liability or any net investment in a foreign corporation. The warrants do not qualify for hedge accounting, and, as such, all changes in the fair value of these warrants are recognized as other income/expense in the statement of operations until such time as the warrants are exercised or expire. Since these common stock warrants do not trade in an active securities market, the Company recognized a warrant liability and estimated the fair value of these warrants using the Black-Scholes options model until the payment of the loan in November 2014.
With the payment of the loan in November 2014, the holder has the right, exercisable at any time, in writing (the “Warrant Put Notice”, to cause the Company, subject to the terms and conditions hereof, to purchase from the holder all, or any portion, of the warrant for the warrant put repurchase price (the “Repurchase Price”). The Repurchase Price is the greater of 1) Adjusted EBITDA (as defined below) per share as of the date of the Warrant Put Notice, less $0.01, multiplied by the number of warrants or 2) the product of the current market price per share as of the date of the Warrant Put Notice, less the purchase price of the warrant or warrants, multiplied by the number of warrants, if this amount is higher. “Adjusted EBITDA” means EBITDA, multiplied by 5, plus cash and cash equivalents less unpaid debt divided by the number of shares outstanding on a fully diluted basis. As such, the values of the warrants at March 31, 2016 reflect the higher of these two options for each specific warrant.
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Consolidated Financial Statements (Continued)
18. Fair Value Measurements (continued)
Values at Inception
|
Date of
Warrant
|
Expiration
Date
|
Number of
Warrants
|
Exercise
Price
|
Fair Market Value
Per Share
|
Expected
Volatility
|
Remaining
Life
in Years
|
Risk Free
Interest Rate
|
Warrant
Liability
|
||||||||||||||||||||||||||
|
09-10-2010
|
09-10-2019
|
136,920
|
$
|
6.70
|
$
|
6.70
|
28.51
|
%
|
9
|
2.81
|
%
|
$
|
267,848
|
|||||||||||||||||||||
|
09-10-2010
|
09-10-2015
|
10,416
|
$
|
6.70
|
$
|
6.70
|
28.51
|
%
|
5
|
1.59
|
%
|
$
|
13,808
|
|||||||||||||||||||||
|
07-26-2012
|
09-10-2019
|
50,000
|
$
|
3.35
|
$
|
3.90
|
42.04
|
%
|
7
|
0.94
|
%
|
$
|
66,193
|
|||||||||||||||||||||
|
07-26-2012
|
09-10-2019
|
20,000
|
$
|
3.35
|
$
|
3.90
|
42.04
|
%
|
7
|
0.94
|
%
|
$
|
26,477
|
|||||||||||||||||||||
|
11-20-2012
|
09-10-2019
|
20,000
|
$
|
3.56
|
$
|
3.50
|
42.45
|
%
|
6.83
|
1.09
|
%
|
$
|
21,441
|
|||||||||||||||||||||
|
02-14-2013
|
09-10-2019
|
20,000
|
$
|
3.58
|
$
|
3.80
|
41.72
|
%
|
6.58
|
1.43
|
%
|
$
|
23,714
|
|||||||||||||||||||||
|
07-12-2013
|
09-10-2019
|
20,000
|
$
|
3.33
|
$
|
3.32
|
40.26
|
%
|
6.17
|
2.00
|
%
|
$
|
19,523
|
|||||||||||||||||||||
|
08-12-2013
|
09-10-2019
|
20,000
|
$
|
3.69
|
$
|
3.69
|
40.20
|
%
|
6.08
|
2.01
|
%
|
$
|
21,587
|
|||||||||||||||||||||
Values at March 31, 2015
|
Date of
Warrant
|
Expiration
Date
|
Number of
Warrants
|
Exercise
Price
|
Fair Market Value
Per Share
|
Put Option Value
|
Market Price Option
|
Remaining
Life in Years
|
Warrant
Liability
|
||||||||||||||||||||||||||
|
09-10-2010
|
09-10-2019
|
136,920
|
$
|
6.70
|
$
|
6.42
|
$
|
90,367
|
NA
|
4.45
|
$
|
68,460
|
||||||||||||||||||||||
|
09-10-2010
|
09-10-2015
|
10,416
|
$
|
6.70
|
$
|
6.42
|
NA
|
NA
|
0.45
|
$
|
7,002
|
*
|
||||||||||||||||||||||
|
07-26-2012
|
09-10-2019
|
50,000
|
$
|
3.35
|
$
|
6.42
|
$
|
30,000
|
153,500
|
4.45
|
$
|
153,500
|
||||||||||||||||||||||
|
07-26-2012
|
09-10-2019
|
20,000
|
$
|
3.35
|
$
|
6.42
|
$
|
13,200
|
61,400
|
4.45
|
$
|
61,400
|
||||||||||||||||||||||
|
11-20-2012
|
09-10-2019
|
20,000
|
$
|
3.56
|
$
|
6.42
|
$
|
13,200
|
57,200
|
4.45
|
$
|
57,200
|
||||||||||||||||||||||
|
02-14-2013
|
09-10-2019
|
20,000
|
$
|
3.58
|
$
|
6.42
|
$
|
13,200
|
55,000
|
4.45
|
$
|
55,000
|
||||||||||||||||||||||
|
07-12-2013
|
09-10-2019
|
20,000
|
$
|
3.33
|
$
|
6.42
|
$
|
13,200
|
61,800
|
4.45
|
$
|
61,800
|
||||||||||||||||||||||
|
08-12-2013
|
09-10-2019
|
20,000
|
$
|
3.69
|
$
|
6.42
|
$
|
13,200
|
54,600
|
4.45
|
$
|
54,600
|
||||||||||||||||||||||
* Based on Black-Scholes Calculation
Values at March 31, 2016
|
Date of
Warrant
|
Expiration
Date
|
Number of
Warrants
|
Exercise
Price
|
Fair Market Value
Per Share
|
Put Option Value
|
Market Price Option
|
Remaining
Life in Years
|
Warrant
Liability
|
||||||||||||||||||||||||||
|
09-10-2010
|
09-10-2019
|
136,920
|
$
|
6.70
|
$
|
4.31
|
542,203
|
NA
|
3.45
|
$
|
542,203
|
|||||||||||||||||||||||
|
07-26-2012
|
09-10-2019
|
50,000
|
$
|
3.35
|
$
|
4.31
|
198,000
|
48,000
|
3.45
|
$
|
198,000
|
|||||||||||||||||||||||
|
07-26-2012
|
09-10-2019
|
20,000
|
$
|
3.35
|
$
|
4.31
|
79,200
|
19,200
|
3.45
|
$
|
79,200
|
|||||||||||||||||||||||
|
11-20-2012
|
09-10-2019
|
20,000
|
$
|
3.56
|
$
|
4.31
|
79,200
|
15,000
|
3.45
|
$
|
79,200
|
|||||||||||||||||||||||
|
02-14-2013
|
09-10-2019
|
20,000
|
$
|
3.58
|
$
|
4.31
|
79,200
|
12,800
|
3.45
|
$
|
79,200
|
|||||||||||||||||||||||
|
07-12-2013
|
09-10-2019
|
20,000
|
$
|
3.33
|
$
|
4.31
|
79,200
|
19,600
|
3.45
|
$
|
79,200
|
|||||||||||||||||||||||
|
08/12/2013
|
09-10-2019
|
20,000
|
$
|
3.69
|
$
|
4.31
|
79,200
|
12,400
|
3.45
|
$
|
79,200
|
|||||||||||||||||||||||
19. Litigation
Contingencies are recorded in the consolidated financial statements when it is probable that a liability will be incurred and the amount of the loss is reasonably estimable, or otherwise disclosed, in accordance with Accounting Standards Codification 450, Contingencies (ASC 450). Significant judgment is required in both the determination of probability and the determination as to whether a loss is reasonably estimable. In the event the Company determines that a loss is not probable, but is reasonably possible, and it becomes possible to develop what the Company believes to be a reasonable range of possible loss, then the Company will include disclosures related to such matter as appropriate and in compliance with ASC 450. To the extent there is a reasonable possibility that the losses could exceed the amounts already accrued, the Company will, when applicable, adjust the accrual in the period the determination is made, disclose an estimate of the additional loss or range of loss or if the amount of such adjustment cannot be reasonably estimated, disclose that an estimate cannot be made.
TEL-INSTRUMENT ELECTRONICS CORP.
Notes To Consolidated Financial Statements (Continued)
19. Litigation (continued)
On March 24, 2009, Aeroflex Wichita, Inc. (“Aeroflex”) filed a petition against the Company and two of its employees in the District Court, Sedgwick County, Kansas, Case No. 09 CV 1141 (the “Aeroflex Action”), alleging that the Company and its two employees misappropriated Aeroflex’s proprietary technology in connection with the Company winning a substantial contract from the U.S. Army (the “Award”), to develop new Mode-5 radar test sets and kits to upgrade the existing TS-4530 radar test sets to Mode 5. Aeroflex’s petition alleges that in connection with the Award, the Company and its named employees misappropriated Aeroflex’s trade secrets; tortiously interfered with its business relationship; conspired to harm Aeroflex and tortiously interfered with its contract and seeks injunctive relief and damages. The central basis of all the claims in the Aeroflex Action is that the Company misappropriated and used Aeroflex proprietary technology and confidential information in winning the Award. In February 2009, subsequent to the Company winning the Award, Aeroflex filed a protest of the Award with the Government Accounting Office (“GAO”). In its protest, Aeroflex alleged, inter alia, that the Company used Aeroflex’s proprietary technology in order to win the Award, the same material allegations as were later alleged in the Aeroflex Action. On or about March 17, 2009, the U.S. Army Contracts Attorney and the U.S. Army Contracting Officer each filed a statement with the GAO, expressly rejecting Aeroflex’s allegations that the Company used or infringed Aeroflex proprietary technology in winning the Award, and concluding that the Company had used only its own proprietary technology. On April 6, 2009, Aeroflex withdrew its protest.
In December 2009, the Kansas District Court dismissed the Aeroflex Action on jurisdiction grounds. Aeroflex appealed this decision. In May 2012, the Kansas Supreme Court reversed the decision and remanded the Aeroflex Action to the Kansas District Court for further proceedings. The Company has been engaged in discovery and depositions for the last three quarters, which has resulted in substantially higher legal expense.
On May 23, 2016, the Company filed a motion for summary judgment based on Aeroflex’s lack of jurisdictional standing to bring the case. The motion asserts that Aeroflex does not own the intellectual property at issue since it is a bare licensee of Northrop Grumman. Northrop Grumman has declined to join this suit as plaintiff. Aeroflex lacks standing to sue alone. Also, the motion raises the fact that in December 2011 Aeroflex allowed the license to expire, so that Aeroflex’s claims are either moot or it lacks standing to sue for damages allegedly accruing after the license ended. Tel believes we have a solid legal position and it is expected that this action will be heard in the September 2016 timeframe. The June 2, 2016 Amended Supplemental Modified Scheduling Order has the trial date set for February 13, 2017 and is estimated to last three weeks, but this date may be subject to postponement. The Company is optimistic as to the outcome of this litigation. However, the outcome of any litigation is unpredictable and an adverse decision in this matter could have a material adverse effect on our financial condition, results of operations or liquidity.
Other than the matters outlined above, we are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of executive officers of our Company, threatened against or affecting our Company, or our common stock in which an adverse decision could have a material effect.
20. Subsequent Event
In May 2016, BCA Mezzanine Fund LLP (“BCA”) exercised its “put option” wherein BCA is exercising its right to have the Company purchase the warrants for 236,920 shares from BCA (see Notes 10 and 19 in Notes to Consolidated Financial Statements. As of March 31, 2016, the total estimated value for all warrants was $1,136,203. The amount attributed to BCA was $938,203. However, this amount will be updated based upon more current information as of April 30, 2016. The Company has the option of paying the final amount or providing BCA a note payable for this amount at an interest rate of 14%. The note will be due in one year with no prepayment penalties. The Company is currently evaluating these options. The remaining warrant holder has not exercised their option.
There are no reportable events under this item for the year ended March 31, 2016.
a) Evaluation of disclosure controls and procedures.
As of March 31, 2016, management performed, with the participation of our Chief Executive Officer and Principal Accounting Officer, an evaluation of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Principal Accounting Officer, as appropriate to allow timely decisions regarding required disclosures. Based on the evaluation required by Rule 13a-15(b) under the Securities Exchange Act of 1934, our Chief Executive Officer and Principal Accounting Officer concluded that as of March 31, 2016, such disclosure controls and procedures were effective.
b) Management’s Annual Report on Internal Control over Financial Reporting
Tel’s management is responsible for establishing and maintaining an adequate system of internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with Generally Accepted Accounting Principles (“GAAP”).
Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance of such reliability and may not prevent or detect misstatements. Also, projection of any evaluation of effectiveness to future periods is subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management has conducted, with the participation of our Chief Executive Officer and our Principal Accounting Officer, an assessment of the effectiveness of our internal control over financial reporting as of March 31, 2016. Management’s assessment of internal control over financial reporting framework was included in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the criteria set forth in Internal Control — Integrated Framework (2013), management concluded that our system of internal control over financial reporting was effective as of March 31, 2016.
c) Changes in Internal Control over Financial Reporting
Remediation
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. A material weakness had been identified as of March 31, 2015 that the Company did not effectively monitor internal controls over inventory count procedures thus contributing to a material weakness in internal control. Our initial inventory observation procedures indicated that the counts were not performed correctly.
During the fourth quarter of Fiscal Year 2016, management remediated the previously existing material weakness in its level of resources related to inventory observation procedures. The Company implemented additional testing and oversight controls to assure that the counting procedures are properly performed.
There were no other changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect our internal controls over financial reporting.
None.
PART III
|
Name (age)
|
|
Position
|
|
Year First
Elected a Director
|
|
Stephen A. Fletcher (1)
(55)
|
|
Director
|
|
2011
|
|
|
|
|
|
|
|
George J. Leon (2) (3)
(72)
|
|
Director
|
|
1986
|
|
|
|
|
|
|
|
Jeffrey C. O’Hara, CPA (1) (4)
(58)
|
|
Director; President since August 2007; Chief Executive Officer since December 2010; Chief Operating Officer since June 2006; Vice President since 2005
|
|
1998
|
|
|
|
|
|
|
|
Robert A. Rice (2) (3)
(60)
|
|
Director
|
|
2004
|
|
|
|
|
|
|
|
Robert H. Walker (2) (3) (5)
(80)
|
|
Director and Chairman of the Board since April 2011
|
|
1984
|
|
|
|
|
|
|
|
Michael W. Schirmer
(58)
|
|
Effective May 12, 2014, the Board approved the appointment of Mr. Schirmer as the Company’s Chief Operating Officer.
|
|
-
|
| (1) | Mr. Fletcher is the son of Mr. Harold K. Fletcher, the former Chairman of the Company who passed away in April 2011, and the brother-in-law of Jeffrey C. O’Hara, the Company’s Chief Executive Officer |
| (2) | Member of the Audit Committee |
| (3) | Member of the Compensation Committee |
| (4) | Mr. O’Hara has served as a member of the Board since 1998 and was appointed President of the Company in 2007, and as Chief Executive Officer in December 2010. |
| (5) | Mr. Walker has served as a member of the Board since 1984 and was appointed Chairman of the Board in April 2011. |
Background of Directors and Officers
Stephen A. Fletcher is the Chief Executive Officer of Rand McNally, the country's most trusted source for maps, navigation and travel content (“Rand”). At Rand, Mr. Fletcher is driving growth of the Company's consumer and enterprise businesses through rapid expansion of core product lines and continued innovation of commercial transportation solutions ranging from advanced mileage and routing software to fleet management and electronic tracking. Prior to Rand, Mr. Fletcher served as a WW general manager at Kodak for more than six years and led a far-reaching organization with operations around the globe including research and development in the US, Germany and Singapore and manufacturing in the US, China and Mexico. Before Kodak, he was President and COO of Konica Minolta Printing Solutions in Ramsey, New Jersey where he quadrupled the business over six years. Mr. Fletcher was also President and CEO of the Tally Printer Corporation in Seattle, Washington and held marketing management positions at Apple Computer and Hewlett Packard.
George J. Leon has served as a member of the Board since 1986. Mr. Leon has substantial experience in finance, and as an investment manager. He is and has been an Investment Manager and beneficiary of the George Leon Family Trust for more than five (5) years.
Jeffrey C. O’Hara, CPA has served as a member of the Board since 1998, and was made a Vice President in 2005, COO in 2006, and has been President since 2007. Mr. O’Hara was appointed Chief Executive Officer of the Company in December 2010. Prior to joining the Company, Mr. O’Hara held various management positions at General Motors, and other mid-sized private companies. Mr. O’Hara has extensive financial, marketing and operations experience and he has held executive positions as both a Chief Financial Officer and President. Mr. O’Hara has also served on several boards of directors of other companies.
Robert H. Walker has served as member of our Board since 1984 and was elected Chairman of the Board in April 2011. Mr. Walker, prior to his retirement in 1998, had served as Executive Vice President of Robotic Vision Systems, Inc., which designs, manufactures, markets and sells automated two-dimensional and three-dimensional machine vision-based products and systems for inspection, measurement and identification. Mr. Walker also served as Chief Financial Officer of that company, whose shares were listed on the NASDAQ National Market. Mr. Walker qualifies as the Company’s “Audit Committee Financial Expert” as defined in the regulations promulgated under the Securities Exchange Act.
Item 10. Directors, Executive Officers and Corporate Governance (continued)
Background of Directors and Officers (continued)
Robert A. Rice has served as a member of the Board since 2004. Mr. Rice is, and has been for more than 5 years, President and Owner of Spurwink Cordage, Inc., a textile manufacturing company located in New England, and is experienced in securities matters and business management.
Michael W. Schirmer has extensive experience in supply chain management, electronics manufacturing, and strategic planning and product commercialization. Mr. Schirmer has over 20 years of experience in electronics industry senior management. Mr. Schirmer served on a contract basis with the Company from November 2013 until appointed COO of the Company effective May 12, 2014. Mr. Schirmer directs the Company’s manufacturing and engineering operations. Prior to joining the Company, Mr. Schirmer served as Director of Manufacturing Operations for Eastman Kodak in Rochester, NY from 2004 to December 2012, and as a Manufacturing Consultant from January 2013 until November 2013.
Family Relationships
As described above, Stephen Fletcher is the son of the Company’s former Chairman and the brother-in-law of the Company Chief Executive Officer, Jeffrey O’Hara.
Corporate Governance and Board Meetings
The Board is responsible for supervision of the overall affairs of the Company. The Board held four meetings during the fiscal year 2016, and each of the nominee directors attended all of the meetings. The Company expects directors to attend all Board, committee, and shareholder meetings. Three of the directors, Messrs. Leon, Rice and Walker, are independent under the Rules of the NYSE-MKT.
Robert H. Walker was elected Chairman of the Board by the directors at their April 13, 2011 meeting of the Board upon the passing of Harold K. Fletcher who had been Chief Executive Officer and Chairman of the Board since 1982. Jeffrey C. O’Hara was elected the Chief Executive Officer in December 2010.
The Board and, separately, the Audit Committee review and provide oversight of risks and potential risks involving the Company’s operations. The Board reviews and evaluates the process used to assess major risks facing the company and to periodically review assessments prepared by senior management of such risks, as well as options for their mitigation. Frequent interaction between the directors and members of senior management assists in this effort. The Board regularly reviews information regarding our liquidity and operations, as well as the risks associated with each. The Audit Committee is responsible for overseeing the management of financial and accounting risks. The Compensation Committee is responsible for overseeing the management of risk-taking relating to executive compensation plans and arrangements.
To assist it in carrying out its duties, the Board has delegated certain authority to committees. The Board has established standing Audit and Compensation Committees, and has delegated nominating responsibility to the three directors who are independent under the Rules of the NYSE MKT (“NYSE MKT Rules”). Our Audit and Compensation Committees consist of only independent, non-employee directors.
Item 10. Directors, Executive Officers and Corporate Governance (continued)
Audit Committee
The Board established a separately designated standing Audit Committee in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934 and of the Rules of the NYSE MKT. The Audit Committee is comprised of Messrs. Walker (Chairman), Leon, and Rice. Messrs. Walker, Leon, and Rice are independent, as that term is defined under the Securities Exchange Act of 1934, and Mr. Walker is a financial expert as defined in the rules promulgated by the SEC pursuant to that Act. Mr. Walker served as director and Executive Vice President of Robotic Vision Systems, Inc., a reporting company, and as its principal financial officer for over 15 years.
The Audit Committee reviews the Company’s financial statements, and oversees the Company’s accounting, audits, internal controls, and adherence to its Business Conduct Guidelines. The Committee also appoints and recommends to the Board the Company’s independent registered public accounting firm and reviews, evaluates, and approves the independent registered public accountants’ compensation, services performed, and procedures for ensuring its independence with respect to the Company. The Board has adopted a written charter for the Audit Committee, a copy of which is annexed as Exhibit A.
During fiscal 2016, all three members of the Audit Committee attended all four (4) of the Audit Committee meetings. In the opinion of the Board, and as defined under NYSE MKT Rules, Messrs. Walker, Leon and Rice are independent of management and free of any relationship which might interfere with their exercise of independent judgment as members of this committee.
The Audit Committee has: (i) reviewed and discussed with management, and with BDO USA, LLP, (the “Auditors”) the Company’s audited financial statements for the fiscal year ended March 31, 2016; (ii) discussed with the Auditors the matters required to be discussed by PCAOB Standard 16, as amended, as adopted by the Public Company Accounting Oversight Board; (iii) received the written disclosures and the letter from the Auditors required by applicable requirements of the Public Company Accounting Oversight Board regarding the Auditors’ communications with the Audit Committee concerning independence; and (iv) discussed with the Auditors their independence from the Company. The Audit Committee has also discussed with management of the Company and the Auditors such other matters and received such assurances from them as it deemed appropriate. The Audit Committee meets regularly with management and the Auditors, and then with the Auditors without management present, to discuss the result of the Auditors examination, the evaluation of the Company’s internal control over financial reporting and the overall quality of the Company’s accounting.
Compensation Committee
The Compensation Committee, consisting of George J. Leon, Chairman, Robert A. Rice and Robert H. Walker, is responsible for (1) reviewing and evaluating employee stock and other compensation programs and plans, (2) determining the compensation of the Chief Executive Officer, and (3) approving compensation arrangements, including keyman incentive compensation and stock option grants, for management and other employees. The Board created the Compensation Committee by resolution giving it the foregoing authority.
The Compensation Committee met once during the 2015 fiscal year; Messrs. Leon, Rice and Walker attended the meeting. Messrs. Leon, Rice and Walker are independent, as defined in the NYSE MKT Rules. See “Executive Compensation” below for a discussion of the Committee’s processes and procedures for reviewing and determining compensation.
Item 10. Directors, Executive Officers and Corporate Governance (continued)
Section 16(a) Beneficial Ownership Reporting Compliance
As of March 31, 2016, the end of the last fiscal year, the Company believes that all officers, directors and 10% beneficial owners, known to the Company, had timely filed required forms reporting beneficial ownership of Company securities, based solely on review of certain reports filed with the Securities and Exchange Commission pursuant to Section 16(a) of the Securities Exchange Act of 1934, as amended, and information furnished to the Company.
Code of Ethics
The Company has had corporate governance standards and policies, regulating officer, director and employee conduct for many years. In fiscal 2004, we reviewed our standards and policies and incorporated them into our Code of Business Conduct, which we believe satisfies the rules promulgated by the SEC and the NYSE MKT. The Board has adopted this written Code of Ethics that applies to all of the Company’s officers and employees, including the Chief Executive Officer and the Principal Accounting Officer. A copy of the Code of Ethics has been previously filed. A copy of the Code of Ethics is available to anyone requesting a copy without cost by writing to the Company, attention Joseph P. Macaluso.
Shareholder Recommendations
There have been no material changes to the Company’s procedures by which shareholders may recommend nominees to the Board of Directors since the Company’s last Annual Report on Form 10-K.
Legal Proceedings
There are no material proceedings to which any director or officer, or any associate of any such director or officer, is a party that is adverse to our Company or any of our subsidiaries or has a material interest adverse to our Company or any of our subsidiaries. No director or executive officer has been a director or executive officer of any business which has filed a bankruptcy petition or had a bankruptcy petition filed against it during the past ten years. No director or executive officer has been convicted of a criminal offense or is the subject of a pending criminal proceeding during the past ten years. No director or executive officer has been the subject of any order, judgment or decree of any court permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities during the past ten years. No director or officer has been found by a court to have violated a federal or state securities or commodities law during the past ten years.
The following table presents information regarding compensation of our principal executive officer, and the two most highly compensated executive officers other than the principal executive officer for services rendered during fiscal years 2016 and 2015.
Summary Compensation Table
|
Name and Principal Position
|
Fiscal Year
|
Salary ($) (1)
|
Incentive ($) (2)
|
Option Awards ($) (3)
|
All Other Compensation ($) (4)
|
Total ($)
|
||||||||||||||||
|
|
|
|||||||||||||||||||||
|
Jeffrey C. O’Hara, CEO President
|
2016
|
175,000
|
64,909
|
47,150
|
19,578
|
306,637
|
||||||||||||||||
| 2015 |
160,000
|
- | - |
19,877
|
179,877
|
|||||||||||||||||
|
|
|
|||||||||||||||||||||
|
Michael Schirmer, Vice President of Operations (5)
|
2016
|
167,500
|
64,909
|
23,575
|
19,488
|
275,472
|
||||||||||||||||
| 2015 |
140,000
|
- |
21,973
|
9,509
|
171,482
|
|||||||||||||||||
|
|
|
|||||||||||||||||||||
|
Joseph P. Macaluso PAO
|
2016
|
139,375
|
13,000
|
4,715
|
12,680 |
169,770
|
||||||||||||||||
| 2015 |
137,500
|
- | - |
10,862
|
148,362
|
|||||||||||||||||
| (1) | The amounts shown in this column represent the dollar value of base cash salary earned by each named executive officer (“NEO”). |
| (2) | Incentive compensation for 2016 is pending Board approval. No incentive compensation was made to the NEO’s in 2015, and therefore no amounts are shown. |
| (3) | Amounts in this column represent the fair value required by ASC Topic 718 to be included in our financial statements for all options granted during that year (see Note 15 to Notes to the Consolidated Financial Statements). |
| (4) | The amounts shown in this column represent amounts for medical and life insurance as well as the Company’s match in the 401(k) Plan. |
Item 11. Executive Compensation (continued)
Grants of Plan-based Awards Table for Fiscal Year
The following table sets forth information on stock options granted during or for the 2016 fiscal year to our named executive officers:
|
Name
|
Approval Date
|
Grant Date
|
All Other Option Awards:
Number of Shares of Stock (#)
|
Exercise or Base Price of
Option Awards ($/Share)
|
Grant date Fair Value of
Option Awards ($)
|
|||||||||||
|
Jeffrey C. O’Hara
|
04/28/15
|
04/28/15
|
20,000
|
$
|
5.85
|
$
|
47,150
|
|||||||||
|
Michael Schirmer
|
04/28/15
|
04/28/15
|
10,000
|
$
|
5.85
|
$
|
23,575
|
|||||||||
|
Joseph P. Macaluso
|
04/28/15
|
04/28/15
|
2,000
|
$
|
5.85
|
$
|
4,715
|
|||||||||
The exercise price of the options granted was the fair market value at the date of grant of the shares underlying such options. The estimated fair value of the shares underlying such options was determined utilizing the methodology described in Note 15 of the notes to the consolidated financial statements.
Outstanding Equity Awards at Fiscal Year End
The following table sets forth the outstanding stock option grants held by named executive officers at the end of the 2016 fiscal year. The option exercise price set forth in the table is based on the closing market price on the date of grant.
|
Name
|
Number of Securities Underlying Unexercised Options (#)
Exercisable
|
Number of Securities Underlying Unexercised Options (#)
Unexercisable (1)
|
Option Exercise Price ($)
|
Option Expiration Date
|
|||||||||
|
|
|
||||||||||||
|
Joseph P. Macaluso
|
4,000
|
-
|
$
|
6.59
|
12/14/16
|
||||||||
|
-
|
2,000
|
$
|
5.85
|
4/28/20
|
|||||||||
|
|
|
||||||||||||
|
Jeffrey C. O’Hara
|
-
|
20,000
|
$
|
5.85
|
4/28/20
|
||||||||
|
|
|
||||||||||||
|
Michael Schirmer
|
10,000
|
-
|
$
|
4.22
|
11/01/18
|
||||||||
|
2,000
|
8,000
|
$
|
5.14
|
5/05/19
|
|||||||||
|
-
|
10,000
|
$
|
5.85
|
4/28/20
|
|||||||||
(1) Options are exercisable, on a cumulative basis, 20% at or after each of the first, second, and third anniversary of the grant and 40% after the fourth year anniversary.
Employment Contracts and Termination of Employment and Change-in-Control
Except for Mr. Schirmer’s agreement (disclosed above), there are no employment contracts, compensatory plans or arrangements, including payments to be received from the Company with respect to any executive officer of Tel which would in any way result in payments to any such person because of his or her resignation, retirement or other termination of employment with the Company, any change in control of the Company or a change in the person's responsibilities following a change in control of the Company.
Options Exercised and Stock Vested During Fiscal Year 2016
No shares were acquired upon exercising options awards by our NEO’s during fiscal year 2016.
Options granted to NEOs are consistent with the terms of options granted to other employees pursuant to the Employee Stock Option Plans (see Note 15 of the Notes to the Consolidated Financial Statements). Options granted to NEOs may be tax sheltered to the grantee, and their value constitutes a charge to the Company (see Notes 2 and 14 to the Consolidated Financial Statements).
Item 11. Executive Compensation (continued)
Incentive Plan
The Company has a key man incentive compensation program. Each year the Compensation Committee determines a percentage of operating profits to be distributed among senior employees, including NEOs. The percentage determined is based on the general performance of the Company, and the amount of operating profits available for shareholders and for reinvestment in the business. This element of compensation provides an incentive for short-term performance.
The percentage of operating profits so determined is then distributed to senior employees, including NEOs and to a category entitled "incentive", based on (a) the amount of the employee's base salary, (b) his contribution to the Company, (c) the results of that contribution, (d) an estimated amount of his "special effort" on behalf of the Company, (e) his technical expertise, leadership, and management skills, and (f) the level of the overall compensation paid employees performing similar work in competitive companies. For the year ended March 31, 2016, the CEO is expected to receive $64,909, COO will receive $64,909, and the PAO will receive $13,000. No incentive awards were made to the NEOs for the year ended March 31, 2015.
Other Benefits
The Company sponsors the Tel-Instrument Electronics Corp. 401(k) Plan (the “401k Plan”), a tax qualified Code Section 401(k) retirement savings plan, for the benefit of its employees, including its NEOs. The 401k Plan encourages savings for retirement by enabling participants to make contributions on a pre-tax basis and to defer taxation on earnings on funds contributed to the 401k Plan. The Company makes matching contributions to the Plan. All NEOs can make contributions to the 401k Plan. The NEOs also participate in group health and life benefits generally on the same terms and conditions that apply to other employees.
Director Compensation
Directors who are not employees or officers of the Company receive $1,250 in cash and options, at the then market price, to purchase 1,000 shares of Common Stock for attendance at each in-person meeting and $625 in cash and options to purchase 500 shares of Common Stock for attendance at each formal telephonic meeting of the Board or of a standing committee. Non-employee directors may elect annually to accept the foregoing compensation or waive the stock option element and receive the $2,500 in cash for attendance at the in-person meeting and $1,250 in cash for each formal telephone meeting. During fiscal year 2016 non-employee directors earned the following compensation pursuant to this plan.
|
Name
|
Cash Compensation
|
Option Awards ($)(1)(2)
|
Total $
|
|||||||||
|
George J. Leon
|
$
|
11,250
|
$
|
-0-
|
$
|
11,250
|
||||||
|
Robert A. Rice
|
$
|
11,250
|
$
|
-0-
|
$
|
11,250
|
||||||
|
Robert H. Walker (3)
|
$
|
11,250
|
$
|
-0-
|
$
|
11,250
|
||||||
|
Stephen A. Fletcher
|
$
|
6,250
|
$
|
-0-
|
$
|
6,250
|
||||||
| (1) | Amounts in this column, if any, represent the fair value required by ASC 718 to be included in our financial statements for all options granted during fiscal year 2015. |
| (2) | The numbers of currently exercisable options are set forth in the footnotes to Item 12 below. |
| (3) | Mr. Walker also receives a monthly stipend of $2,400 for his additional responsibility as Chairman of the Board. |
Compensation Policy
The Company does not believe that its compensation policies are reasonably likely to increase corporate risk or have a material adverse effect on the Company.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth certain information known to the Company with respect to the beneficial ownership as of June 20, 2016, by (i) all persons who are beneficial owners of five percent (5%) or more of the Company’s Common Stock, (ii) each director and nominee, (iii) the executive officers, and (iv) all current directors and executive officers as a group.
|
Name and Address
|
Number of Shares
Beneficially Owned
|
Percentage
of Class (1)
|
||||||
|
|
||||||||
|
Named Directors and Officers
|
||||||||
|
|
||||||||
|
Stephen A. Fletcher, Director
|
-0-
|
(2) |
0
|
%
|
||||
|
7378 E. Main Street
|
||||||||
|
Lima, NY 14485
|
||||||||
|
|
||||||||
|
George J. Leon, Director
|
455,971
|
(3) |
14.0
|
%
|
||||
|
168 Redpath Avenue
|
||||||||
|
Toronto, Ontario, Canada M4P 2K6
|
||||||||
|
|
||||||||
|
Jeffrey C. O’Hara, Director
|
241,156
|
(4) |
7.4
|
%
|
||||
|
853 Turnbridge Circle
|
||||||||
|
Naperville, IL 60540
|
||||||||
|
|
||||||||
|
Robert A. Rice, Director
|
113,404
|
3.5
|
%
|
|||||
|
5 Roundabout Lane
|
||||||||
|
Cape Elizabeth, ME 04107
|
||||||||
|
|
||||||||
|
Robert H. Walker, Director
|
75,053
|
2.3
|
%
|
|||||
|
27 Vantage Court
|
||||||||
|
Port Jefferson, NY 11777
|
||||||||
|
|
||||||||
|
Michael Schirmer
|
16,000
|
(5) |
0.5
|
%
|
||||
|
14 Turnberry Lane
|
||||||||
|
Pittsford, NY 14534
|
||||||||
|
|
||||||||
|
Joseph P. Macaluso, PAO
|
27,913
|
(6) |
0.9
|
%
|
||||
|
167 Tennis Court
|
||||||||
|
Wall Township, NJ 07719
|
||||||||
|
|
||||||||
|
All officers and directors as a group (6 persons)
|
929,497
|
(7) |
28.3
|
%
|
||||
|
|
||||||||
|
Mrs. Sadie Fletcher
|
656,907
|
(8) |
20.2
|
%
|
||||
|
657 Downing Lane
|
||||||||
|
Williamsville, NY 14221
|
||||||||
|
|
||||||||
|
Vincent J. Dowling, Jr.
|
285,400
|
(9) |
8.8
|
%
|
||||
|
54 Ledyard Road
|
||||||||
|
West Hartford, CT 06117
|
||||||||
|
|
||||||||
|
All officers, directors and 5% holders as a group (8 persons)
|
1,871,804
|
57.0
|
%
|
|||||
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters (continued)
|
(1)
|
The class includes 3,256,887 shares outstanding in the calculation of the percentage of shares owned by a party. The Common Stock deemed to be owned by the named party includes stock which is not outstanding but subject to currently exercisable options held by the individual named in accordance with Rule 13d-3(d)c) of the Exchange Act. The foregoing information is based on reports made by the named individuals.
|
|
(2)
|
Mr. Stephen A. Fletcher is the son of Mr. Harold K. Fletcher, former Chief Executive Officer and director of the Company. Mr. Stephen A. Fletcher is the son of Mrs. Sadie Fletcher who beneficially owns 656,907 shares by virtue of the Estate of Harold K. Fletcher. Mr. Fletcher disclaims beneficial ownership of the shares owned by the Estate of Harold K. Fletcher.
|
|
(3)
|
Includes 423,621 shares owned by the George Leon Family Trust, of which Mr. Leon is a beneficiary. Mr. Leon acts as manager of the trust assets pursuant to an informal family, oral arrangement, and disclaims beneficial ownership of the shares owned by the trust.
|
|
(4)
|
Includes 4,000 shares subject to currently exercisable stock options owned by Mr. O’Hara.
|
|
(5)
|
Includes 16,000 shares subject to currently exercisable stock options owned by Mr. Schirmer.
|
|
(6)
|
Includes 4,400 shares subject to currently exercisable stock options owned by Mr. Macaluso.
|
|
(7)
|
Includes 24,400 shares subject to currently exercisable options held by all executive officers and directors of the Company (including those individually named above).
|
|
(8)
|
Represents 656,907 shares owned by the Estate of Harold K. Fletcher, former Chief Executive Officer and director of the Company. Mrs. Fletcher is the mother of Stephen A. Fletcher, a director of the Company.
|
|
(9)
|
Based on Schedule 13G filed with the SEC on February 11, 2015 and furnished to the Company.
|
Equity Compensation Plan Information
In March 2006, the Board adopted the 2006 Stock Option Plan (the “Plan”) which reserved for issuance options to purchase up to 250,000 shares of its Common Stock. The stockholders approved the Plan at the December 2006 annual meeting. The Plan, which had a term of ten years from the date of adoption, is administered by the Board or by a committee appointed by the Board. The selection of participants, allotment of shares, and other conditions related to the grant of options, to the extent not set forth in the Plan, are determined by the Board. Options granted under the Plan are exercisable up to a period of 5 years from the date of grant at an exercise price which is not less than the fair market value of the Common Stock at the date of grant, except as to a stockholder owning 10% or more of the outstanding Common Stock of the Company, as to whom the exercise price must not be less than 110% of the fair market value of the Common Stock at the date of grant. Options are exercisable, on a cumulative basis, 20% at or after each of the first, second, and third anniversary of the grant and 40% after the fourth year anniversary.
Additionally, at March 31, 2016 the Company had an individual employment agreement with one individual which provides for the grant of 10,000 options to purchase Common Stock with an exercise price of $5.14 per share. This employee contract has been approved by the Board, and was included as consideration for employment, but was not individually approved by shareholders. Since these options were granted under the Plan, they are included in the 85,000 shares in the second column of the following schedule.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters (continued)
Equity Compensation Plan Information (continued)
The following table provides information as of March 31, 2016 regarding compensation plans under which equity securities of the Company are authorized for issuance.
|
Plan category
|
Number of securities to be issued upon exercise of outstanding options
|
Weighted average exercise price of outstanding options
|
Number of options remaining available for future issuance under Equity Compensation Plans
|
|||||||||
|
Equity Compensation Plans approved by shareholders
|
85,000
|
$
|
5.33
|
--
|
||||||||
|
Equity Compensation Plans not approved by shareholders
|
--
|
--
|
--
|
|||||||||
|
Total
|
85,000
|
$
|
5.33
|
--
|
||||||||
* See discussion above and Note 14 of Notes to the Consolidated Financial Statements.
On February 22, 2010, the Company borrowed $250,000 in exchange for issuing subordinated notes to two executive officers and directors in the amount of $125,000 (individually, the “Subordinated Note” and collectively, the “Subordinated Notes”). Each officer and director also received 5,000 options to purchase Common Stock at an exercise price of $8.00 per share, the market price at the date of grant. In September 2010, these officers/directors entered into an Intercreditor and Subordination Agreement which subordinated their loans to the BCA Loan Agreement (see Note 10 to Notes to Consolidated Financial Statements). The notes were to become due April 1, 2011 with an interest rate of 1% per month, payable on a monthly basis within 14 days of the end of each month. The Intercreditor and Subordination Agreement amongst the parties precludes the payment of principal or interest under these subordinated notes unless and until the Senior Obligations (as defined in the Intercreditor and Subordination Agreement) have been paid in full or without the express written consent of Senior Lender. The holders of Subordinated Notes agreed that the Company’s failure to pay the monthly interest amounts pursuant to the terms of the February 22, 2010 Subordinated Notes will not constitute an event of default on such notes if the Company is precluded from making these payments pursuant to the limitations included in the loan agreement with BCA Mezzanine Fund L.L.P. (“BCA”). Upon payment in full of the loan to BCA in November 2014, the Company was able to pay down the Subordinated Notes. During fiscal year 2012, the Company’s Chairman, at the time, passed away. His surviving spouse has retained this Subordinated Note and continues to acknowledge the terms. During the fiscal year ended March 31, 2016, the Company repaid $225,000 of the Subordinated Notes. The outstanding balances at March 31, 2016 and 2015 were $25,000 and $250,000, respectively. Total interest expense was $42,966 and $47,312 for the years ended March 31, 2016 and 2015, respectively. Accrued interest at March 31, 2016 and 2015 was $107,237 and $85,174, respectively.
The Company has obtained marketing and sales from a brother-in-law of the Company’s CEO with the related fees and commissions amounting to $107,980 and $100,480 for the years ended March 31, 2016 and 2015, respectively.
Director Independence
The Common Stock is currently quoted on the NYSE - MKT. On an annual basis, each director and executive officer will be obligated to disclose any transactions with the Company in which a director or executive officer, or any member of his or her immediate family, have a direct or indirect material interest in accordance with Item 407(a) of Regulation S-K. Following completion of these disclosures, the Board will make an annual determination as to the independence of each director pursuant to the Rules of the NYSE MKT.
As of June 22, 2016, the Board determined that the following directors are independent under these standards:
Robert Walker, George Leon and Robert Rice.
For the fiscal years ended March 31, 2016 and 2015, professional services were performed by BDO USA, LLP, the Company’s independent registered public accountant. Fees for those years were as follows:
|
|
2016
|
2015
|
||||||
|
|
||||||||
|
Audit Fees
|
$
|
140,800
|
$
|
120,350
|
||||
|
Audit-Related Fees
|
-
|
-
|
||||||
|
Total Audit and Audit-Related Fees
|
140,800
|
120,350
|
||||||
|
Tax Fees
|
-
|
-
|
||||||
|
All Other Fees
|
-
|
-
|
||||||
|
|
||||||||
|
Total
|
$
|
140,800
|
$
|
120,350
|
||||
Audit Fees. This category includes the audit of the Company’s consolidated financial statements and reviews of the financial statements included in the Company’s Quarterly Reports on Form 10-Q. It also includes advice on accounting matters that arose during, or as a result of, the audit or the review of interim financial statements, and services which are normally provided in connection with regulatory filings, or in an auditing engagement.
Audit Related Fees, tax and other fees. No fees under these categories were paid to BDO USA, LLP in 2016 and 2015.
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditor
The Audit Committee has established a policy which requires it to pre-approve all audit and permissible non-audit services, including audit-related and tax services, if any, to be provided by the independent auditor. Pre-approval is generally provided for up to one year and is detailed as to the particular service or category of service to be performed, and is subject to a detailed budget. The auditor and management are required to report periodically to the Audit Committee regarding the extent of services performed and the amount of fees paid to date, in accordance with the pre-approval.
PART IV
a.) The following documents are filed as a part of this report:
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|
Pages
|
|
Financial Statements:
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|
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
23 |
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|
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|
Consolidated Balance Sheets - March 31, 2016 and 2015
|
24 |
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|
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Consolidated Statements of Operations - Years Ended March 31, 2016 and 2015
|
25 |
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|
|
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Consolidated Statements of Changes in Stockholders' Equity - Years Ended March 31, 2016 and 2015
|
26 |
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Consolidated Statements of Cash Flows - Years Ended March 31, 2016 and 2015
|
27 |
|
|
|
|
Notes to Consolidated Financial Statements
|
28 |
Item 15. Exhibits and Financial Statement Schedules (continued)
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.
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|
*
|
(3.2)
|
Tel-Instrument Electronics Corp.'s By-Laws, as amended.
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*
|
(3.3)
|
Tel-Instrument Electronics Corp.'s Restated Certificate of Incorporation dated November 8, 1996.
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*
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(4.1)
|
Specimen of Tel-Instrument Electronics Corp.'s Common Stock Certificate.
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*
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(10.2)
|
10% convertible subordinated note between Registrant and Harold K. Fletcher.
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|
*
|
(10.3)
|
Purchase agreement between Registrant and Innerspace Technology
|
|
*
|
(10.4)
|
Agreement between Registrant and Semaphore Capital Advisors, LLC
|
|
*
|
(10.5)
|
2006 Stock Option Plan
|
|
*
|
(10.6)
|
Subordinated Note Between Registrant and Harold K. Fletcher
|
|
*
|
(10.7)
|
Subordinated Note Between Registrant and Jeffrey C. O’Hara
|
|
*
|
(10.8)
|
Shareholder Purchase Agreement between the Registrant and Harold K. Fletcher
|
|
*
|
(10.9)
|
Shareholder Purchase Agreement between the Registrant and Jeffrey C. O’Hara
|
|
*
|
(10.10)
|
Shareholder Purchase Agreement between the Registrant and George Leon
|
|
*
|
(10.11)
|
Loan Agreement with BCA Mezzanine Fund, LLP and Amendments 1-3
|
|
*
|
(10.12)
|
Intercreditor and Subordination Agreement among Harold. K. Fletcher, Jeffrey C. O’Hara and BCA Mezzanine Fund, LLP.
|
|
*
|
(10.13)
|
Subscription Agreement between Registrant and Subscriber, dated November 8, 2012
|
|
*
|
(10.14)
|
Loan Agreement with Bank of America
|
|
|
(23.1)
|
|
|
|
(31.1)
|
|
|
|
(31.2)
|
|
|
|
(32.1)
|
|
|
|
(32.2)
|
|
|
|
101.INS
|
XBRL Instance Document
|
|
|
101.SCH
|
Taxonomy Extension Schema Document
|
|
|
101.CAL
|
Taxonomy Extension Calculation Linkbase Document
|
|
|
101.DEF
|
Taxonomy Extension Definition Linkbase Document
|
|
|
101.LAB
|
Taxonomy Extension Label Linkbase Document
|
|
|
101.PRE
|
Taxonomy Extension Presentation Linkbase Document
|
| * | Incorporated by reference to previously filed documents. |
The Company will furnish to a stockholder, upon request, any exhibit at cost.
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)
|
|
|
|
|
|
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|
|
Dated: June 29, 2016
|
By:
|
/s/ Jeffrey C. O’Hara
|
|
|
|
|
Jeffrey C. O’Hara
|
|
|
|
|
CEO 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/ Jeffrey C. O’Hara
|
|
CEO, President, and Director
|
|
June 29, 2016
|
|
|
Jeffrey C. O’Hara
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Joseph P. Macaluso
|
|
Principal Accounting Officer
|
|
June 29, 2016
|
|
|
Joseph P. Macaluso
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Stephen A. Fletcher
|
|
Director
|
|
June 29, 2016
|
|
|
Stephen A. Fletcher
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ George J. Leon
|
|
Director
|
|
June 29, 2016
|
|
|
George J. Leon
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Robert A. Rice
|
|
Director
|
|
June 29, 2016
|
|
|
Robert A. Rice
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Robert H. Walker
|
|
Chairman of the Board, Director
|
|
June 29, 2016
|
|
|
Robert H. Walker
|
|
|
|
|
62