UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2008
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 33-18978
TEL-INSTRUMENT ELECTRONICS CORP.
----------------------------------------------------
(Exact name of the Registrant as specified in Charter)
New Jersey 22-1441806
---------------------- -------------------------
(State of Incorporation) (I.R.S. Employer ID Number)
728 Garden Street, Carlstadt, New Jersey 07072
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone No. including Area Code: 201-933-1600
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, non-accelerated filer, or a smaller reporting company. See
definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of
the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check if a 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 X
----- -----
Indicate the number of shares outstanding of the issuer's common stock, as of
the latest practical date:
2,448,261 shares of Common stock, $.10 par value as of November 7, 2008.
TEL-INSTRUMENT ELECTRONICS CORPORATION
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TABLE OF CONTENTS
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PAGE
Part I - Financial Information
Item 1. Condensed Consolidated Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets
September 30, 2008 and March 31, 2008 (Audited) 1
Condensed Consolidated Statements of Operations -
Three and Six Months Ended September 30, 2008 and 2007 2
Condensed Consolidated Statements of Cash Flows -
Six Months Ended September 30, 2008 and 2007 3
Notes to Condensed Consolidated Financial Statements 4-11
Item 2. Management's Discussion and Analysis of the Results of
Operations and Financial Condition 12-18
Item 4 (T). Controls and Procedures 19
Part II - Other Information
Item 1. Legal Proceedings 19
Item 2. Unregistered sales of Equity Securities and Use of Proceeds 19
Item 6. Exhibits 19
Signatures 19
Certifications
i
Item 1 - Financial Statements
TEL-INSTRUMENT ELECTRONICS CORPORATION
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CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
ASSETS September 30, March 31,
2008 2008
(Unaudited)
Current assets:
Cash and cash equivalents $ 478,673 $ 469,906
Accounts receivable, net 2,375,052 1,223,753
Unbilled government receivables 1,277,073 1,100,323
Inventories, net 2,232,113 2,075,542
Prepaid expenses and other current assets 57,003 141,446
Deferred income taxes 229,079 531,975
----------- -----------
Total current assets 6,648,993 5,542,945
Property, plant and equipment, net 473,286 532,240
Deferred income taxes - non-current 900,221 900,221
Other assets 75,325 142,069
Total assets $ 8,097,825 $ 7,117,475
----------- -----------
LIABILITIES & STOCKHOLDERS EQUITY
Current liabilities:
Convertible note payable - related party $ 50,000 $ 50,000
Line of credit 450,000 350,000
Accounts payable 870,602 928,367
Deferred revenues 59,931 55,014
Accrued payroll, vacation pay, and payroll taxes 322,225 348,683
Accrued expenses 1,579,406 1,129,370
----------- -----------
Total current liabilities 3,332,164 2,861,434
Deferred revenues 49,230 43,818
----------- -----------
Total liabilities 3,381,394 2,905,252
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Commitments
Stockholders' equity:
Common stock, par value $.10 per share, 2,448,261 and
2,428,261 issued and outstanding as of September 30,
2008, and March 31, 2008, respectively 244,826 242,826
Additional paid-in capital 4,679,808 4,611,262
Accumulated deficit (208,203) (641,865)
----------- -----------
Total stockholders' equity 4,716,431 4,212,223
----------- -----------
Total liabilities and stockholders' equity $ 8,097,825 $ 7,117,475
=========== ===========
See accompany notes to condensed consolidated financial statements
- 1 -
TEL-INSTRUMENT ELECTRONICS CORPORATION
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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(Unaudited)
Three Months Ended Six Months Ended
------------------ ----------------
September 30, September 30, September 30, September 30,
------------- ------------- ------------- -------------
2008 2007 2008 2007
---- ---- ---- ----
Net sales $ 3,855,121 $ 2,844,692 $ 7,407,096 $ 5,800,431
Cost of sales 1,715,634 1,611,483 3,778,680 3,353,920
----------- ----------- ----------- -----------
Gross margin 2,139,487 1,233,209 3,628,416 2,446,511
Operating expenses:
Selling, general and administrative 763,784 613,488 1,472,142 1,169,475
Engineering, research and development 713,853 617,537 1,449,004 1,390,284
----------- ----------- ----------- -----------
Total operating expenses 1,477,637 1,231,025 2,921,146 2,559,759
----------- ----------- ----------- -----------
Income (loss) from continuing operations 661,850 2,184 707,270 (113,248)
Interest income (expense):
Interest income 1,683 6,525 2,073 9,686
Interest expense (13,336) (10,799) (24,855) (19,745)
----------- ----------- ----------- -----------
Income (loss) from continuing operations
before income taxes 650,197 (2,090) 684,488 (123,307)
Income tax provision (benefit) 304,365 (835) 318,065 (50,310)
----------- ----------- ----------- -----------
Net income (loss) from continuing
operations, net of income taxes 345,832 (1,255) 366,423 (72,997)
Income (loss) from discontinued operations,
net of income taxes 44,819 (21,862) 67,239 (33,494)
----------- ----------- ----------- -----------
Net income (loss) $ 390,651 $ (23,117) $ 433,662 $ (106,491)
=========== =========== =========== ===========
Income (loss) from continuing operations,
net of income taxes:
Basic income (loss) per common share $ 0.14 $ 0.00 $ 0.15 $ (0.03)
=========== =========== =========== ===========
Diluted income (loss) per common share $ 0.14 $ 0.00 $ 0.15 $ (0.03)
=========== =========== =========== ===========
Income (loss) from discontinued operations,
net of income taxes:
Basic income (loss) per common share $ 0.02 $ (0.01) $ 0.03 $ (0.02)
=========== =========== =========== ===========
Diluted income (loss) per common share $ 0.02 $ (0.01) $ 0.03 $ (0.02)
=========== =========== =========== ===========
Net Income (loss):
Basic income (loss) per common share $ 0.16 $ (0.01) $ 0.18 $ (0.05)
=========== =========== =========== ===========
Diluted income (loss) per common share $ 0.16 $ (0.01) $ 0.17 $ (0.05)
=========== =========== =========== ===========
Weighted average shares outstanding:
Basic 2,445,511 2,362,331 2,439,547 2,353,545
Diluted 2,512,068 2,362,331 2,506,104 2,353,545
See accompanying notes to condensed consolidated financial statements
- 2 -
TEL-INSTTRUMENT ELECTRONICS CORP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
Sept. 30, Sept. 30,
2008 2007
---- ----
Cash flows from operating activities:
Net income (loss) $ 433,662 $ (106,491)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Deferred income taxes 302,896 (73,614)
Non-cash stock-based compensation 24,766 16,492
Depreciation 93,912 119,616
Changes in operating assets or liabilities:
Increase in accounts receivable (1,151,299) (871,396)
Increase in unbilled government receivables (176,750) (766,965)
(Increase) decrease in inventories, net (133,799) 272,056
Decrease (increase) in prepaid expenses and
other current assets 84,443 (14,490)
Increase in other assets (834) (3,314)
(Decrease) increase in accounts payable (57,765) 436,474
Increase (decrease) in deferred revenues 10,329 (2,890)
Decrease in accrued payroll, vacation pay,
and payroll taxes (26,458) (21,652)
Increase in accrued
expenses 450,036 206,059
----------- -----------
Net cash used in operating activities (146,861) (810,115)
Cash flows from investing activities:
Purchases of property, plant and equipment (57,730) (39,586)
----------- -----------
Net cash used in investing activities (57,730) (39,586)
----------- -----------
Cash flows from financing activities:
Proceeds from exercise of stock options 45,780 87,600
Proceeds from loan on life insurance policy 67,578 --
Proceeds from borrowings from line of credit, net 100,000 350,000
----------- -----------
Net cash provided by financing activities 213,358 437,600
----------- -----------
Net increase (decrease) in cash and cash equivalents 8,767 (412,101)
Cash and cash equivalents at beginning of period 469,906 655,836
----------- -----------
Cash and cash equivalents at end of period $ 478,673 $ 243,735
=========== ===========
Supplemental information
Interest paid $ 14,418 $ 15,542
=========== ===========
Taxes paid 15,290 $ --
=========== ===========
See accompanying notes to condensed consolidated financial statements
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TEL-INSTRUMENT ELECTRONICS CORP.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
Note 1 Basis of Presentation
------ ---------------------
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments (consisting primarily of normal
recurring accruals) necessary to present fairly the financial position of
Tel-Instrument Electronics Corp, and its marine systems subsidiary whose
operations were discontinued at March 31, 2008, as of September 30, 2008, the
results of operations for the three and six months ended September 30, 2008 and
September 30, 2007, and statements of cash flows for the six months ended
September 30, 2008 and September 30, 2007. These results are not necessarily
indicative of the results to be expected for the full year.
The financial statements have been prepared in accordance with the requirements
of Form 10-Q and consequently do not include disclosures normally made in an
Annual Report on Form 10-K. The March 31, 2008 results included herein have been
derived from the audited financial statements included in the Company's annual
report on Form 10-K as of that date. Accordingly, the financial statements
included herein should be reviewed in conjunction with the consolidated
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the fiscal year ended March 31, 2008.
Note 2 Revenue Recognition - Percentage-of-Completion - ITATS
------ ------------------------------------------------------
Due to the unique nature of the ITATS program wherein a significant portion of
this contract will not be delivered for over a year, revenues under this
contract are recognized on a percentage-of-completion basis, which recognizes
sales and profit as they are earned, rather than at the time of shipment.
Revenues and profits are estimated using the cost-to-cost method of accounting
where revenues are recognized and profits recorded based upon the ratio of costs
incurred to estimate of total costs at completion. The ratio of costs incurred
to date to the estimate of total costs at completion is applied to the contract
value to determine the revenues and profits. When adjustments in estimated
contract revenues or estimated costs at completion are required, any changes
from prior estimates are recognized by recording adjustments in the current
period for the inception-to-date effect of the changes on current and prior
periods. The Company also receives progress billings on this program, which is a
funding mechanism by the government to assist contractors on long-term contracts
prior to delivery. (See Note 4 and Critical Accounting Policies - Revenue
Recognition)
Note 3 Accounts Receivable, net
------ ------------------------
Accounts receivable, net, consist of:
September 30, 2008 March 31, 2008
------------------ --------------
Commercial $ 479,153 $ 647,063
Government 1,927,105 607,896
Allowance for doubtful accounts (31,206) (31,206)
------------- ------------
Total $ 2,375,052 $ 1,223,753
============= ============
Note 4 Unbilled Government Receivables
------ -------------------------------
Unbilled government receivables represent unbilled costs and accrued profits
primarily related to revenues on long-term contracts that have been recognized
on a percentage-of-completion basis for accounting purposes, but not yet billed
to customers. As revenues are recognized, performance-based payments and
progress payments are charged as an offset to the related receivables balance.
- 4 -
TEL-INSTRUMENT ELECTRONICS CORP.
--------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
----------------------------------------------------------------
Note 5 Inventories, net
------ ----------------
Inventories, net, consist of:
September 30, 2008 March 31, 2008
------------------ --------------
Purchased parts $ 1,296,697 $ 1,246,733
Work-in-process 1,216,952 881,472
Finished goods 44,863 224,284
Less: Reserve for obsolescence (326,399) (276,947)
----------- -----------
Total $ 2,232,113 $ 2,075,542
=========== ===========
Note: Inventories over one year immaterial.
Note 6 Earnings Per Share
------ ------------------
SFAS No. 128, "Earnings Per Share" requires presentation of basic earnings per
share ("basic EPS") and diluted earnings per share ("diluted EPS").
The Company's basic income (loss) per common share is based on net income (loss)
for the relevant period, divided by the weighted average number of common shares
outstanding during the period. Diluted income (loss) per common share is based
on net income (loss), divided by the weighted average number of common shares
outstanding during the period, including common share equivalents, such as
outstanding stock options. Diluted loss per share for the periods ended
September 30, 2007 do not include common stock equivalents, as these equivalents
would be anti-dilutive.
Three Months Ended Three Months Ended
------------------ ------------------
September 30, 2008 September 30, 2007
------------------ ------------------
Basic net income (loss) per share computation:
Net income (loss) attributable to common stockholders $ 390,651 $ (23,117)
Weighted-average common shares outstanding 2,445,511 2,362,331
Basic net income(loss) per share attributable to common stockholders $ 0.16 $ (0.01)
Diluted net income (loss) per share computation
Net income(loss) attributable to common stockholders $ 390,651 $ (23,117)
Weighted-average common shares outstanding 2,445,511 2,362,331
Incremental shares attributable to the assumed exercise of
Outstanding stock options 66,557 --
Total adjusted weighted-average shares 2,512,068 2,362,331
Diluted net income(loss) per share attributable to common stockholders $ 0.16 $ (0.01)
Six Months Ended Six Months Ended
---------------- ----------------
September 30, 2008 September 30, 2007
------------------ ------------------
Basic net income (loss) per share computation:
Net income (loss) attributable to common stockholders $ 433,662 $ (106,491)
Weighted-average common shares outstanding 2,439,547 2,353,545
Basic net income(loss) per share attributable to common stockholders $ 0.18 $ (0.05)
Diluted net income (loss) per share computation
Net income(loss) attributable to common stockholders $ 433,662 $ (106,491)
Weighted-average common shares outstanding 2,439,547 2,353,545
Incremental shares attributable to the assumed exercise of
outstanding stock options 66,557 --
Total adjusted weighted-average shares 2,506,104 2,353,545
Diluted net income(loss) per share attributable to common stockholders $ 0.17 $ (0.05)
- 5 -
TEL-INSTRUMENT ELECTRONICS CORP.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
----------------------------------------------------------------
Note 7 Stock Options
------ -------------
Effective April 1, 2006, the Company adopted Statement of Financial Accounting
Standards No. 123R, "Share-Based Payment" ("SFAS 123R"), utilizing the modified
prospective method. SFAS 123R requires the measurement of stock-based
compensation based on the fair value of the award on the date of grant. Under
the modified prospective method, the provisions of SFAS 123R apply to all awards
granted after the date of adoption. The Company recognizes compensation cost on
awards on a straight-line basis over the vesting period, typically four years.
As a result of adopting SFAS 123(R), operations was charged $12,546 and $8,991
for three months ended September 30, 2008 and 2007, respectively, and $24,766
and $16,492 for the six months ended September 30, 2008 and 2007, respectively.
The Company estimates the fair value of each option using the Black Scholes
option-pricing model with the following weighted-average assumptions: expected
dividend yield of 0.0%, risk-free interest rate of 2.26% to 3.16%, volatility at
37.96% to 39.14%, and an expected life of 5 years for the six months ended
September 30, 2008; expected dividend yield of 0.0%, risk-free interest rate of
3.99% to 5%, volatility at 45.53% to 56.94%, and an expected life of 5 years for
the six months ended September 30, 2007. The Company estimates forfeiture rate
based on historical data. Based on an analysis of historical information, the
Company has applied a forfeiture rate of 15% for both periods.
Note 8 Segment Information
------ -------------------
As a result of the classification of its marine systems division as discontinued
operations in accordance with FAS No. 131, "Disclosures about Segments of an
Enterprise and related information", the Company determined it has two
reportable segments for continuing operations - 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 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. Segment assets include
accounts receivable, unbilled government receivables and inventories. Asset
information, other than accounts receivable, unbilled government receivables and
inventories, is not reported, since the Company does not produce such
information internally. All long-lived assets are located in the U.S.
- 6 -
TEL-INSTRUMENT ELECTRONICS CORP.
--------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
----------------------------------------------------------------
Note 8 Segment Information (continued)
------ -------------------------------
The table below presents information about reportable segments within the
avionics business for the periods ending September 30, 2008 and 2007:
Three Months Ended Avionics Avionics Avionics Corporate
------------------ -------- -------- -------- ---------
September 30, 2008 Gov't Comm'l. Total Items Total
------------------ ----- ------- ----- ----- -----
Net sales $ 3,356,533 $ 498,588 $ 3,855,121 $ 3,855,121
Cost of sales 1,424,221 291,413 1,715,634 1,715,634
----------- ----------- ----------- -----------
Gross margin 1,932,312 207,175 2,139,487 2,139,487
----------- ----------- ----------- -----------
Engineering, research, & dev. 713,853 713,853
Selling, general, and admin. 370,461 $ 393,323 763,784
Interest expense, net 11,653 -- 11,653
----------- ----------- -----------
Total expenses 1,095,967 393,323 1,489,290
----------- ----------- -----------
Income (loss) from continuing
operations before taxes $ 1,043,520 $ (393,323) $ 650,197
=========== =========== ===========
Segment assets $ 5,185,267, $ 698,971 $ 5,884,238 $ 2,213,587 $ 8,097,825
=========== =========== =========== =========== ===========
Three Months Ended Avionics Avionics Avionics Corporate
------------------ -------- -------- -------- ---------
September 30, 2007 Gov't Comm'l. Total Items Total
------------------ ----- ------- ----- ----- -----
Net sales $ 1,984,511 $ 860,161 $ 2,844,692 $ 2,844,692
Cost of sales 1,110,871 500,612 1,611,483 1,611,483
----------- ----------- ----------- -----------
Gross margin 873,640 359,569 1,233,209 1,233,209
----------- ----------- ----------- -----------
Engineering, research, & dev. 617,537 617,537
Selling, general, and admin. 327,715 $ 285,773 613,488
Interest expense, net 4,274 -- 4,274
----------- ----------- -----------
Total expenses 949,526 285,773 1,235,299
----------- ----------- -----------
Income (loss) from continuing
operations before taxes $ 283,683 $ (285,773) $ (2,090)
=========== ============ ===========
Six Months Ended Avionics Avionics Avionics Corporate
---------------- -------- -------- -------- ---------
September 30, 2008 Gov't Comm'l. Total Items Total
------------------ ----- ------- ----- ----- -----
Net sales $ 6,317,129 $ 1,089,967 $ 7,407,096 $ 7,407,096
Cost of sales 3,165,417 613,262 3,778,680 3,778,680
----------- ----------- ----------- -----------
Gross margin 3,151,712 476,705 3,628,416 3,628,416
----------- ----------- ----------- -----------
Engineering, research, & dev. 1,449,004 1,449,004
Selling, general, and admin. 756,025 $ 716,117 1,472,142
Interest expense, net 22,782 -- 22,782
----------- ----------- -----------
Total expenses 2,227,811 716,117 2,943,928
----------- ----------- -----------
Income (loss) from continuing
operations before taxes $ 1,400,605 $ (716,117) $ 684,488
=========== =========== ===========
Six Months Ended Avionics Avionics Avionics Corporate
---------------- -------- -------- -------- ---------
September 30, 2007 Gov't Comm'l. Total Items Total
------------------ ----- ------- ----- ----- -----
Net sales $ 4,044,818 $1,755,613 $ 5,800,431 $ 5,800,431
Cost of sales 2,366,194 987,726 3,353,920 3,353,920
----------- ----------- ----------- -----------
Gross margin 1,678,624 767,887 2,446,511 2,446,511
----------- ----------- ----------- -----------
Engineering, research, & dev. 1,390,284 1,390,284
Selling, general, and admin. 624,710 $ 544,765 1,169,475
Interest income, net 10,059 -- 10,059
----------- ----------- -----------
Total expenses 2,025,053 544,765 2,569,818
----------- ----------- -----------
Income (loss) from continuing
operations before taxes $ 421,458 $ (544,765) $ (123,307)
=========== =========== ===========
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TEL-INSTRUMENT ELECTRONICS CORP.
--------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
----------------------------------------------------------------
Note 9 Income Taxes
------ ------------
The Company adopted the provisions of Financial Accounting Standards Board
("FASB") Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income
Taxes- an Interpretation of FASB Statement No. 109, on April 1, 2007. The
Company has analyzed filing positions in all of the federal and state
jurisdictions where it is required to file income tax returns, as well as all
open tax years in these jurisdictions. The Company did not have any unrecognized
tax benefits and there was no effect on its financial condition or results of
operations as a result of implementing FIN 48.
The tax effect of temporary differences, primarily net operating loss
carryforwards, asset reserves and accrued liabilities, gave rise to the
Company's deferred tax asset in the accompanying September 30, 2008 and March
31, 2008 consolidated balance sheets. Deferred income taxes are recognized for
the tax consequence of such temporary differences at the enacted tax rate
expected to be in effect when the differences reverse.
Note 10 Stock Options
------- -------------
During the quarter ended September 30, 2008 stock options for 9,000 shares were
exercised for total proceeds of $20,450. For the six months ended September 30,
2008 stock options for 20,000 shares were exercised for total proceeds of
$45,780.
Note 11 Fair Value Measurements
------- -----------------------
On April 1, 2008, the Company adopted SFAS No. 157 "Fair Value Measurements"
("SFAS 157"). SFAS 157 defines fair value, provides a consistent framework for
measuring fair value under Generally Accepted Accounting Principles and expands
fair value financial statement disclosure requirements. SFAS 157's valuation
techniques are based on observable and unobservable inputs. Observable inputs
reflect readily obtainable data from independent sources, while unobservable
inputs reflect our market assumptions. SFAS 157 classifies these inputs into the
following hierarchy:
Level 1 Inputs- Quoted prices for identical instruments in active markets.
Level 2 Inputs- Quoted prices for similar instruments in active markets;
quoted prices for identical or similar instruments in markets that are
not active; and model-derived valuations whose inputs are observable or
whose significant value drivers are observable.
Level 3 Inputs- Instruments with primarily unobservable value drivers.
At September 30, 2008, the Company had no financial assets or liabilities
reported at fair value.
- 8 -
TEL-INSTRUMENT ELECTRONICS CORP.
--------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
----------------------------------------------------------------
(Unaudited)
-----------
Note 12 New Accounting Pronouncements
------- -----------------------------
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Liabilities, including an amendment of FASB Statement No.
115" ("SFAS No. 159"). SFAS No. 159 permits entities to choose, at specified
election dates, to measure many financial instruments and certain other items at
fair value that are not currently required to be measured at fair value.
Unrealized gains and losses shall be reported on items for which the fair value
option has been elected in earnings at each subsequent reporting date. SFAS No.
159 is effective for fiscal years beginning after November 15, 2007. Early
adoption is permitted as of the beginning of a fiscal year that begins on or
before November 15, 2007, provided the entity also elects to apply the
provisions of SFAS No. 157. The adoption of SFAS No. 159 had no impact on the
Company's financial position or results of operations.
In December 2007, the FASB issued SFAC No 141(R), "Business Combinations." This
statement provides new accounting guidance and disclosure requirements for
business combinations. SFAS No 141(R) is effective for business combinations
which occur in the first fiscal year beginning on or after December 15, 2008.
The adoption of SFAS No 141 (R) will not have a material impact on the Company's
financial statements..
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements ("SFAS 160"). SFAS 160 requires all entities
to report noncontrolling interests as equity in the consolidated financial
statements. SFAS 160 is effective for fiscal years, and interim periods within
those fiscal years, beginning on or after December 15, 2008. The Company does
not expect the adoption of this statement will have a significant impact on its
financial position or results of operations.
In December 2007, the FASB finalized the provisions of the Emerging Issues Task
Force (EITF) Issue No. 07-1, "Accounting for Collaborative Arrangements." This
EITF Issue provides guidance and requires financial statement disclosures for
collaborative arrangements. EITF Issue No. 07-1 is in effect for financial
statements issued for fiscal years beginning after December15, 2008. The
adoption of EITF Issue No. 07-1 will not have a material impact on the Company's
financial statements..
In March 2008, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 161, "Disclosures about
Derivative Instruments and Hedging Activities - an amendment of FASB Statement
No. 133" ("SFAS 161"), which modifies and expands the disclosure requirements
for derivative instruments and hedging activities. SFAS 161 requires that
objectives for using derivative instruments be disclosed in terms of underlying
risk and accounting designation and requires quantitative disclosures about fair
value amounts and gains and losses on derivative instruments. It also requires
disclosures about credit-related contingent features in derivative agreements.
SFAS 161 is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, with early application
encouraged. SFAS 161 encourages, but does not require, comparative disclosures
for earlier periods at initial adoption. The adoption of SFAS 161 is not
expected to have a material impact on the Company's financial statements.
- 9 -
TEL-INSTRUMENT ELECTRONICS CORP.
--------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
----------------------------------------------------------------
(Unaudited)
-----------
Note 12 New Accounting Pronouncements (continued)
------- -----------------------------------------
In April 2008, the FASB issued FASB Staff Position ("FSP") Financial Accounting
Standard 142-3, Determination of the Useful Life of Intangible Assets ("FSP FAS
142-3"). FSP FAS 142-3 amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset under SFAS No. 142. In developing assumptions
about renewal or extension, FSP FAS 142-3 requires an entity to consider its own
historical experience (or, if no experience, market participant assumptions)
adjusted for relevant entity-specific factors in paragraph 11 of SFAS No. 142.
FSP FAS 142-3 expands the disclosure requirements of SFAS No. 142 and is
effective for the Company beginning April 1, 2009. The guidance for determining
the useful life of a recognized intangible asset shall be applied prospectively
to intangible assets acquired after the effective date. The disclosure
requirements shall be applied prospectively to all intangible assets recognized
as of, and subsequent to, the effective date. The Company does not expect the
adoption of FSP FAS 142-3 on April 1, 2009 to have a material impact on its
consolidated financial position or results of operations.
Note 13 Discontinued Operations
------- -----------------------
As of March 2008, the Board of Directors approved categorizing the Company's
marine systems division as a discontinued operation. The Company's decision to
discontinue its marine operations was based primarily on the historical losses
sustained and management's intent to focus on its avionics business
The Company wrote-off fixed assets of approximately $77,000 and inventories of
approximately $151,000 in 2008. The Company continues to sell and service these
products while sales options for the division are explored. As a result, all
results for this operation are recorded separately as results from discontinued
operations.
The following tables reflect sales, costs and expenses, and income (loss) from
discontinued operations, net of taxes for the three and six months ended
September 30, 2008 and 2007, respectively.
----------------------------------------------------------- ---------------------- ----------------------
Three Months Three Months
------------ ------------
Ended Ended
----- -----
September 30, 2008 September 30, 2007
------------------ ------------------
----------------------------------------------------------- ---------------------- ----------------------
Discontinued Operations:
----------------------------------------------------------- ---------------------- ----------------------
Sales $105,095 $ 123,555
----------------------------------------------------------- ---------------------- ----------------------
Costs and expenses 30,459 159,956
----------------------------------------------------------- ---------------------- ----------------------
Income (loss) from operations of discontinued operations 74,636 (36,401)
----------------------------------------------------------- ---------------------- ----------------------
Income tax provision (benefit) 29,817 (14,539)
----------------------------------------------------------- ---------------------- ----------------------
Net income (loss) from discontinued operations $ 44,819 $ (21,862)
----------------------------------------------------------- ---------------------- ----------------------
- 10 -
TEL-INSTRUMENT ELECTRONICS CORP.
--------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
----------------------------------------------------------------
(Unaudited)
-----------
Note 13 Discontinued Operations (continued)
------- -----------------------------------
----------------------------------------------------------- ---------------------- ----------------------
Six Months Six Months
Ended Ended
September 30, 2008 September 30, 2007
----------------------------------------------------------- ---------------------- ----------------------
----------------------------------------------------------- ---------------------- ----------------------
Discontinued Operations:
----------------------------------------------------------- ---------------------- ----------------------
Sales $ 186,601 $ 248,868
----------------------------------------------------------- ---------------------- ----------------------
Costs and expenses 74,629 302,892
----------------------------------------------------------- ---------------------- ----------------------
Income (loss) from operations of discontinued operations 111,972 (54,024)
----------------------------------------------------------- ---------------------- ----------------------
Income tax provision (benefit) 44,733 (20,530)
----------------------------------------------------------- ---------------------- ----------------------
Net income (loss) from discontinued operations $ 67,239 $ (33,494)
----------------------------------------------------------- ---------------------- ----------------------
Note 14 Reclassifications
------- -----------------
Certain prior year amounts have been reclassified to conform to the current year
presentation, relating primarily to discontinued operations.
- 11 -
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
------- -------------------------------------------
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
---------------------------------------------
A number of the statements made by the Company in this report may be regarded as
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995.
Forward-looking statements include, among others, statements concerning the
Company's outlook, pricing trends and forces within the industry, the completion
dates of capital projects, expected sales growth, cost reduction strategies and
their results, long-term goals of the Company and other statements of
expectations, beliefs, future plans and strategies, anticipated events or trends
and similar expressions concerning matters that are not historical facts.
All predictions as to future results contain a measure of uncertainty and
accordingly, actual results could differ materially. Among the factors that
could cause a difference are: changes in the general economy; changes in demand
for the Company's products or in the cost and availability of its raw materials;
the actions of its competitors; the success of our customers; technological
change; changes in employee relations; government regulations; litigation,
including its inherent uncertainty; difficulties in plant operations and
materials; transportation, environmental matters; and other unforeseen
circumstances. A number of these factors are discussed in the Company's filings
with the Securities and Exchange Commission.
Critical Accounting Policies
----------------------------
In preparing our financial statements and accounting for the underlying
transactions and balances, we apply our accounting policies as disclosed in Note
2 of our Notes to Financial Statements included in our Form 10-K for the fiscal
year ended March 31, 2008. The Company's accounting policies that require a
higher degree of judgment and complexity used in the preparation of financial
statements include:
Revenue recognition - revenues are recognized at the time of shipment to, or
acceptance by customer, provided title and risk of loss are transferred to the
customer. Provisions, when appropriate, are made where the right to return
exists.
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.
Due to the unique nature of the ITATS program wherein a significant portion of
this contract will not be delivered for over a year, revenues under this
contract are recognized on a percentage-of-completion basis, which recognizes
sales and profit as they are earned, rather than at the time of shipment.
Revenues and profits are estimated using the cost-to-cost method of accounting
where revenues are recognized and profits recorded based upon the ratio of costs
incurred to date to our estimate of total costs at completion. The ratio of
costs incurred to our estimate of total costs at completion is applied to the
contract value to determine the revenues and profits. When adjustments in
estimated contract revenues or estimated costs at completion are required, any
changes from prior estimates are recognized by recording adjustments in the
current period for the inception-to-date effect of the changes on current and
prior periods. The Company also receives progress billings on this program,
which is a funding mechanism by the government to assist contractors on
long-term contracts prior to delivery.
Shipping and handling costs charged to customers are classified as revenue, and
the shipping and handling costs incurred are included in cost of goods sold.
Payments received prior to the delivery of units or services performed are
recorded as deferred revenues.
- 12 -
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
------- -------------------------------------------
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued)
---------------------------------------------------------
Critical Accounting Policies (continued)
----------------------------------------
Inventory reserves - inventory reserves or write-downs (primarily for purchased
parts) 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. While reserves have historically
been within expectation, if market conditions and actual demands are less
favorable than those projected by management, additional reserves or inventory
write-downs may be required.
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 of and payments from its customers and
maintains a 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 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 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.
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 taxable 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 will be in effect when such differences are expected to reverse. The
measurement of deferred tax assets is reduced, if necessary, by a valuation
allowance for any tax benefit which is not more likely than not to be realized.
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.
- 13 -
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
------- -------------------------------------------
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued)
---------------------------------------------------------
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 in the Company's Annual Report on
Form 10-K for the year ended March 31, 2008.
The Company's avionics business is conducted in the Government, Commercial and
General aviation markets (see Note 8 of Notes to Financial Statements for
segment financial information). In January 2004, the Company completed its
acquisition of ITI, a company selling products to the marine industry, and ITI's
financial statements were consolidated with the Company's financial statements
until the Company considered it a discontinued operation as of March 31, 2008
(see Note 13 to Financial Statements).
Results of Operations
---------------------
Overview
--------
Tel's improving financial results and condition accelerated in the September 30,
2008 quarter, with quarterly revenues, profits and working capital improving
over last year's comparable quarter as well as improving over the first quarter
of the current fiscal year.
Revenues from continuing operations increased 36% to $3.9 million in the current
fiscal quarter ended September 30, 2008 and pretax profits also increased
$650,000 as compared to a small loss for the same period in the prior fiscal
year. Revenues and pretax profits for the current quarter also increased
significantly over the first quarter of the current fiscal year.
Net income for the period increased as a result of: (1) an increase in product
shipments; (2) a negotiated billing to the government in the amount of $406,000
for additional work previously performed and expensed on the Craft program; (3)
increased billings for revenues associated with the test and documentation phase
of the Craft program; and (4) higher net income from its marine systems division
whose operations, including costs for marketing and engineering, were
discontinued as of March 31, 2008. For the six months ended September 30, 2008,
net sales from continuing operations increased approximately 28% to $7.4
million, and the Company reported a net income of $433,662, as compared to a net
loss of $106,491 for the six months ended September 30, 2007.
Working capital, cash and shareholder equity have also improved in the current
fiscal quarter ended September 30, 2008, over the comparable quarter last year.
Despite an uncertain economic situation, which is adversely affecting the
Company's commercial sales, the Company anticipates a profitable result for
fiscal year 2009 primarily due to a strong increase and projected increases in
military sales of its legacy products, and the recent commencement of deliveries
of the AN/USM-719 test set.
- 14 -
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
------- -------------------------------------------
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued)
---------------------------------------------------------
Results of Operations (continued)
---------------------------------
Overview (continued)
--------------------
TIC was previously awarded the US Navy AN/USM-708 (CRAFT) contract for a
multi-functional flight-line test set. This unit combines the function of five
different test sets into one and is the only Mode 5 IFF ("Identification,
Friend, or Foe") flight-line test unit now under government contract. The Navy
subsequently amended the contract to provide for an IFF only variant called the
AN/USM-719 and increased the total IDIQ (Indefinite Quantity - Indefinite
Delivery) order quantity from 750 to 1,200 units. These IDIQ options for the
AN/USM-708 and 719 units, if exercised, would add about $23 million to the
Company's backlog and projected revenues. To date, the Company has received a
delivery order for 83 AN/USM-719 units and has shipped 23 units. The AN/USM-708
engineering hardware design has been largely completed and the fabrication of 15
pilot production units is expected to take place in early calendar year 2009.
These units are currently scheduled to undergo design validation testing and
Navy TECHEVAL next summer with production currently scheduled to begin late in
the 2009 calendar year. Given the unique nature of the design, this unit could
also generate significant sales to other military customers, both domestically
and overseas.
In July 2006 the Company was awarded a second major U.S. Navy contract for an
Intermediate Level TACAN Test Set AN/APM-206 (ITATS). This contract has options
for up to 180 units with a total value of over $12 million; the initial work
authorization was $4.4 million. The Company has been working with an engineering
sub-contractor on this project and this program will entail substantially less
of the Company's engineering effort than the AN/USM-708. These units are now
beginning environmental testing with Navy TECHEVAL expected to begin later this
fiscal year. Given the unique nature of the design, this unit could also
generate significant sales to other military customers, both domestically and
overseas.
As revenues have increased this year, cash and working capital have improved
from March 31, 2008. The Company's bank loan has been extended until September
2009, and the Company believes that it has adequate liquidity, borrowing
resources and backlog to fund operating plans for the next 12 months, and until
substantial deliveries of its new units commence.
Net Sales
---------
Total net sales increased $1,010,429 (35.5%) to $3,855,121 and $1,606,665
(27.7%) to $7,407,096, respectively, for the three and six months ended
September 30, 2008 as compared to the same periods in the prior fiscal year.
Avionics government sales increased $1,372,022 (69.1%) to $3,356,533 and
$2,272,311 (56.2%) to $6,317,129, respectively, for the three and six months
ended September 30, 2008 as compared to the same periods in the prior fiscal
year. The increase in avionics government sales for the quarter ended September
30, 2008 is primarily attributed to: increased shipments of the T-47N and T-30D
as a result of two large contracts from the U.S. Army, a negotiated billing to
the government in the amount of $406,000 for additional work previously
performed and expensed on the CRAFT program:, increased billings for revenues
associated with the test and documentation phase of the CRAFT program, and
shipments of the AN/APM-719 (Craft variant) as well as increases in other legacy
products. These increases were partially offset by lower shipments of the
T-30CM andAN/APM-480 and lower revenues associated with the ITATS program. For
the six months ended September 30, 2008 Avionics government sales increased
primarily to: increased shipments of the T-30D as a result of a large contract
from the U.S. Army, a negotiated billing to the government in the amount of
$406,000 for additional work previously performed and expensed on the CRAFT
program:, increased billings for revenues associated with the test and
- 15 -
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
------- -------------------------------------------
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued)
---------------------------------------------------------
Results of Operations (continued)
---------------------------------
Net Sales (continued)
---------------------
documentation phase of the CRAFT program, the shipment of T-47G test sets to the
Canadian Air Force (through our distributor in Canada) and shipments of the
AN/APM-719 (Craft variant) and the Company's new TR-420 as well as increases in
other legacy products. These increases were partially offset by lower shipments
of the T-30CM andAN/APM-480 and lower revenues associated with the ITATS
program.
Avionics commercial sales decreased $361,573 (42%) to $498,588 and $665,646
(37.9%) to $1,089,967, respectively, for the same periods. This decrease is
mostly attributed to decreases in sales of the TR-220 Multi-Function Test set
and the T-36C, as a result of the continued weak financial condition of the
commercial airline industry.
Gross Margin
------------
Gross margin dollars increased $906,277 (73.4%) to $2,139,487 and $1,181,905
(48.3%) to $3,628,416 for the three and six months ended September 30, 2008,
respectively, as compared to the same period in the prior fiscal year. The
increase in gross margin is attributed to the increase in volume and higher
gross profit percentage. The increase in gross profit dollars and percentage is
also attributed to a negotiated billing to the government in the amount of
$406,000 for additional work previously performed and expensed on the CRAFT
program and higher profitability on the revenues associated with the test and
documentation phase of the CRAFT program. The gross margin percentage for the
three months ended September 30, 2008 was 55.5% as compared to 43.4% for the
three months ended September 30, 2007. The gross margin percentage for the six
months ended September 30, 2008 was 49.0% as compared to 42.2% for the six
months ended September 30, 2007.
Operating Expenses
------------------
Selling, general and administrative expenses increased $150,296 (24.5%) to
$763,784 and $302,667 (25.9%) to $1,472,142 for the three months and six months
ended September 30, 2008, respectively, as compared to the three and six months
ended September 30, 2007. This increase is attributed mainly to an increase in
outside commissions, higher compensation and bonus accrual expense, and higher
marketing and sales expenses associated with an increase in customer support
services
Engineering, research and development expenses increased $96,316 (15.6%) to
$713,853 and $58,270 (4.2%) to $1,449,004 for the three and six months ended
September 30, 2008, respectively, as compared to the same periods in the prior
fiscal year. Engineering, research and development expenses are mostly
attributed to efforts related to the CRAFT program.
Interest, net
-------------
Interest income decreased as a result of lower average cash balances. Interest
expense increased as a result of the increased borrowings associated with the
line of credit and the loan against the cash surrender value of the keyman life
insurance policy.
- 16 -
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
------- -------------------------------------------
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued)
---------------------------------------------------------
Results of Operations (continued)
---------------------------------
Income (Loss) from Continuing Operations before Income Taxes
------------------------------------------------------------
As a result of the above, the Company recorded income from continuing operations
before income taxes of $650,197 and $684,488 for the three and six months ended
September 30, 2008, respectively, as compared to losses from continuing
operations before income taxes of $2,090 and $123,307 for the three and six
months ended September 30, 2007, respectively.
Income Taxes
------------
An income tax provision in the amount of $304,365 was recorded for the three
months ended September 30, 2008 as compared to an income tax benefit of $835 for
the three months ended September 30, 2007. An income tax provision in the amount
of $318,065 was recorded for the six months ended September 30, 2008 as compared
to an income tax benefit of $50,310 for the six months ended September 30, 2007.
The change is due to the income before taxes for the three and six months ended
September 30, 2008 as compared to a loss before taxes for the three and six
months ended September 30, 2007. These amounts represent the effective federal
and state tax rate of approximately 40% on the Company's net loss before taxes.
Net Income (Loss) from Continuing Operations, Net of Taxes
----------------------------------------------------------
As a result of the above, the Company recorded net income from continuing
operations, net of taxes of $345,832 and $366,423 for the three and six months
ended September 30, 2008, respectively, as compared to net losses from
continuing operations, net of taxes of $1,255 and $72,997 for the three and six
months ended September 30, 2007, respectively.
Income (Loss) from Discontinued Operations, Net of taxes
------------------ -------------------------------------
For the three and six months ended September 30, 2008, the Company recorded
income from discontinued operations, net of taxes, of $44,819 and $67,239,
respectively, as compared to losses from discontinued operations, net of taxes,
of $21,862 and $33,494 for the three and six months ended September 30, 2007,
primarily as a result of the reclassification of certain allocated fixed costs
to continuing operations and sales of products that were written-off in 2008,
and the termination of marketing and engineering expenses
Net Income (Loss)
-----------------
As a result of the above, the Company recorded net income of $390,651 and
$433,662 for the three and six months ended September 30, 2008, respectively, as
compared to net losses of $23,117 and $106,491 for the three and six months
ended September 30, 2007.
- 17 -
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
------- -------------------------------------------
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued)
---------------------------------------------------------
Liquidity and Capital Resources
-------------------------------
At September 30, 2008, the Company had working capital of $3,316,829 as compared
to $2,681,511 at March 31, 2008. For the six months ended September 30, 2008,
the Company used $146,861 in cash from operations as compared to using $810,115
of cash in operations the six months ended September 30, 2007. This improvement
in cash from operations is primarily attributed to the increase in income for
the period as well as the change in unbilled government receivables.
Net cash used in investing activities increased to $57,730 for the six months
ended September 30, 2008 from $39,586 for the six months ended September 30,
2007 due to the increase in purchases of equipment.
Net cash provided by financing activities decreased to $213,358 for the six
months ended September 30, 2008 from $437,600 for the six months ended September
30, 2007 due to the lower borrowings from the line of credit offset partially by
an decrease in proceeds from the exercise of stock options and a loan against
the cash value of a life insurance policy
At September 30, 2008 the Company had an outstanding loan balance of $450,000 on
which it currently pays 5.5% interest. The line of credit is collateralized by
substantially all of the assets of the Company. The credit agreement expired
September 30, 2008, and the agreement includes a borrowing base calculation tied
to working capital. The Company has received an extension to September 30, 2009.
As of September 30, 2008, remaining availability under this modified line was
approximately $229,000 based upon defined eligible receivables and inventories
at September 30, 2008. The Company's cash balance was $478,673 at September 30,
2008 as compared to $469,906 at March 31, 2008.
As a consequence of the increase in sales and profitability, the Company has
improved its financial position. The Company believes that it has adequate
liquidity, borrowing resources and backlog to fund operating plans for the next
12 months, and until deliveries of its new units commence.
There was no significant impact on the Company's operations as a result of
inflation for the six months ended September 30, 2008. These financial
statements should be read in conjunction with the Company's Annual Report on
Form 10-K to the Securities and Exchange Commission for the fiscal year ended
March 31, 2008.
- 18 -
Item 4 (T). Controls and Procedures
----------- -----------------------
As of the end of the period covered by this report, the Company conducted an
evaluation, under the supervision and with the participation of the principal
executive officer and principal financial officer, of the Company's disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934 (the "Exchange Act")). Based on this evaluation,
the principal executive officer and principal financial officer concluded that
the Company's disclosure controls and procedures are effective to ensure that
information required to be disclosed by the Company in reports that it files or
submits under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission rules
and forms.
There was no change in the Company's internal control over financial reporting
during the Company's most recently completed fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.
Part II. Other Information
-------- -----------------
Item 1. Legal Proceedings
------- -----------------
None.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
------- -----------------------------------------------------------
There were no unregistered sales of equity securities and there were no
repurchases of equity securities during the Company's for six months ended
September 30, 2008.
Item 6. Exhibits
------- --------
Exhibits
31.1 Certification by CEO pursuant to Rule 15d-14 under the
Securities Exchange Act.
31.2 Certification by CFO pursuant to Rule 15d-14 under the
Securities Exchange Act.
32.1 Certification by CEO and CFO pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TEL-INSTRUMENT ELECTRONICS CORP.
Date: November 13, 2008 By: /s/ Harold K. Fletcher
--------------------------------
Harold K. Fletcher
CEO
Date: November 13, 2008 By: /s/ Joseph P. Macaluso
Joseph P. Macaluso
Principal Accounting Officer
- 19 -