Tel-Instrument Electronics Reports Second Quarter 2021 Results and Receipt of $1.1 Million Mode 5 Test Set Order

Tel-Instrument Electronics Corp. (“Tel”, “TIC” or the “Company”) (OTCQB: TIKK), a leading designer and manufacturer of avionics test and measurement solutions, today reported net income of $222,748 on revenues of $3,336,396 for the second quarter of fiscal year 2021 ending September 30, 2020. The Company also announced the receipt of a $1.1 million follow-on order for Mode 5 test sets from a major U.S. defense supplier related to the F-35 Joint Strike Fighter program.

Highlights include:

  • Revenues decreased 15% from the year-ago quarter, primarily as a result of a decrease in our commercial business.
  • Gross margins for the quarter were 41% as compared to 48% for the same quarter last year mainly due to the competitive pricing on two major international contracts win. We expect margins to improve once these shipments are completed.
  • SGA expenses declined 26% mostly due to lower commission, accrued profit sharing and marketing consulting expenses.
  • Engineering expenses decreased 5% as a result of time spent on a funded engineering program.
  • Income from operations was $341,945 as compared to $631,178 for the same quarter last year.
  • Basic earnings per share of $0.04 as compared to $0.14 for the same quarter last year.
  • Backlog increased to $5.1 million at September 30, 2020 as compared to $4.0 million at March 31, 2020
  • Working capital increased $814,000 to $2.6 million at September 30, 2020 from $1.8 million at March 31, 2020
  • Stockholders’ equity increased to over $5 million.

Mr. Jeffrey O’Hara, Tel-Instrument’s President and CEO commented “We continue to be profitable with our second quarter income before taxes approximately double that of our first quarter, despite the impact of COVID-19 on our supply chain and labor force. The pandemic has resulted in a significant reduction in our commercial test set bookings and has delayed some orders from our domestic and international military customers. With the resurgence of the COVID-19 virus across the country, managing our supply chain and manufacturing operations will remain a challenge for the remainder of this fiscal year.

We continue to seek new opportunities, and our core Mode 5 business remains strong, representing 75% of total sales for the quarter. We recently received a $1.1 million Mode 5 follow-on test set order from a major U.S. Prime this week which will be shipped in the fourth quarter, and we have submitted quotes to the U.S. military for other Mode 5 and legacy test sets that we expect to secure in the next few months. Our $956K contract from Lockheed Martin to support the F-35 Joint Strike Fighter is proceeding on schedule with the Preliminary Design Review scheduled for next week. This is a competitively bid development contract to design a “go-no-go” test set for the F-35 advanced communication systems. The system will involve much higher frequency levels than what TIC has worked with in the past and is a testament to our engineering team who came up with a winning design concept. The contract includes eight engineering qualification test sets with an option for 50 additional production test sets upon the completion of the 12 month development program.

Our balance sheet and financial position continues to strengthen and we are well positioned to discharge the Aeroflex damage award in the event that we are unsuccessful with our pending legal appeal. The Company also received a $722,577 government loan from the Payroll Protection Program in May 2020. The Company applied for 100% forgiveness of this loan in November 2020, and we believe we meet the requirements for this to be granted. The loan has allowed us to continue development work on the SDR/OMNI test set despite the uncertain outlook for commercial aviation market.

Given the sharp decline in the commercial market, the Company is increasing its engineering focus on military communication applications. We have upgraded the design of our 4.5-pound SDR/OMNI hand-held test set to include a much faster processor with improved video graphics processing capability. This change will allow us the technological capability to compete in much larger markets where we have previously not had any presence. Our goal is to introduce a military communications test set in the first half of 2021 while still working to introduce a commercial avionics test set in the same timeframe.

In summary, the Company has never been in a stronger position with orders for Mode 5 and legacy test sets continuing and the Company aggressively expanding into related high-growth areas such as specialty engineering for Lockheed Martin and the military communications test set market. On a final note, we wish the best for Joe Macaluso, our Chief Accounting Officer, who announced his departure from the Company earlier this week. Joe has done a fantastic job at TIC and will be missed. Mr. O’Hara will assume Joe’s responsibilities until a replacement is named.”

About Tel-Instrument Electronics Corp.

Tel-Instrument 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. Tel-Instrument provides instruments to test, measure, calibrate, and repair a wide range of airborne navigation and communication equipment. For further information please visit our website at www.telinstrument.com.

This press release includes statements that are not historical in nature and may be characterized as “forward-looking statements,” including those related to future financial and operating results, benefits, and synergies of the combined companies, 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 which could cause a difference are: changes in the general economy; changes in demand for the Company’s products or in the cost and availability of its raw materials; the actions of its competitors; the success of our customers; technological change; changes in employee relations; government regulations; litigation, including its inherent uncertainty; difficulties in plant operations and materials; transportation, environmental matters; and other unforeseen circumstances. A number of these factors are discussed in the Company’s previous filings with the U.S. Securities and Exchange Commission. The Company disclaims any intention or obligation to update any forward-looking statements as a result of developments occurring after the date of this press release. The safe harbor for forward-looking statements contained in the Securities Litigation Reform Act of 1995 (the “Act”) protects companies from liability for their forward-looking statements if they comply with the requirements of the Act.

 
TEL-INSTRUMENT ELECTRONICS CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
 
  September 30,2020  March 31,2020 
  (unaudited)     
ASSETS        
         
Current assets:        
Cash $3,453,098  $3,126,195 
Accounts receivable, net  1,952,406   1,411,644 
Inventories, net  3,048,897   3,092,679 
Restricted cash to support appeal bond  2,010,454   2,008,544 
Prepaid expenses and other current assets  404,474   382,428 
Total current assets  10,869,329   10,021,490 
         
Equipment and leasehold improvements, net  222,221   263,750 
Operating lease right-of-use assets  201,017   306,740 
Deferred tax asset, net  2,591,685   2,712,780 
Other long-term assets  35,109   35,109 
Total assets $13,919,361  $13,339,869 
         
LIABILITIES & STOCKHOLDERS’ EQUITY        
         
Current liabilities:        
Line of credit $680,000  $680,000 
SBA PPP loan – current portion  416,940    
Operating lease liabilities – current portion  201,017   214,793 
Accounts payable and accrued liabilities  577,531   1,035,023 
Deferred revenues – current portion  134,593   145,168 
Accrued legal damages  5,785,183   5,657,549 
Finance lease obligations – current portion     49 
Accrued payroll, vacation pay and payroll taxes  483,723   512,732 
Total current liabilities  8,278,987   8,245,314 
         
Operating lease liabilities – long-term     91,947 
Deferred revenues – long-term  314,981   327,132 
SBA PPP loan – long term  305,637    
         
Total liabilities  8,899,605   8,664,393 
         
Commitments and contingencies        
         
Stockholders’ equity:        
Preferred stock, 1,000,000 shares authorized, par value $0.10 per share        
Preferred stock, 500,000 shares 8% Cumulative Series A Convertible Preferredissued and outstanding, par value $0.10 per share  3,635,998   3,515,998 
Preferred stock, 166,667 shares 8% Cumulative Series B Convertible Preferredissued and outstanding, par value $0.10 per share  1,127,367   1,087,367 
Common stock, 7,000,000 shares authorized, par value $0.10 per share,3,255,887 shares issued and outstanding, respectively  325,586   325,586 
Additional paid-in capital  7,467,176   7,616,624 
Accumulated deficit  (7,536,371)  (7,870,099)
Total stockholders’ equity  5,019,756   4,675,476 
Total liabilities and stockholders’ equity $13,919,361  $13,339,869 
 
TEL-INSTRUMENT ELECTRONICS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
  Three Months Ended  Six Months Ended 
  September 30,2020  September 30,2019  September 30,2020  September 30,2019 
                 
Net sales $3,336,396  $3,912,168  $6,275,833  $7,218,630 
Cost of sales  1,969,573   2,038,535   3,404,399   3,763,393 
                 
Gross margin  1,366,823   1,873,633   2,871,434   3,455,237 
                 
Operating expenses:                
Selling, general and administrative  464,809   625,163   1,126,060   1,237,634 
Litigation expenses  5,514   91,553   8,210   102,060 
Engineering, research and development  554,555   525,739   1,186,508   1,050,842 
Total operating expenses  1,024,878   1,242,455   2,320,778   2,390,536 
                 
Income from operations  341,945   631,178   550,656   1,064,701 
                 
Other income (expense):                
Interest income  1,879   1,018   4,725   2,018 
Other income        13,854    
Change in fair value of common stock warrants     5,500      (73,000)
Interest expense – judgement  (52,490)  (90,596)  (127,634)  (171,106)
Interest expense  (9,380)  (10,866)  (19,160)  (28,603)
Total other expense, net  (59,991)  (94,944)  (128,215)  (270,691)
                 
Income before income taxes  281,954   536,234   422,441   794,010 
                 
Income tax expense  59,206      88,713    
                 
Net income  222,748   536,234   333,728   794,010 
                 
Preferred dividends  80,000   80,000   160,000   160,000 
                 
Net income attributable to common shareholders $142,748  $456,234  $173,728  $634,010 
                 
Basic income per common share $0.04  $0.14  $0.05  $0.19 
Diluted income per common share $0.04  $0.11  $0.05  $0.16 
                 
Weighted average shares outstanding:                
Basic  3,255,887   3,255,887   3,255,887   3,255,887 
Diluted  5,068,949   4,945,665   3,255,887   4,945,665 

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